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Motilal Oswal
Sadbhav Engineering (Buy)
CMP: ₹234.75
Target: ₹265
Sadbhav Engineering is a construction company. The company is engaged in the construction and maintenance of roads and highway, and irrigation system (canal). The company is also engaged in the site preparation for mining, including overburden removal and other development.
Sadbhav Engineering expects road project execution to pick up as its executable order backlog is now robust. The company has an order book of ₹10,000 crore in the road sector with executable order backlog at ₹60,000 crore. The balance ₹40,000 crore is expected to get execution-ready by end-1QFY20, when land becomes available for these projects. Sadbhav Engineering expects revenue booking of ₹5,000 crore in FY20E as the entire road EPC order book comes under execution.
Sadbhav Engineering has been looking at asset monetisation of SIPL’s operational projects to a) partially meet equity funding requirement of the 12 under-construction HAM projects; and b) to receive long outstanding loans of ₹450 crore from SIPL. On completion of the asset monetization deal, we expect the company to refocus on the timely execution of its available large order book and to resurrect the elongated working capital cycle of the company. We maintain a ‘Buy’ rating on the stock with target price of ₹265.
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