Stock Pick From Road And Highway Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

HERE IS WHY 

Positive developments in infrastructure

Sector Strong financials 

Attractive valuations

Infrastructure sector is a key driver for the Indian economy. The sector is highly responsible for propelling India’s overall development and enjoys intense focus from the government for initiating policies that would ensure time-bound creation of world class infrastructure in the country. The government has a target of Rs 25 lakh crore investment in infrastructure over a period of three years, which will include Rs 8 lakh crore for developing 27 industrial clusters and an additional Rs 5 lakh crore for road, railway and port connectivity projects.

Sadbhav Infrastructure Project is principally engaged in development, construction as well as operation and maintenance of infrastructure projects, related consulting and advisory services. The company's segments include BOT (toll operation, user fees and other operating income), contractual income and project operations, management and advisory services. The company's projects include Ahmedabad Ring Road Infrastructure, Nagpur Seoni Expressway, Hyderabad Yadgiri Tollway, Bijapur 

Hungund Tollway and Rohtak-Panipat Tollway. It is involved in the development, operation and maintenance of national and state highways and roads in various states in India including Maharashtra, Gujarat, Rajasthan, Karnataka, Haryana and Telangana and border check posts in the state of Maharashtra. 

On the financial front, Sadbhav Infrastructure Project’s revenue increased 33.36 per cent to Rs 742 crore in FY12-FY16. The company’s EBITDA also boosted 38.65 per cent in the last five financial years ended FY16. 

On the trailing twelve-month financial front, Sadbhav Infrastructure Project’s topline decreased 23.27 per cent to Rs 1241 crore at the end of December 2016 as compared to same period in previous financial year. However, the company’s EBITDA increased 62.72 per cent to Rs 818 crore at the end of December 2016 on a yearly basis. Its net loss narrowed down to Rs 257 crore, as against net loss of Rs 411 crore in the previous year.

On segmental revenue front, Sadbhav Infrastructure Project has earned 90.69 per cent from BOT (toll operation and user fees) and 9.28 per cent from contractual income in FY16.

Sadbhav Infrastructure Project is planning to invest around Rs 135 crore in 4-laning project in Maharashtra. The company has declared L1 for about Rs 1000 crore project coming in from National Highways Authority of India (NHAI). Sadbhav Infrastructure will make almost around 17 per cent to 18 per cent internal rate of return (IRR) on net equity. The company’s order book stands at Rs 9400 crore post L1 for 4-laning project.

Sadbhav Infrastructure Project’s ROCE stood at 4.24 per cent in FY16. Its total debt-to-equity ratio declined to 7.21x in FY16 from 8.41x in FY15. Its interest coverage ratio stood at 0.56x in FY16. On the valuation front, the share price of Sadbhav Infrastructure Project is trading at PB of 4.42x, as compared to peers such as MEP Infrastructure (5.53x), Dilip Buildcon (5.0 x) and industry PE of 22.24x. We recommend our readerinvestors to BUY the stock.