* 3Q17 numbers are calculated for some portion of the quarter due to impact of demonetization
** In MBCPNL, 13 checkposts were operational till 26 Jan'17 while 16 checkposts were operational from 27 Jan'17. In 4Q16, 13 checkposts were operational
Sadbhav Infrastructure Absolute – LONG Relative – Overweight 24% ATR in 17 Months
______________________________________________________________________________________________________________________________________ November 15, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 4 of 12
Valuation
Exhibit 4: Earlier SOTP Valuation
Valuation Snapshot Stake Rs. Mn Rs./share
Overall Valuation of BOT Projects 54,049 153
ARR 100% 2,970 8
AJT 100% 2,251 6
NSE 100% -515 -1
MBCP 91% 22,286 63
DPT 100% 3,545 10
HYT 100% 4,566 13
RPT 100% 540 2
BHT 77% 5,458 15
MBT 100% 2,004 6
SUTPL 100% 5,733 16
RBT 100% 5,158 15
RHT 100% -1,372 -4
Hybrid Annuities 1,425 4
RK1 100% 450 1
RK2 100% 78 0
BT 100% 383 1
UK 100% 231 1
BRT 100% 355 1
WM 100% -106 0
UB 100% 36 0
Add: Standalone SIPL 2,809 8
Net Valuation of BOT Projects 56,858 161
Source: Equirus Securities
Exhibit 5: Current SOTP Valuation
Valuation Snapshot Stake Rs. Mn Rs./share
Overall Valuation of BOT Projects 55,217 157
ARR 100% 3,124 9
AJT 100% 1,584 4
NSE 100% -492 -1
MBCP 91% 19,328 55
DPT 100% 3,819 11
HYT 100% 4,882 14
RPT 100% 627 2
BHT 77% 5,454 15
MBT 100% 991 3
SUTPL 100% 6,083 17
RBT 100% 5,471 16
RHT 100% -1,102 -3
Hybrid Annuities 5,448 15
RK1 100% 882 3
RK2 100% 548 2
BT 100% 957 3
UK 100% 657 2
BRT 100% 1,090 3
WM 100% 646 2
UB 100% 668 2
Add: Standalone SIPL 2,677 8
Less: Profit on BHT and DPT Sale - -
Add: 2x P/B on Hybrid Annuity Net Investment - -
Net Valuation of BOT Projects 57,894 164
Source: Equirus Securities
Sadbhav Infrastructure Absolute – LONG Relative – Overweight 24% ATR in 17 Months
______________________________________________________________________________________________________________________________________ November 15, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 5 of 12
Earnings call takeaways
Industry update: H2FY18 to see heavy bidding activity
In 1H, NHAI awarded only 500kms of projects, some of which have been push back.
Under Bharatmala, projects worth Rs 300bn are expected to be bid out by Mar’17,
with hectic bidding likely over the next four months. Traffic growth in Q2 was better
than Q1 and started improving as GST-related concerns waned.
27 HAM projects worth Rs 33.30bn are expected to come out with a length of
1,254kms; these are expected to be bid out by 30 Sep’18.
Financials: 2H revenues to better than H1, toll revenue growth to be >7%
Annuity receipt from NHAI is exempt from GST, while the grant of 40% received from
NHAI and O&M costs during the period would attract GST. The grant component will
get setoff from the EPC contract value, and the company does not see any further
impact of GST on SPV.
Revenues in H2FY18 are likely to be better than H1FY18. Cash EBITDAM from
operational SPVs shall be 85%. The company expects revenues of Rs 11bn from
operational SPVs and Rs 2.5bn from standalone operations.
The company has submitted bids for the Rs 13.24bn Narsannapetam-Ratanatsalam
project of length 54kms. Results are awaited.
The current OB for routine maintenance stands at Rs 3.66bn. Major maintenance for
Dhule-Palesnar is in progress (Rs 500mn). Bijapur-Hungud and Hyderabad-Yadgiri
major maintenance work would entail a cost of Rs 1.2bn. Total O/B with this goes to
Rs 5.40bn to be executed in next 21 months.
Consolidated debt stood at Rs 70.43bn, debt of under-construction projects at
Rs 1.79bn and standalone debt at Rs 12.55bn; SEL’s debt to SIPL is Rs 4.45bn. The
average cost of debt has reduced to 9.84%, and with refinancing of MBCPNL and
Rajsmand-Bhilwara projects, the cost of debt shall further reduce to 9.18%.
Repayment of Rs 550mn/Rs 750mn is expected in H2FY18/FY19 and some major
repayments in FY20, FY21 and FY22.
The operational SPV itself will generate cash surplus of Rs 13bn-14bn. Repayment
obligation is Rs 3bn. The company should see growth without much funding
requirements.
