Misses Q4 but Guidance Raised CMP : Rs 262 Sadbhav’S (SEL) FY16 Order Inflow Was up 9% at Rs 25 Bn Vs

02 MAY 2016 Quarterly Update SADBHAV ENGINEERING HOLD ENGINEERING Target Price: Rs 280

Misses Q4 but guidance raised CMP : Rs 262 Sadbhav’s (SEL) FY16 order inflow was up 9% at Rs 25 bn vs. Rs 22 bn Potential Upside : 7% in FY15 despite no large order win in Q4. Moreover, SEL was declared lowest bidder (L1) in 2 Hybrid Annuity Model (HAM) road projects of NHAI worth ~Rs 14 bn in Mar’16 which will get booked in Q1 FY17. MARKET DATA Adjusting for this, overall FY16 order wins in roads could have been at No. of Shares : 172 mn 3x FY15 levels. Also, most of these order wins were good quality i.e. Free Float : 53% within 0-7% of next bid price (L2). Market Cap : Rs 45 bn 52-week High / Low : Rs 370 / Rs 198 Ups guidance: SEL management expects order inflow of ~Rs 50-70 bn Avg. Daily vol. (6mth) : 132,258 shares in FY17. Management raised its FY17 revenue guidance to Rs 37-38 bn Bloomberg Code : SADE IB Equity (16-19% YoY growth vs. 0-10% earlier) on early start of execution Promoters Holding : 47% (H2 FY17) of the two HAM projects. Management expects EBITDA FII / DII : 15% / 27% margin of 10.4-10.6% in FY17.

Weak Q4 earnings: SEL’s Q4FY16 standalone EPC revenue (down 11% YoY) was weak due to decline in both roads and mining revenues. EBITDA margin declined by 40 bps YoY to 9.5% due to adverse mix on lower execution of mining projects as well as higher contribution of Irrigation revenues (low margin).

Strong order pipeline: SEL is participating in 16 road EPC projects worth Rs 184 bn which are expected to be finalized in FY17. Company is also targeting Mining Development Operation (MDO) projects worth ~Rs 40 bn p.a. from NTPC, Gujarat & Karnataka State Genco and Damodar Valley. On the irrigation side, the company had submitted financial bid for Punjab project worth ~15 bn. Apart from these, there are ~Rs 250 bn worth of BOT and HAM projects in pipeline from NHAI.

Cut estimates, maintain TP and HOLD: We cut our FY16E standalone EPS to Rs 8.7 (vs. 11.4 earlier) and FY18E EPS to Rs 11.6 (vs. 14.4 earlier) as we adjust for Q4 results. We roll forward our valuation to FY18. Our SoTP-based TP remains unchanged at Rs 280 (standalone at Rs 172/sh on 15x FY18E and BOT at Rs 108/sh).

Financial summary (Standalone) Key drivers (Rs bn) Y/E March FY15 FY16 FY17E FY18E FY16E FY17E FY18E Sales (Rs mn) 29,698 31,863 35,672 37,521 Order inflow 24.6 60.0 55.7 EBITDA (Rs mn) 3,091 3,254 3,563 4,217 Order backlog 74.9 99.3 117.6 Margin 10.2% 10.0% 11.2% Adj PAT (Rs mn) 1,201 1,390 1,496 1,997 Con. EPS* (Rs) - - 10.7 14.0 EPS (Rs) 7.7 8.1 8.7 11.6 Price performance Change YOY (%) 11.5 5.9 7.6 33.5 120 P/E (x) 20.1 19.0 17.7 13.2 Sensex Sadbhav Engineering 100 RoE (%) 10.4 9.8 9.7 11.8 80 EV/E (x) 16.2 17.0 15.0 12.5 60 DPS (Rs) 0.8 0.8 0.8 1.1 40 Source: *Consensus broker estimates, Company, Axis Capital Apr-15 Jul-15 Oct-15 Jan-16 Apr-16

02 MAY 2016 Quarterly Update SADBHAV ENGINEERING ENGINEERING

Exhibit 1: Results update (Rs mn) Quarter ended 12 months ended

Mar-16 Mar-15 % Chg Dec-15 % Chg FY17E FY16 % Chg

Net Sales/Income form op 8,580 9,674 (11.3) 7,531 13.9 35,672 31,863 12.0 EBIDTA 814 957 (15.0) 739 10.2 3,563 3,254 9.5 Other income 196 118 65.8 12 1,578.8 291 253 15.0 PBIDT 1,010 1,075 (6.1) 750 34.6 3,854 3,507 9.9 Depreciation 214 148 44.6 218 (1.6) 974 849 14.6 Interest 271 250 8.6 204 32.9 885 863 2.6 PBT 525 678 (22.6) 329 59.6 1,995 1,795 11.2 Tax 169 289 (41.7) 69 143.3 499 405 23.3 Adjusted PAT 356 389 (8.4) 260 37.2 1,496 1,390 7.6 Extra ordinary income/ (exp.) 51 0 - 14 - 0 (53) - Reported PAT 407 389 4.7 274 48.7 1,496 1,337 11.9 No. of shares (mn) 172 169 - 172 - 172 172 - EBIDTA margin (%) 9.5 9.9 - 9.8 - 10.0 10.2 - PBIDT margin (%) 11.8 11.1 - 10.0 - 10.8 11.0 - EPS (Rs.) 2.1 2.3 (9.8) 1.5 37.2 8.7 8.1 7.6

