September 8, 2008

Sadbhav Engineering

Current market price: Rs 800
Target Price: Rs 1,036

Brokerage: Angel Broking

Sadbhav Engineering (SEL) is embarking to de-risk business from road segment (86 per cent of topline) by giving importance to segments like irrigation and mining in the future.

SEL is accepting projects outside Gujarat, besides going international with its entry in Mozambique. SEL has a strong order book of Rs 2,643 crore. It enjoys L1 status for projects worth Rs 1,800 crore. SEL has fixed price BOT orders worth Rs 596 crore and is moving up the value chain by owning BOT projects through its subsidiary, Sadbhav Infrastructure Projects (SIL).

Around 77 per cent of SEL's order book has a pass through clause, which insulates it from any increase in raw material prices.

SEL plans to raise Rs 80-100 crore by diluting 10-15 per cent stake in SIL, which will be a possible trigger.

Sadbhav Natural Resources (SNRL), another subsidiary, has entered the mining exploration segment by acquiring 74 per cent stake in Ocean Bright Corporation, which holds over three mining areas for which SNRL has acquired prospecting licenses. SEL is expected to grow at a CAGR of 34 per cent over FY08-10E. The stock is trading at 10x FY10E earnings.