The ongoing economic slowdown dragged toll collection in the BOT portfolio by 2% y-o-y. Incremental order-wins, ramp-up in execution, and conclusion of the BOT stake sale process is key to stock performance in our view.
Sadbhav Engineering (SEL) posted a contraction of 18% y-o-y in top line and 32% y-o-y in PAT in Q2FY20 as land availability issues again derailed execution. These issues now seem to be getting resolved and, hence, execution should gather steam ahead. The ongoing economic slowdown dragged toll collection in the BOT portfolio by 2% y-o-y. Incremental order-wins, ramp-up in execution, and conclusion of the BOT stake sale process is key to stock performance in our view.
We are raising FY20/21e earnings by 7%/17% factoring in the lower tax rate, but cutting the PE from 12x to 10x as road order awards are likely to remain slow.
Maintain Buy with a revised SoTP-based TP of Rs 187 (Rs 185 earlier).
Land acquisition issues haunt: Top line decreased 18% y-o-y as: (i) work had not commenced on three HAM projects worth Rs 26 bn; and (ii) rains impacted work on the Mumbai-Nagpur Expressway and Lucknow Ring Road projects. While Ebitda margin inched up 20bps y-o-y, a higher tax rate dented PAT 32% y-o-y. Work has now begun on the Kim Ankleshwar project while two more HAM projects are expected to receive appointed date (AD) in Q3FY20/Q4FY20.
Muted toll performance: Toll revenue edged down 2% y-o-y, largely driven by lower revenues on the Rohtak-Panipat (RPTPL) and Maharashtra Border Check Post (MBCPNL) projects. On the other hand, the Aurangabad-Jalna, Rajsamand-Bhilwara and Rohtak-Hisar projects recorded strong y-o-y growth. Management expects asset monetisation to be completed in December2019.
Outlook: Attractive – While there are concerns regarding near-term revenue visibility and growth, we believe they are factored in the current stock price. New project-wins will be a key trigger in our view.