Analyst Corner: Maintain ‘buy’ on Sadbhav; revised target price of Rs 162

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Published: August 23, 2019 3:05:47 AM

Expect FY20 to also remain flat with 5% topline growth on execution, liquidity challenges and delays in ADs for mainly three HAMs project (pushed to Q4 against Q2 earlier). To aid liquidity for underconstruction HAM projects, SADE has further infused capital in SIPL — outstanding dues atRs 630 crore against Rs 530 crore in Q4.

HAM project, Sadbhav, SADE, CAGR, market news, InVIT, SIPL, market newsSadbhav’s revenue posted a 4% CAGR over FY16-19; Ebitda margin maintained at 11.5-12% range.

Tepid execution, delay in appointed dates for HAM projects, rise in working capital, higher tax led to Q1 PAT miss of 30% to Rs 39.5 crore. Pain remains; valuations at 7x signal negatives are priced in: SADE corrected ~55% post its asset sale deal announcement. SADE/SIPL to aid from de-leveraging, but lower upfront cash for stake in InVIT was unanticipated. Other concerns on promoter share pledge (40% of the holding), loan default by SPV, muted order wins added to the negative stream of events. While the current order book of Rs 10,800 crore lends visibility for 2.5 years, we expect execution to remain challenging in FY20 given issues with projects, delays in ADs for HAM, lower disbursals by banks. The management, too, reduced its FY20 revenue guidance by 14%. Valuations at 7x PE on FY20 offer limited downside; and proceeds of asset sale can help garner growth; maintain ‘buy’.

Sadbhav’s revenue posted a 4% CAGR over FY16-19; Ebitda margin maintained at 11.5-12% range. Expect FY20 to also remain flat with 5% topline growth on execution, liquidity challenges and delays in ADs for mainly three HAMs project (pushed to Q4 against Q2 earlier). To aid liquidity for underconstruction HAM projects, SADE has further infused capital in SIPL — outstanding dues atRs 630 crore against Rs 530 crore in Q4.

Citing synergies of operating efficiencies through consolidation with SIPL, SADE aims to remain asset light under one roof (timelines awaited). We cut our FY20-21 EPS by 21-25% to factor in slower execution on delays in ADs and higher interest rate (on working capital rise). Cut our P/E multiple to 8x (from 12x) on ongoing challenges. Valuations at 7x P/E on FY20 offer limited downside post steep stock price correction; maintain ‘buy’ with a revised target price of Rs 162 (Rs 301 earlier).

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