Initiate buy on Sadbhav, target Rs 135: Ambit

By: |
October 08, 2015 12:14 AM

Sadbhav Infrastructure’s (SIPL) entire portfolio will start collecting toll in mid-FY17, driving 48%/57% revenue/Ebitda CAGR over FY15-18E.

Sadbhav Infrastructure’s (SIPL) entire portfolio will start collecting toll in mid-FY17,  driving 48%/57% revenue/Ebitda CAGR over FY15-18E.

Our numbers build in a 7-8% traffic growth and 1-3% WPI increase and are still lower than the management’s estimates. While net earnings may remain negative up to FY18, CFO/CE will jump to 13.3% from 5.1%. We expect net debt:equity to reduce to 0.8x in FY18E vs 1.5x in FY15, as it repays the debt in SIPL standalone.

P/B (absolute or relative) is not an effective valuation measure for SIPL, given large asset additions (hence depleted net worth) and no like-to-like peers. Our NPV-based SOTP valuation of SIPL’s assets implies 2.4x historical equity invested but a reasonable 1.4x restated equity  these multiples are highly sensitive to traffic and interest rates (1% change traffic/cost of debt leads to 10%/6% valuation impact).

Post the recent equity raise, minority stake sales and refinancings, the portfolio will be Rs 5.2 billion cash surplus in FY15-18 post meeting equity needs. Few Indian infra developers can display such creditworthiness. Consequently, SIPL has been using this advantage with bankers through refinancings.We have yet not built in the recent RBI rate cuts, but we build in gradual declines. Over the long term, key value-accretive refinancing can be through substitution of bank debt.

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