Sadbhav Engg.Q2 FY16Construction

Sadbhav Engg.

Q2 FY16 Earnings Call Analysis

Management growth scorecard

Revenue

Category 3

Margin

Category 2

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Revenue guidance

Category 3

→Construction business expected to grow largely driven by Roads and Highways sector, particularly from four Hybrid Annuity Projects starting appointed dates from October 2016.
→FY17 order intake guidance between Rs.5,000 to Rs.7,000 crores; Rs.3,100 to Rs.3,200 crores already secured.
→Overall construction revenue anticipated to jump by at least 15% over FY16, targeting around Rs.3,700 crores.
→Irrigation segment expected to surpass Rs.750 to Rs.800 crores in top line with new irrigation bids of Rs.11,500 crores underway.
→Mining revenue projected around Rs.350 to Rs.370 crores by year-end.
→SIPL standalone revenue to grow significantly over next 2-3 years due to major maintenance activities and EPC works, estimated Rs.400 crores across FY17 to FY19.
→Traffic growth in toll projects steady at 6.6%-7.3% (excluding underperforming stretch), supporting operational cash profits.
→Large pipeline of 98 road projects (~Rs.70,000 to Rs.95,000 crores) expected to be bid by year-end, ensuring future growth opportunities.

Category 2

→**Construction Segment Growth:** Expected 15% increase in revenue over FY16, targeting around Rs. 3,700 crores in FY17 driven by EPC and Hybrid Annuity projects (Page 11).
→**Irrigation Sector:** Revenue expected to surpass Rs. 750-800 crores in FY17; execution in previously stuck projects has gained momentum (Page 11).
→**EPC Margins:** Consistent EPC project margins around 11%, with potential incremental margins from Hybrid Annuity projects in Q3/Q4 FY17 (Page 12).
→**SIPL Standalone:** Increase in revenue from major maintenance and routine maintenance over FY17-FY19; anticipated Rs. 400 crores revenue from new Hybrid Annuity EPC and toll plaza works (Pages 15-16).
→**Working Capital & Finance Costs:** Improvements expected with release of blocked working capital, leading to gradual reduction in finance cost and improved cash flow (Pages 12-13, 16).
→**Overall Profitability:** EBITDA margins expected to improve from current levels due to easing competitive intensity and selective project bidding (Page 18).

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Yes

→No explicit mention of immediate new fundraising through debt or equity in the call transcript.
→Refinancing of debt in several SPVs is underway (e.g., Maharashtra Border Check Post, Ahmedabad Ring Road), aimed at reducing interest cost and improving credit ratings.
→Internal accruals are expected to meet the required equity for five new Hybrid Annuity Projects (Rs.461 crores estimated equity), with no mention of raising fresh equity.
→Working capital blocked in Irrigation and Delhi Metro projects is expected to release Rs.100 crores by year-end, improving liquidity.
→Use of commercial paper (up to Rs.200 crores sanctioned) is ongoing due to favorable interest rates, reducing finance costs.
→Overall finance cost expected to reduce gradually due to efficient debt management and release of blocked working capital.
→No direct statements on fresh fundraising plans, focus is on internal resources and refinancing existing borrowings.

Yes

→Order book as of June 30, 2016: Rs.6,829 crores (excluding EPC value of five new Hybrid Annuity Projects won by SIPL).
→EPC value for these five HAM Projects for Sadbhav Engineering: Rs.3,128 crores, taking the combined order book close to Rs.10,000 crores.
→Road sector forms the major part with Rs.6,500 crores of the order book already in Road projects.
→EPC projects worth Rs.14,112 crores are currently on for bidding across 11 projects in the Road EPC segment.
→NHAI pipeline: about 98 DBR projects under final preparation and approval, valued between Rs.70,000 crores to Rs.95,000 crores, expected to be bid out by year-end.
→Irrigation bids in progress with one bid of Rs.475 crores submitted and nine more bids adding to Rs.11,500 crores being prepared.
→Order intake guidance for FY17 remains between Rs.5,000 crores to Rs.7,000 crores.

Yes

→SIPL standalone operations may require some machinery purchases for major maintenance, but the amount is not expected to be high. (Page 16)
→The company plans to meet equity requirements for five new Hybrid Annuity Projects (HAM) worth Rs.461 crores primarily from internal accruals. (Page 8)
→No major working capital requirement is expected for SIPL standalone due to funds lying with SPVs and refinancing arrangements. (Page 16)
→Additional capital was blocked in projects like Delhi Metro (approx. Rs.95-100 crores) and Irrigation (approx. Rs.175-180 crores), but these amounts are starting to be released back into cash flow. (Page 12)
→The company is working on joint ventures, including one for mining projects requiring technical support from international partners. (Page 17)

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