We met the management of Sadbhav Engineering and discussed the company’s asset monetisation plans and improvement in its order book. Also, the company’s working capital cycle has normalised. Sadbhav Infrastructure Project Limited (SIPL) is well on track to partially monetise its operational road portfolio. Out of 12 operational projects, it expects to monetise nine projects where its total investment stands at `15b.
SIPL has already entered into an exclusivity contract with potential buyers; due diligence with regards to traffic, financial and legal is nearing completion. SIPL will offload 85% stake in these nine projects, retaining 15% stake and the O&M contracts for the same. Cash flow received from monetisation of these assets will be utilised to (a) fund equity requirement of under-construction HAM projects (`10-bn equity infusion required), and (b) repay Rs 4.5-bn loans of Sadbhav Engineering (SADE). SIPL also intends to monetise 12 HAM projects on completion of construction; contractual agreement with the buyer will include right of first offer.
SADE expects road project execution to pick up as its executable order backlog is now robust. The company has an order book of `100 bn in the road sector with executable order backlog at `600 bn. The balance `400 bn is expected to get execution-ready by end-Q1FY20, when land becomes available for these projects.
SADE expects revenue booking of `50 bn in FY20E as the entire road EPC order book comes under execution.
Lending norms have tightened with regards to (a) upfront equity commitment of 50% from developers, and (b) lending to projects after 30% physical progress. In this backdrop, SADE intends to focus on EPC projects in the near- to medium-term to scale up the order book with minimum equity commitment. Given the strong order backlog, which provides visibility of 3.6x its FY18 revenue, the focus is now to selectively bid for projects with better margins.
