Sadbhav Engineering’s slow growth in last two years was primarily due to stuck projects in irrigation and payment issues in mining; the issues are now nearing resolution. SEL expects FY18 revenue to grow 14-17% y-o-y to Rs 3,800 crore- Rs 3,900 crore with Rs 1,300-Rs 1,500 crore from 7 HAM projects. Road EPC order backlog worth Rs 1,700 crore should be executed in FY18. Mining and Irrigation combined together should contribute Rs 750 crore-Rs 800 crore. SEL is targeting order inflow of Rs 600-Rs 700 crore in FY18 with 80-85% from road projects (equal share of EPC and HAM). Sadbhav has adequate capacity and equipment for concrete as well as bitumen roads and would require capex of only Rs 50 crore million each in FY18, FY19. Due to health issues, Vishnubhai Patel (Promoter and MD) has now taken a back seat. His son, Shashin Patel has now taken over as MD of SEL. Vasistha Patel, son-in-law of Vishnubhai, is MD of SIPL and heads northern region, SEL. Vikram Patel and Vipul Patel, son-in-laws of Vishnubhai, head western and southern regions, SEL.
Low growth in last 2 years due to stuck legacy project. Sadbhav has learned from these mistakes and will not go for JV in future contracts and also not do back to back subcontracting of work. SEL had taken irrigation projects in JV with GK Infra, which is facing financial issues and is undergoing CDR. Hence Sadbhav had to take over the execution of these projects and consequently working capital requirement too shot up.
Management expects that these irrigation projects should be completed by FY19. Sadbhav has issued a foreclosure notice to BCCL for Katras Area project – order book of Rs 175 crore. This is due to requirement to replace the tire mounted equipment with chain-mounted equipment, and issues related to service tax. Awaiting final clearance from paneled consultant, which is expected in the next 1-2 months.