Sadbhav Engineering: Maintain ‘buy’ with a TP of Rs 301

In the much-awaited asset monetization deal, Sadbhav Engineering (SADE), through its subsidiary Sadbhav Infra Projects (SIPL), will sell stake in 9 BOT assets (of its portfolio of 12 assets) to lndlnfravit Trust at EV of `66 bn – 7% above our valuation. Equity valuation at 1.7x P/B is thus far premium; on negative side, SIPL’s 10% stake in InVIT valued at `6.5 bn will lead to lower upfront cash flows vs. market expectation.

The deal is all-round positive for IndInfravit given expected IRR of 13-14% vs. likes of IRB InVIT at 9-10%; slight discount (3%) to previous deal by existing partners of InVIT by OMERS Infra (Feb-19) is positive for SIPL. Remain constructive on SADE and expect cash proceeds to aid deleverage (~`7 bn) and release growth capital for new projects (`19-20 bn).