Buy Sadbhav Engineering; target of Rs 416: Axis Direct
Axis Direct’s research report on Sadbhav Engineering
Sadbhav’s (SEL) Q2FY18 standalone revenue (up 13% YoY) was below consensus/our estimates due to decline in irrigation revenue. EBITDA margin increased by 75 bps YoY at 11.4% driven by better phase of execution in road EPC projects. PAT was up 81% YoY at Rs 335 mn helped by lower interest cost on debt reduction and negligible tax rate due to MAT credit entitlement. Company booked orders of ~Rs 1.4 bn in Q2, Rs 8 bn in Oct’17 and declared lowest bidder (L1) in projects worth ~Rs 9.4 bn. Order backlog (incl. L1 positions) at Rs 95 bn (up 52% YoY) provides good growth visibility till FY19.
We maintain our FY18E/19E standalone EPS at Rs 14.6 and Rs 15.5. We raise our target multiple to 18x (15x earlier) on improved sector outlook on Bharatmala program, which provides growth visibility beyond FY19. Our revised SoTP-based TP stands at Rs 416 (standalone at Rs 278/sh on 18x FY19E and BOT at Rs 138/sh) vs. Rs 336 earlier.
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