Toll collections rose 11% y-o-y; outlook is positive; TP raised to Rs 94; ‘Buy’ maintained
Sadbhav Engineering (SEL) posted 26% y-o-y growth in Q3FY21 top line to Rs 5.6 bn as execution normalised post-pandemic. The uptick in Ebitda margin by 80bps y-o-y to 13.2% and a low tax rate lifted reported PAT by 30% y-o-y to Rs 152 mn. Toll collection is robust (up 11% y-o-y); the order book stands at ~Rs 97 bn (book-to-bill of ~6x).
Incremental order wins, ramp-up in execution and reduction in leverage are key to stock performance, in our view. The government’s rising thrust on infra prompts us to jack up SEL’s PE from 4x to 10x. Retain Buy with an SoTP-based TP of Rs 94 (Rs67 earlier) as we roll over the valuation to June 2022e.
Execution recovers; order wins improve revenue visibility: Q3FY21 top line rose 26% y-o-y and 35% q-o-q. Operating leverage lifted Ebitda margin by 80bps y-o-y and 120 bps q-o-q to 13.2%. The company has won three orders in YTDFY21, aggregating Rs 23.5 bn. This has boosted the order book to ~Rs 97 bn; muted execution over the past year means that book-to-bill looks high at 6x. The company is targeting Rs 40–45 bn worth of order-wins in FY21, and Rs 40–50 bn in FY22.
Toll collections rise 11% y-o-y: Toll on the company’s four BOT projects is now higher than pre-Covid levels. On the execution front, the company is currently at Rs 60–70 mn per day run-rate, and is targeting ~Rs 90–100 mn post March 2021. Execution in the mining and irrigation segments has been slow for the past few quarters. While irrigation is expected to remain subdued, execution in mining may improve over the next few quarters.
Outlook: Attractive—We maintain ‘BUY/SN’ with an SoTP-based target price of Rs 94 (Rs 49 from EPC business at 10x PE and the balance from DCF valuation of BOT/HAM projects) as we roll over the valuation to June 2022e.