Sadbhav Engineering (SEL), a mid-sized player in the infrastructure space, is becoming a player to reckon with on account of moving up the value chain, from being a sub-contractor to an asset owner.
Notably, the company has also acquired mines in Mozambique to ride the current boom in the mining segment.
The roads segment currently contributes substantially to SEL’s topline (86% of FY08). However, in long term, we expect the irrigation and mining segments to assume importance owing to favourable macro economic environment, robust industry dynamics and changing order book mix.
The company has a strong order book of Rs2,643 crore and enjoys L1 status for projects worth Rs1,800 crore. The road segment constitutes a major portion (49.4%) of its order book followed by irrigation (30.5%) and mining (20.1%). SEL has fixed priced BOT orders worth Rs596 crore.
We have valued SEL’s core construction business at 10x FY10E EPS of Rs71.6. As per our DCF methodology, we have valued SEL’s BOT business at Rs320 per share. We initiate coverage on the stock, with a BUY recommendation and SOTP target price of Rs1,036.