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  • Company update: Sadbhav Engineering — Buy — TP Rs.440

    Published date: July 4, 2018

    Current projections show Sadbhav Engineering Ltd (SEL) at a growth visibility of 25%-plus revenue CAGR and an expected increase in cash profits.

    We believe the company's fortunes are taking a favourable turn due to NHAI’s ambitious highway road projects.


    Key Highlights

    • A Rs 135bn order reserves means SEL can clock a 25%+ revenue CAGR, adjusting for inflation, over FY2018-20E.
    • There is further potential in revenue surge as SEL is yet to start five government's new Hybrid Annuity Model (HAM) projects. We predict SEL's FY2019E revenue estimate to surge by Rs 42bn in FY2019.
    • Its subsidiary, Sadbhav Infrastructure Projects Limited (SIPL), has received grant escalation from the National Highways Authority of India (NHAI), thus safeguarding SEL's EBITDA margin against price levels rise due to increase in wages and cost of raw materials.

    Valuation & outlook

    Sadbhav Engineering has an excellent record of accomplishing a balanced EBITDA margin over most of the past six-year period, which should come as a major comfort to investors.

    Moreover, the growth in revenue, improvement in balance sheet, lack of excessive costs and delayed timelines for SEL will further strengthen the group’s threshold for getting financial resolutions of unfinished HAM ventures.


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