Sadbhav Engg lost 50% in 2 months but can still double investor money

Such a sharp fall in its shares are a result of quarter after quarter of disappointing results. Analysts say the recent sale of the Maharashtra Border Check Post (MBCPL) project at 1.2 times price to book value shows the company’s desperation. There is a fight for survival and revival, they add.

Following the recent sharp correction, the risk-reward has, however, turned positive, with brokerage targets of up to Rs 100 suggesting a potential 32-100 per cent upside from prevailing levels.

Prabhudas Lilladher has a target of Rs 97, HDFC Institutional Equities Rs 73, Sharekhan Rs 68 and Anand Rathi Rs 64, suggesting a potential upside of 32-51 per cent.

Phillip Capital says there is no reason for investors to be excited about the Sadbhav story, and “inexpensive valuations are the only saving grace”. The brokerage has a target of Rs 100 on the stock, which at Monday’s low of Rs 48.50 suggested doubling of returns.

Sadbhav Engineering, analysts say, is trying to survive through asset monetisation, raising of funds via all means possible and staying afloat so that it can push for a revival. Higher capital allocation to the asset business and staggering cash inflows from asset monetisation have resulted in severe liquidity issues, they add.

The EPC company reported a consolidated loss of Rs 149.89 crore in the June quarter. This was the ninth in the past 10 quarters of loss, according to data compiled by corporate database AceEquity. Consolidated sales in the June quarter stood at Rs 398 crore, up 3.7 per cent YoY.

Nirmal Bang Institutional Equities says, “The company has almost exhausted its working capital limits and meeting debt obligations. This year will be a challenge unless significant cash infusion takes place in the balance sheet.”

Sadbhav raised about Rs 990 crore in the March quarter through the sale of a 7 per cent stake in IndInfravit Trust, the brokerage says. The money was used for repayment of NCDs of Rs 685 crore and towards equity commitment of Rs 274 crore for HAM projects. “Despite equity infusion in HAM projects, execution remained weak as the working capital requirement was not fully met. The company needs working capital as well as growth capital to improve its execution and it is expecting proceeds from sale of MBCPL project, sale of Ahmedabad Ring Road project and arbitration awards from various projects. While there are several measures that can lead the company towards a debt-free status, delay in cash inflows can also result in termination of existing orders or disqualification from bidding, which will have strong repercussions on its operations,” Nirmal Bang adds.

Prabhudas Lilladher says it expects execution to pick up pace from the December quarter, when the full labour force is expected to be back after monsoon. “With stake sale and various arbitration awards, the management expects liquidity position to improve significantly. Lately, the company has faced pressures due to muted awarding, delay in receiving ADs, environment clearance issues, etc. leading to subdued revenues and stretched working capital cycle. But eventually all projects received ADs and conclusion of asset monetization deal, thereby resulting in significant reduction of net debt,” Prabhudas Lilladher adds.

The company is targeting a construction run-rate of Rs 7-8 crore per day. It has completed the sale of MBCP project and expects an infusion of Rs 550 crore.

The company expects to receive an Rs 115-crore arbitration award for the dispute over Rohtak-Panipat Tollway in 3-4 months. It has also launched a Rs 1,706-crore claim over the tollway project. It has won an arbitration award of Rs 252 crore, including interest, for the Mumbai-Nasik Expressway project, 72 per cent of which is for Sadbhav. The matter is pending at the high court.

The company’s order book is at Rs 9,111 crore, translating to 5.5 times trailing 12-month revenues. It has bid for Rs 5,900 crore worth of projects and is awaiting results.

Sharekhan says: “We have kept our FY2022 estimates unchanged while lowered our estimates for FY2023. We introduce FY2024 earnings in this note. We maintain a hold rating on the stock with a revised price target of Rs. 68, led by downwardly revised valuation for its listed subsidiary Sadbhav Infrastructure Projects.”