Source: Company, Axis Capital

BOT assets – in line performance: In Q4, toll revenue grew 30% YoY and 11% QoQ to Rs 2.0 bn led by: (a) 5-20% traffic growth, (b) 4 new check posts on Maharashtra Border, and (c) 3-5% toll rate growth. Toll collection from Sreenathji Udaipur project started from Dec 2015 and Q4 was the first full quarter of toll collection on the same. Also, toll collection from Rohtak Panipat Tollway was impacted for 11 days due to agitation in Haryana.

Company has refinanced debt of four road projects to lower rate of interest along with extension in debt repayment and further expects to refinance debt of four projects in FY17. Overall, SIPL has turned cash positive now and doesn’t need any further fund infusion from SEL. Maintain BOT fair value of Rs 34 bn.

Exhibit 2: Sadbhav’s BOT toll revenues

Toll Revenues Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Ahmedabad Ring Road (ARRIL) 188 203 223 223 222 213 231 246 Aurangabad Jalna (AJTL) 85 44 52 96 92 69 80 88 LCV and MAV - 44 52 57 - 54 63 69 Trucks - - - - - 15 18 18 Bijapur Hungund (BHTPL) 255 260 255 274 284 282 280 302 Hyderabad Yadgiri (HYTPL) 111 106 113 118 134 119 142 153 Maharashtra Border (MBCPNL) 196 222 238 261 341 367 416 432 Dhule Palesnar (DPTL) 339 317 335 356 358 368 384 391 Rohtak Panipat (RPTPL) 217 199 210 225 219 199 220 181 SUTPL ------61 228 Total 1,393 1,351 1,426 1,552 1,650 1,615 1,813 2,021

Source: Company, Axis Capital

02 MAY 2016 Quarterly Update SADBHAV ENGINEERING ENGINEERING

Exhibit 3: Standalone revenue and order brakup (Rs mn)

Order inflow FY12 FY13 FY14 FY15 FY16 Transport 32,728 25,002 (3,141) 12,270 24,984 EPC 4,633 4,422 6,727 10,446 23,777 BOT 28,095 20,580 (9,868) 1,824 1,207 Irrigation 2,560 6,266 7,254 4,809 (368) Mining 4,419 12,666 7,392 5,134 17 Total 39,707 43,934 21,373 22,214 24,633 Growth YoY 10.6% -51.4% 3.9% 10.9%

Order backlog FY12 FY13 FY14 FY15 FY16 Transport 53,989 66,201 45,961 37,929 40,706 EPC 20,587 19,377 15,441 19,824 38,372 BOT 33,402 46,824 30,520 18,105 2,335 Irrigation 11,594 15,004 19,397 20,146 14,419 Mining 9,958 20,222 24,049 23,925 19,748 Total 75,541 101,427 89,407 82,000 74,873 Growth YoY 34.3% -11.9% -8.3% -8.7%

Revenue FY12 FY13 FY14 FY15 FY16 Transport 22,415 12,790 17,099 20,303 22,206 EPC 2,616 5,632 10,662 6,064 5,229 BOT 19,799 7,157 6,436 14,239 16,978 Irrigation 2,106 2,856 2,861 4,060 5,359 Mining 2,234 2,402 3,564 5,258 4,194 Power 1 62 57 51 57 Other operating income - - 1 27 47 Total 26,755 18,110 23,582 29,698 31,863 Growth YoY -32.3% 30.2% 25.9% 7.3%

Source: Company, Axis Capital

02 MAY 2016 Quarterly Update SADBHAV ENGINEERING ENGINEERING Financial summary (Standalone)

Profit & loss (Rs mn) Cash flow (Rs mn) Y/E March FY15 FY16 FY17E FY18E Y/E March FY15 FY16 FY17E FY18E

