Sadbhav’s (SEL) Q2FY15 revenue growth was strong but margin was flat. Order inflow at R690 crore was down 31% YoY; PAT was down 64% YoY despite strong growth in PBT of 107% due to increased tax expense; working capital deteriorated to 49% of revenue as receivable days increased by 70 days.
Management expects revenue growth of 20-27% in H2 and margin improvement to 11% based on current backlog and reduction in commodity prices.
Working capital would improve as SEL has started executing and receiving payments for the projects which it had taken over from its JV partners. However, change in norm by NHAI to payment on minimum 5% construction would increase working capital requirement.
There are 38 NHAI road projects in the tendering stage where SEL is qualified.BOT projects worth R300 bn would be ordered by NHAI over next 3-4 quarters and SEL plans to book R1,000-1,500 crore of these projects. Management expects strong growth in urban infrastructure with large opportunity in railways, mainly for civil work which is similar to roads sector.
Traffic growth in road assets has bottomed and started picking up with average 12% growth in Q2. Hence, SEL has been consolidating its stakes in SPVs. SIPL has an equity requirement of R200 crore for buying stake in SPV’s and equity for existing projects.
Maintain buy with target price of R310.
By Axis Capital