Du Pont Analysis â ROEs. Yr. ended 31 Mar. (x) FY06 FY07P FY08E FY09E. Net margin (%). 4.3. 6.2. 6.0. 5.8. Asset turno
Batlivala & Karani Sadbhav Engineering
RESULT UPDA T E
Price: Rs 611
Share Data Reuters code
SADE.BO
Bloomberg code
SADE IN
Maintain BUY
BSE Index: 14936
02 August 2007
1QFY08 Results – Race continues with good earnings Sadbhav Engineering (SEL) continues to perform well and reported an increase
Market cap. (US$ mn)
188
in sales of 90% and net profit of 118% in the quarter and stood at Rs 1,796 mn
6m avg. daily turnover (US$ mn)
0.9
and Rs 111 mn, respectively. EBITDA margin for the company also showed
12.5
improvement and stood at 12.2% for the quarter. This is mainly due to the completion of ongoing projects and revenue recognition from the same. On
Issued shares (mn) Performance (%)
1m
3m
12m
Absolute
3
38
111
Relative
1
28
51
Valuation Ratios Yr. ended 31 Mar.
the back of huge order book of Rs 31 bn, SEL is likely to grow at 45% CAGR in revenue over FY07-09E and 43% CAGR in profits. At the current market price of Rs 611, the stock is trading at 13x FY08E and 9x FY09E (Ex-BOT) earnings. We maintain Buy.
FY08E
FY09E
EPS (Rs.)
35.6
48.1
PER (x)
17.2
12.7
Dividend/Yield (%)
0.3
0.3
EV/Sales (x)
1.1
0.8
EV/EBITDA (x)
9.8
7.4
Highlights •
Road still remains the main contributory towards revenue and contributed around 72% for the quarter. Irrigation and mining sector contributed 20% and 8%, respectively, towards revenue.
•
The company has raised Rs 920 mn through QIP of 1.6 mn equity shares at Rs 575 per share. The proceeds of which will be used for investment in BOT projects viz. AurangabadJalna Tollway and Nagpur-Seoni Expressway and for working capital requirements.
Major shareholders (%) Promoters
47
FIIs
18
FIs/MFs
2
Public & Others
33
•
The company in JV with JMC projects has bagged an order worth Rs 3,277 mn for the construction of New Four Lane Agra Bypass connecting KM 176.8 of NH-2 to KM 13.030 of NH -3 in the state of Uttar Pradesh. Sadbhav share in this venture is 49.5%.
•
The company is likely to announce the financial closure for Aurangabad-Jalna and NagpurSeoni BOT projects soon.
Financial highlights (Rs mn)
1QFY07
1QFY08
YoY (%)
FY07
FY08E
YoY (%)
FY09E
YoY (%)
Net Sales
943
1,796
90.3
4,918
7,378
50.0
10,329
40.0
EBITDA
102
219
114.7
561
835
48.7
1,123
34.6
EBITDA Margin (%)
10.8
12.2
–
11.4
11.3
–
10.9
–
2
2
11.3
18
37
101.1
58
58.2
Interest
11
34
218.7
58
70
20.6
120
71.4
Depreciation
37
34
(7.2)
149
208
39.6
260
25.0
PBT
57
153
171.2
372
594
59.4
801
35.0
Tax
5
42
684.6
68
148
119.8
200
35.0
PAT
51
111
117.8
306
445
45.6
601
35.0
PAT Margin (%)
5.4
6.2
–
6.2
6.0
–
5.8
–
Adjusted EPS (Rs.)
4.7
8.9
89.9
28.0
35.6
27.0
48.1
35.0
Other Income
B&K RESEARCH
AUGUST 2007
Order book Currently, the order book of the company stands at Rs 31 bn, 4.2x FY08E revenues. It includes 69% from roads, 15% from irrigation and remaining 16% from mining. Also, around 45% of the above order book is from contracts from its BOT projects. The company is waiting for LOI for mining contract (Rs 2,750 mn) awarded by Coal India limited. Order execution period for the company is 24-30 months. There has been good growth in order inflow for the company and the momentum is likely to continue going forward. Revenue and order book composition 80 70
71
69
Revenue
Orderbook
60 (%)
50 40 30
20
20
15
10
16 9
0 Roads
Irrigation
Mining
Outlook and Valuations The company has shown good operating margins but we believe the margin will show a marginal decline as the topline increases. SEL is targeting immense opportunities arising in irrigation and mining space. The company will enhance its exposure in mining segment and is focusing in bringing its mining business at par with road segment. At the current market price, the stock is trading at 17x FY08E and 13x FY09E earnings. Considering the value in three of the SPVs, the stock is trading at 13x FY08E and9x FY09E earnings. We believe the valuations are attractive and maintain Buy on the stock.
