Buy Sadbhav Engineering; target of Rs 87: Prabhudas Lilladher

Prabhudas Lilladher's research report on Sadbhav Engineering

Sadbhav Engineering (SADE) reported a mixed set of results with better operating performance, however higher effective tax rate dented profitability. During 4QFY20, the company completed transfer of its 8 BOT assets to Ind-infravit Trust and booked a profit of ~Rs170mn on its investment. Further, sale of Ahmedabad Ring Road BOT project at a P/BV of ~2.5x (valuation as per agreement) is to be completed in FY21E. After a month’s halt in construction activities due to nationwide lockdown, operations have now resumed in all project sites with labour force currently at 50-60% pre-covid levels. Company targets construction run-rate of Rs100mn/day with labour force returning to 80-90% levels by Sept'20 end.

Outlook

At CMP, the stock trades at a P/E of 23.7x/8.2x on FY21E/FY22E EPS and is trading at an EV of 8.5x/6x FY21E/FY22E EBITDA. We maintain BUY rating with a revised TP of Rs87 (earlier TP of Rs128).

Sadbhav Engineering 18072020-prabhu

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