Sadbhav Engineering’s (SEL) Q2FY17 revenues, at R6.2 billion, declined 17% y-o-y due to heavy monsoons/project specific issues. Interest cost spurted 33% y-o-y as revenue recognition threshold on certain projects was not achieved. Thus, PAT fell 53% y-o-y to R185 million.
We are conservatively building in lower pace of execution, leading to 4% earnings cut for FY17/18E each. However, start of work on hybrid annuity projects and improving cash flows will help SEL deliver better performance going ahead. Maintain buy with a revised SoTP-based target price of R416 (R433 earlier).
Revenue, at R6.2 billion, declined 17% y-o-y due to heavy rains and the Kaveri issue in Karnataka projects. Working capital levels jumped as R4.6 billion revenues could not be booked with revenue recognition threshold not being achieved.
Traffic growth in SEL’s toll projects moderated to 0-4% y-o-y. The company has achieved financial closure (FC) in 4 HAM projects. Management expects loss in toll revenues hampered by stoppage post demonetisation to be compensated by NHAI in few weeks.
We believe pick up in execution in the EPC arm is imminent, which along with strong cash flow generation in BOT subsidiary will drive re-rating of the stock. We maintain buy with SoTP-based target price of R416 (R189 from EPC at 15x FY18E P/E and balance from DCF valuation of BOT projects).