SADBHAV ENGINEERING
2
B&K RESEARCH
AUGUST 2007
Income Statement
Cash Flow Statement
Yr. ended 31 Mar. (Rs. m) FY06
FY07 FY08E
FY09E
Yr. ended 31 Mar. (Rs. m) FY06
FY07P FY08E FY09E
2,889
4,918
7,378
10,329
Pre-tax profit
150
362
594
801
41.1
70.2
50.0
40.0
Depreciation
119
149
208
260
(2,536)
(4,357)
(6,543)
(9,205)
Chg in working capital
188
(191)
(66)
(364)
Operating profit
353
561
835
1,123
Total tax paid
(12)
(67)
(148)
(200)
EBITDA
353
561
835
1,123
Cash flow from oper. (a)
446
254
587
497
Growth (%)
43.8
59.1
48.7
34.6
Capital expenditure
(382)
(250)
(450)
(650)
Depreciation
(139)
(149)
(208)
(260)
Chg in investments
(104)
(250)
(1,076)
–
7
18
37
58
(500) (1,526)
(650)
EBIT
221
431
664
921
Interest paid
(84)
(58)
(70)
(120)
Pre-tax profit
137
372
594
801
Net sales Growth (%) Operating expenses
Other income
13
(10)
–
–
150
362
594
801
Tax (current + deferred)
(12)
(68)
(148)
(200)
Net profit
138
295
445
601
Adjusted net profit
126
306
445
601
Growth (%)
65.3
143.5
45.6
35.0
Net income
138
295
411
579
Pre-tax profit (after non-recurring items)
(40)
(246)
(939)
(153)
Equity raised/(repaid)
503
–
920
–
(159)
(12)
235
285
(4)
(25)
(29)
(29)
Other financing activities
–
–
(94)
–
Cash flow from fin. (c)
339
(37)
1,032
256
Net chg in cash (a+b+c)
299
(283)
94
104
FY07P FY08E
FY09E
Debt raised/(repaid)
Key Ratios Yr. ended 31 Mar. (%) FY06 EPS (Rs)
Current assets Investments Net fixed assets Total assets Current liabilities
FY07P FY08E
FY09E
28.0
35.6
48.1
19.5
85.5
27.0
35.0
EBITDA margin
12.2
11.4
11.3
10.9
7.6
8.8
9.0
8.9
ROCE
Yr. ended 31 Mar. (Rs. m) FY06
15.1
EPS growth EBIT margin
Balance Sheet
(486)
Free cash flow (a+b)
Dividend (incl. tax)
(before non-recurring items) Non(recurring items
Cash flow from inv (b)
Net debt/Equity
2,457
2,878
3,913
5,246
Valuations
104
354
1,430
1,430
Yr. ended 31 Mar. (x)
1,038
1,139
1,381
1,771
3,600
4,372
6,725
8,447
13.6
21.8
23.3
23.0
7.4
24.3
18.4
20.7
FY07P FY08E
FY09E
FY06
PER
40.4
21.8
17.2
PCE
12.7
19.2
14.6
11.7
8.9
Price/Book
4.2
4.5
2.8
2.3
1,751
2,265
3,140
4,005
Yield (%)
0.4
0.3
0.3
0.3
Total debt
522
510
745
1,030
EV/Net sales
2.7
1.6
1.1
0.8
Other non-current liabilities
108
108
108
108
EV/EBITDA
21.9
14.3
9.8
7.4
2,381
2,883
3,993
5,143
FY07P FY08E
FY09E
Total liabilities
Du Pont Analysis – ROEs Share capital
Yr. ended 31 Mar. (x)
109
109
125
125
1,145
1,415
2,641
3,214
Less: Misc. expenditure
(34)
(34)
(34)
(34)
Shareholders’ funds
1,219
1,489
2,732
3,305
Total equity & liabilities 3,600
4,372
6,725
8,447
Return on equity (%)
Reserves & surplus
SADBHAV ENGINEERING
FY06
Net margin (%)
4.3
6.2
6.0
5.8
Asset turnover
1.0
1.2
1.3
1.4
Leverage factor
3.1
2.9
2.6
2.5
13.8
22.6
21.1
19.9
3
B&K RESEARCH
Vikas Gupta
[email protected] Tel.: 91-11-4259825
AUGUST 2007
Vikash Verma
[email protected] Tel.: 91-11-4259824
Vikash Mantry
[email protected] Tel: 91-11-4259824
Analyst Declaration: We, Vikas Gupta, Vikash Verma, & Vikash Mantry, hereby certify that the views expressed in this report accurately reflect our personal views about the subject securities and issuers. We also certify that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendation or view expressed in this report.
SADBHAV ENGINEERING
4
B&K RESEARCH
AUGUST 2007
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