Analyst corner: Maintain ‘buy’ on Sadhav Engineering; TP of Rs 328
Sadbhav Infra (SIPL), the BOT arm of Sadbhav Engineering (SEL), has inked a definitive agreement with IndInfravit Trust to sell its stake in nine operational BOT projects for an equity value of Rs 2,550 crore (P/BV of 1.7x on invested equity of Rs 1,500 crore). In addition, SIPL can also receive milestone-based payments of ~Rs 400 crore. The deal will lead to a significant debt reduction (Rs 650 crore in SEL, Rs 900-1,000 crore in SIPL), apart from improving order book prospects. We broadly maintain SEL’s earnings, but revise up valuation multiple from 14x to 16x considering the multiple benefits, apart from adjusting SIPL’s value for the transaction. Maintain ‘buy’ with a revised SOTP-based TP of Rs 328 (Rs 324 earlier).
The SIPL-IndInfravit deal translates to P/BV of 1.7x on an equity investment of Rs 1,500 crore. Of the Rs 2,550 crore, Rs 650 crore will be in the form of units (10% stake) in the trust; of the balance Rs 1,900 crore, Rs 650 crore will go to SEL, Rs 70 crore to Monte Carlo (minority partner in one BOT project) and balance to SIPL. In addition, SIPL can receive Rs 400 crore milestone-based payments related to arbitration/other regulatory issues for a few BOT projects.