LTB has come down since the amount has been shifted to current liabilities.
Incremental equity would be only for HAM projects with WM, UB and RK-2 requiring
equity.
Project update
Traffic growth across projects
Project Traffic Growth
SUTPL 5.50%
HYTPL 20%
MBCPNL 1.5%-2%
DPT 7.50%
RPT 27%
AJT -1%
BHT 1.50%
ARR 2%
BRT 11%
Total 7%
H2FY18 traffic growth is expected to be higher (>7%). Toll rate hike in ARR is 3.7%
SIPL has completed refinancing of 7 SPVs at Q2FY18-end. Rs 13-14bn debt of MBCPNL and RBT is expected to be refinanced in Q3. With this, the company will complete its first large round of refinancing.
Rohtak-Panipat (RPT) &Rohtak- Hissar (RHT): RPT is expected to see 30-35% traffic growth in Q3FY18. With this, the project shall become self-sufficient. Refinancing of RPT is expected in Q4FY18. Cost of debt is 11.7% for RPT and RHT. Cash losses in the quarter were at Rs 40mn-50mn for RPT and Rs 113mn-114mn for RHT. Daily toll collection at RPT is Rs 31mn.
Bhavnagar-Taleja, Una-Kodinar and BRT are progressing well. The company has applied for MA of Rs 1bn in BRT.
Waranga-Mahagon and Udaipur Bypass: Financial Closure has been achieved for both projects. While the appointed date for UB is expected this month, WM AD is expected in Jan or Feb’18.
Rampur-Kathghodam Pack 2: AD received and construction has begun from 28 Oct’17.
BHT: 93% revenues are from CVs which have taken a hit. The Solapur-Bijapur stretch (just ahead of Bijapur stretch) has been awarded, Hungund-Hospet is operational and Hospet-Chitradurga is under construction.
The company had taken a derivative instrument to hedge exchange rates and LIBOR for ECB taken for Hyderabad Yadgiri, RPT and BHT. ECB of HYT was paid in Jun’17 while ECB of BHT in Sep’17. Only RPT’s ECB remains to be paid off.
MBCPNL securitization proposal is in advance stages. Comparable traffic growth was 1.5% for the project. Growth in July/Aug/Sep’17 was at 6%/3%/5.2% Avg. daily toll collection is Rs 5.1mn-5.2mn here. An 18% hike in toll rate is expected from Apr’18.
Mukaraba-Chowk tolling started from 21 Oct’17 and will continue for 25 years. The company expects traffic growth to rise further here.
Sadbhav Infrastructure Absolute – LONG Relative – Overweight 24% ATR in 17 Months
______________________________________________________________________________________________________________________________________ November 15, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 6 of 12
Company Snapshot
How we differ from Consensus
- Equirus Consensus % Diff Comment
EPS FY18E -5.1 -5.3 2 %
FY19E 1.5 -0.5 381 %
Sales FY18E 13,346 18,415 -28 %
FY19E 18,032 21,638 -17 %
PAT FY18E -1,811 -2,237 19 %
FY19E 534 -255 310 %
Our Key Investment arguments: A fine balance between stability and growth with a 60/40 Operational/Under
Construction Projects
Sound bidding across selective geographies has enabled higher Equity IRRs than competition
Operational projects and refinancing to drive revenues and profitability
Current valuations already factoring in the demonetization impact & resultant drop in traffic due to lower economic activity
Key Drivers FY17A FY18E FY19E FY20E
Toll Revenue 13,480 13,229 17,872 16,888
EBITDA 8,689 8,450 12,428 12,496
Cash Profit -201 2,045 5,414 4,812
Risk to Our View
Premature terminations of any of the state concessions and loss of revenue due to traffic
leakage/lower growth
Key Triggers
Traffic growth and winning of a BOT project with higher equity IRR
Sensitivity to Key Variables % Change % Impact on EPS
EBITDA Margins 1 % 12%
Interest Rate 1 % -2%
DCF Valuations & Assumptions
Rf Beta Ke Term. Growth Debt/IC in Term. Yr
6.7 % 1.0 12.7 % 3.0 % 95.4 %
- FY18E FY19E FY20-22E FY23-27E FY28-32E
Sales Growth 0 % 35 % 6 % 5 % 3 %
NOPAT Margin 38 % 40 % 28 % 35 % 38 %
IC Turnover 0.12 0.14 0.16 0.34 0.90
RoIC 4.8 % 6.2 % 4.4 % 11.5 % 30.4 %
Years of strong growth 1 1 5 10 15
Valuation as on date (Rs) -37 17 -18 90 121
Valuation as of Mar'19 -44 20 -21 106 143
Based on DCF, assuming 15 years of 7% CAGR revenue growth and 16% average ROIC, we
derive current fair value of Rs. 121 and Mar’19 fair value of Rs. 143.
