Sadbhav Engineering (SEL), a mid-sized infrastructure company, is diversified across the verticals of roads, irrigation and mining excavation. SEL has secured two orders aggregating to Rs477 crore in the Road segment. Both of the work orders are relating to improvement-related works of the Ranchi Ring Road section for two stretches, and are worth Rs252 crore and Rs225 crore, respectively.
The accretion of these work orders to its Order backlog takes the outstanding Order Book count to Rs5,040 crore, or 3.7x SEL’s FY2010E Revenue. Our interaction with the management indicates that the orders are bagged from an SPV between IL&FS and the Government of Jharkhand (74:26), and are to be executed over a timeframe of 24 months.
Of the total order backlog, Roadrelated works account for 69%, with the remaining 17% and 14% being accounted for by Irrigation and Mining excavation-related works, respectively.
We have valued SEL on an SOTP methodology, where we have assigned a Target multiple of 10x to its core construction business on the FY2011E EPS, valued its BOT Assets portfolio at 1x Book value, and have arrived at a fair value of Rs774.
At Rs813, the stock is trading at 13.1x its FY2011E EPS and at 2.0x FY2011E P/BV. We maintain our NEUTRAL view on the stock.