Sadbhav reported better than expected execution in Q3FY17, leading to beatin of expectations on EBITDA and profits. Roads EPC along with HAM projects will drive revenues going forward. Demonetisation’s impact on traffic is starting to normalise in January-February 2017, although working capital has deteriorated a bit. Award of pipelines remains healthy, though the full-year awards by the ministry and NHAI will be much lower than targets. Maintain buy with TP of R330.
Sadbhav’s road segment execution (for EPC projects won in FY16) has been quite strong in Q3FY17 with apparently no impact of demonetisation. This led to the top line coming in 19% ahead of estimates. On the mining side, issues continue with Bharat Coking Coal. MDO contracts that have been discussed for a while now still remain elusive. In irrigation, order flows have been weak and the management is focussing on closing small orders by FY18.
Sadbhav expects to meet its R35-billion revenue guidance for FY17, which implies that Q4FY17 should see the execution of R12 billion, which is a steep 40%+ y-o-y growth. The management also guided for a 10% revenue growth in FY18 with margin maintenance/improvement.
Hybrid-annuity (HAM) projects would start gaining pace from Q1FY18 since Sadbhav has already achieved financial closure for four projects and appointed dates for two of them.