Company Description:
Sadbhav Infrastructure Project Limited (SIPL) is a subsidiary of Sadbhav Engineering
Limited (SEL) and was incorporated in 2007. It is one of the leading road BOT companies
in India that specializes in the development, operation and maintenance of highways,
roads and related projects. Company generates revenues primarily from toll collection,
service fee and annuity receipts. Company has presence in several states of India
including Maharashtra, Gujarat, Rajasthan, Karnataka, Haryana, Madhya Pradesh and
Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.
Registered Office:
Equirus Securities Private Limited
Unit No. 1201, 12th Floor, C Wing, Marathon Futurex,
N M Joshi Marg, Lower Parel,
Mumbai-400013.
Tel. No: +91 – (0)22 – 4332 0600
Fax No: +91- (0)22 – 4332 0601
Corporate Office:
3rd floor, House No. 9,
Magnet Corporate Park, Near Zydus Hospital, B/H Intas Sola Bridge,
Sadbhav Infrastructure Absolute – LONG Relative – Overweight 24% ATR in 17 Months
______________________________________________________________________________________________________________________________________ November 15, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 11 of 12
Analyst Certification
I, Devam Modi, author to this report, hereby certify that all of the views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also
certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures
Equirus Securities Private Limited (ESPL) having Corporate Identification Number U65993MH2007PTC176044 is registered in India with Securities and Exchange Board of India (SEBI) as a trading member on the
Capital Market (Reg. No. INB231301731), Futures & Options Segment (Reg. No.INF231301731) of the National Stock Exchange of India Ltd. (NSE) and on Cash Segment (Reg. No.INB011301737) of Bombay Stock
Exchange Limited (BSE).ESPL is also registered with SEBI as Research Analyst under SEBI (Research Analyst) Regulations, 2014 (Reg. No. INH000001154), as a Portfolio Manager under SEBI (Portfolio Managers
Regulations, 1993 (Reg. No.INP000005216) and as a Depository Participant of the Central Depository Services (India) Limited (Reg. No.IN-DP-324-2017). There are no disciplinary actions taken by any regulatory
authority against ESPL. ESPL is a subsidiary of Equirus Capital Pvt. Ltd. (ECPL) which is registered with SEBI as Category I Merchant Banker and provides investment banking services including but not limited to
As ESPL and its associates are engaged in various financial services business, it might have: - (a) received compensation (except in connection with the preparation of this report) from the subject company for
investment banking or merchant banking or brokerage services in the past twelve months;(b) managed or co-managed public offering of securities for the subject company in the past twelve months; or (c) have
received a mandate from the subject company; or (d) might have other financial, business or other interests in entities including the subject company (ies) mentioned in this Report. ESPL & its associates, their
directors and employees may from time to time have positions or options in the company and buy or sell the securities of the company (ies) mentioned herein. ESPL and its associates collectively do not own (in
their proprietary position) 1% or more of the equity securities of the subject company mentioned in the report as the last day of the month preceding the publication of the research report. ESPL or its Analyst or
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brokerage service transactions. ESPL has not been engaged in market making activity for the subject company.
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has not received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months; (d) has not received any compensation for products or
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Sadbhav Infrastructure Absolute – LONG Relative – Overweight 24% ATR in 17 Months
______________________________________________________________________________________________________________________________________ November 15, 2017 Analyst: Devam Modi [email protected] (+91 – 90999 87467) Page 12 of 12
Disclosure of Interest statement for the subject Company Yes/No If Yes, nature of such interest
Research Analyst’ or Relatives’ financial interest No
Research Analyst’ or Relatives’ actual/beneficial ownership of 1% or more No
Research Analyst’ or Relatives’ material conflict of interest No
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ESPL/its affiliates are not a registered broker–dealer under the U.S. Securities Exchange Act of 1934, as amended (the“1934 act”) and under applicable state laws in the United States. In addition Equirus is not a
registered investment adviser under the U.S. Investment Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the “Acts”), and under applicable state laws in the United States.
Accordingly, in the absence of specific exemption under the Acts, any brokerage and investment services provided by Equirus, including the products and services described herein are not available to or intended
for U.S. persons. The information contained in this Report is not intended for any person who is a resident of the United States of America or a resident of any jurisdiction, the laws of which imposes prohibition on
soliciting the securities business in that jurisdiction without going through the registration requirements and/ or prohibit the use of any information contained in this report. This Report and its respective contents
do not constitute an offer or invitation to purchase or subscribe for any securities or solicitation of any investments or investment services and/or shall not be considered as an advertisement tool. "U.S. Persons"
are generally defined as a natural person, residing in the United States or any entity organized or incorporated under the laws of the United States. US Citizens living abroad may also be deemed "US Persons" under