Net sales 29,698 31,863 35,672 37,521 Profit before tax 1,547 1,795 1,995 2,663 Other operating income - - - - Depreciation & Amortisation (817) (849) (974) (1,116) Total operating income 29,698 31,863 35,672 37,521 Chg in working capital (3,410) (1,388) 745 (584) Cost of goods sold (24,362) (25,905) (29,220) (30,268) Cash flow from operations (565) 1,661 4,100 3,302 Gross profit 5,337 5,958 6,452 7,254 Capital expenditure (1,192) (1,042) (1,500) (1,500) Gross margin (%) 18.0 18.7 18.1 19.3 Cash flow from investing (3,294) (2,695) (2,385) (2,273) Total operating expenses (2,246) (2,704) (2,889) (3,036) Equity raised/ (repaid) (212) - - - EBITDA 3,091 3,254 3,563 4,217 Debt raised/ (repaid) 750 1,205 (1,500) (1,000) EBITDA margin (%) 10.4 10.2 10.0 11.2 Dividend paid (125) (145) (145) (193) Depreciation (817) (849) (974) (1,116) Cash flow from financing 3,437 1,060 (1,645) (1,193) EBIT 2,274 2,404 2,590 3,101 Net chg in cash (422) 26 70 (164) Net interest (891) (863) (885) (773) Other income 164 253 291 334 Key ratios Profit before tax 1,547 1,795 1,995 2,663 Y/E March FY15 FY16 FY17E FY18E Total taxation (346) (405) (499) (666) OPERATIONAL Tax rate (%) 22.4 22.5 25.0 25.0 FDEPS (Rs) 7.7 8.1 8.7 11.6 Profit after tax 1,201 1,390 1,496 1,997 CEPS (Rs) 12.5 12.7 14.4 18.1 Minorities - - - - DPS (Rs) 0.8 0.8 0.8 1.1 Profit/ Loss associate co(s) - - - - Dividend payout ratio (%) 11.0 10.8 9.7 9.7 Adjusted net profit 1,201 1,390 1,496 1,997 GROWTH Adj. PAT margin (%) 4.0 4.4 4.2 5.3 Net sales (%) 25.9 7.3 12.0 5.2 Net non-recurring items (64) (53) - - EBITDA (%) 21.5 5.3 9.5 18.4 Reported net profit 1,137 1,337 1,496 1,997 Adj net profit (%) 15.3 15.7 7.6 33.5 FDEPS (%) 11.5 5.9 7.6 33.5 Balance sheet (Rs mn) PERFORMANCE Y/E March FY15 FY16 FY17E FY18E RoE (%) 10.4 9.8 9.7 11.8 Paid-up capital 172 172 172 172 RoCE (%) 11.7 10.9 11.3 13.3 Reserves & surplus 13,349 14,543 15,895 17,699 EFFICIENCY Net worth 13,521 14,715 16,066 17,870 Asset turnover (x) 1.5 1.3 1.4 1.5 Borrowing 9,383 10,588 9,088 8,088 Sales/ total assets (x) 0.9 0.9 0.9 0.9 Other non-current liabilities 244 232 232 232 Working capital/ sales (x) 0.2 0.2 0.2 0.2 Total liabilities 35,250 36,186 39,901 41,245 Receivable days 115.0 118.8 110.0 110.0 Gross fixed assets 8,456 9,498 10,998 12,498 Inventory days 29.3 17.9 27.8 28.2 Less: Depreciation (3,099) (3,948) (4,922) (6,038) Payable days 143.8 119.8 150.0 149.8 Net fixed assets 5,357 5,550 6,076 6,460 FINANCIAL STABILITY Add: Capital WIP - - - - Total debt/ equity (x) 0.8 0.7 0.6 0.5 Total fixed assets 5,357 5,550 6,076 6,460 Net debt/ equity (x) 0.8 0.7 0.6 0.5 Total Investment 10,901 11,691 11,691 11,691 Current ratio (x) 1.6 1.8 1.5 1.5 Inventory 2,134 1,406 2,443 2,570 Interest cover (x) 2.6 2.8 2.9 4.0 Debtors 9,360 10,372 10,750 11,308 VALUATION Cash & bank 351 366 437 272 PE (x) 20.1 19.0 17.7 13.2 Loans & advances 6,506 5,948 7,819 8,224 EV/ EBITDA (x) 16.2 17.0 15.0 12.5 Current liabilities 12,103 10,652 14,515 15,055 EV/ Net sales (x) 1.7 1.7 1.5 1.4 Net current assets 6,889 8,293 7,618 8,038 PB (x) 3.0 3.1 2.8 2.5 Other non-current assets - - - - Dividend yield (%) 0.3 0.3 0.3 0.4 Total assets 35,250 36,186 39,901 41,245 Free cash flow yield (%) (4.3) 1.4 5.8 4.0

Source: Company, Axis Capital Source: Company, Axis Capital

02 MAY 2016 Quarterly Update SADBHAV ENGINEERING ENGINEERING

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02 MAY 2016 Quarterly Update SADBHAV ENGINEERING ENGINEERING

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