Sadbhav’s overall operational projects portfolio could potentially have an equity IRR of about 16% and P/B valuation of about 2X. This is despite the near-term traffic / toll collection disappointments witnessed in the projects, attributed to the broad economic slowdown, and some one-off issues (in Aurangabad-Jalna project).
Sadbhav’s under-construction projects require an incremental equity commitment of Rs 3.8-4 bn, to be infused over the next two years, likely to be met by (1) operating cash flows from the standalone business, (2) cash generation from operational projects and (3) potential securitization of cash flows of operational BOT projects.
The company has received all clearances for all of its recently won BOT projects and thus construction momentum would remain strong. We expect growth in mining segment (about 20% higher than current year levels) as two projects are yet to start execution, as well as higher revenues from the irrigation segment with strong inflows.
Sadbhav Engineering’s target price of Rs170 / share is comprised of (1) 61/share value from the standalone construction business (valued at 5X one-year forward EBITDA), (2) 107/share from the road BOT projects (based on one-year forward FCFE valuations of the projects) and (3) 2/share for projects under construction.