Sadbhav Engineering (SEL) confirmed it is expecting to sell a chunk of its roads portfolio in its subsidiary Sadbhav Infrastructure Project (SIPL), with sources indicating to FE due diligence with respect to traffic growth is in advanced stages for 12 of its toll road projects. According to sources, the Canadian Pension Plan Investment Board (CPPIB) is among those locked in discussions with SEL.
CPPIB declined to comment, saying they do not remark on market rumour or speculation.
In a recent call with analysts, Nitin Patel, ED & CFO, SEL, confirmed the company is open to parting with a majority stake but said it will retain some of its holding, without giving further details. “The enterprise value is more than `10,000 crore, and the projects are largely constructed by Sadbhav. There are no legal or any other issues with them. We are going to remain in the platform,” Patel said.
SEL will also continue to provide the operations and maintenance after disposing the projects. Sources said SEL is creating a separate platform for the purpose which will also help in further asset monetisation.
While SEL’s debt rose to Rs 1,510 crore at the end of the first half this fiscal, up from Rs 1,400 crore a year ago (partly in order to support its vendors and sub-contractors), the company expects to be able to cut its debt to about Rs 1,250-1,300 crore by the end of this year. While analysts said the rise in debt was “discomfiting”, they expect the company to garner a significant amount of money as mobilsation advances from the government, for about five new projects worth `4,693 crore that are set to start construction in the current quarter. “Any success with the asset monetisation plan would only further aid de-leveraging and afford access to growth capital,” analysts from Anand Rathi said in a recent note. Further, SEL also has pending receivables of `1,200 crore from the National Highways Authority of India (NHAI).
However, Patel cautioned that NHAI, as well as lenders to projects, have begun insisting on the acquisition of at least 80% unencumbered land before signing off the starting date for construction, potentially delaying the start dates for projects. Consequently, he expects an year-on-year revenue growth of about 12% for the full year. Analysts said this pegs revenue at ` 3,900 crore, slightly lower than the previous guidance of `4,100 crore. However, Patel believes the pace of execution will increase in the remaning half of the year, helping revenue growth. SEL won new orders of `11,700 crore over the last year and is expecting to win another `4,000 crore worth of orders by March 2019.
For the first half, SEL reported a 2.61% increase y-o-y in earnings before interest, tax, depreciation and amortisation (ebitda) to `190 crore while ebitda margins expanded 55 basis points to 11.88%. On Monday, the stock closed down 2.39% at `194 on the BSE.
