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Du Pont Analysis – 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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