Sadbhav Infrastructure Project Ltd.

Transcription

1 Sadbhav Infrastructure Project Ltd. Sadbhav Infrastructure Project (SIPL), a subsidiary of Sadbhav Engineering Limited, was incorporated in 2007 as a developer and operator for highways, roads and projects related to BOT (Build, Operate and Transfer). Presently, SIPL is one of the leading road BOT companies in India that specializes in the development, operation and maintenance of roads and highways projects. All of its projects are implemented and held through special purpose vehicles, including joint venture entities. Notably, it is pre-qualified on an annual basis to bid either directly or through joint ventures for BOT projects of value ~Rs26.5bn by the NHAI up to December 31, It is operating and maintaining roads in several states viz;- Maharashtra, Gujarat, Rajasthan, Karnataka, Haryana, Madhya Pradesh and Telangana and border check posts in the state of Maharashtra. It has a project portfolio consisting of ten BOT projects of which six road projects are fully operational, one is partially operational (border check posts) and the remaining three projects are in various stages of development. Nine of the ten BOT projects are toll projects (including user fee for the border check posts in Maharashtra), while the remaining one is an annuity project. SIPL s operational projects cover approximately 1,537 lane kms and the projects under development cover approximately 1,061 lane kms. In addition, as of May 31, 2015, its subsidiary, Maharashtra Border Checkpost Network Ltd (MBCPNL) completed 13 check posts and is developing 9 more check posts in Maharashtra. There has been a non-binding agreement between its promoter Sadbhav Engineering Ltd (SEL) and SIPL for BOT projects. Competitive Strengths Diverse portfolio of projects in several states of India Strong corporate promoter backing Eective toll collection and toll management systems A focused road & highways and BOT player, with timely execution of projects Concerns High leveraged balance-sheet Consistent deterioration in EBITDA/interest ratio Net Worth eroded by ~19% in the last two years No EPC expertise and cash flow is dependent only on Toll collection Ambiguity over equity funding of fresh projects Outlook and Valuation Though SIPL has witnessed revenue growth of ~64% CAGR over FY11-FY15 owing to consistent addition of new projects, high interest outgo drifted SIPL from net profit of Rs70mn in FY11 to net loss of Rs3.3bn in FY15. At price band of Rs , SIPL trades at EV/EBITDA of 29.7x & 30.0x of FY15. Issue Details Pre-Issue Paid up Cap. (Rs mn) 3,110 Post-Issue Paid up Cap. (Rs mn) 3,522 Post-Issue Mkt Cap. (Rs bn) at upper price band 35.2 BRLM Edelweiss Financial Services Ltd Kotak Mahindra Capital Company Ltd Inga Capital Private Ltd ICICI Securities Ltd Macquarie Capital Securities (India) Pvt. Ltd Registrar Link Intime India Private Ltd Pre-Issue Pattern % Promoter 77.8 Public 22.2 Post-Issue Pattern % Promoter 68.7 Public 31.3 Oer for dierent categories % QIB 75 HNI 15 Retail 10 Promoter Sadbhav Engineering Ltd Vishnubhai M. Patel Objects of the issue Repayment of Loans (up to Rs2.6bn) Equity investment and advancing of sub-ordinate debt to its subsidiary General corporate purposes Key Financial (Rs mn) FY11 FY12 FY13 FY14 FY15 Revenue 695 1,760 2,872 3,711 5,003 Growth (%) EBITDA ,696 2,416 3,088 Margin (%) Finance Costs ,952 3,552 5,259 Net Profit/(Loss) (523) (1,957) (3,300) Source: Company, RHP Research Analyst: Binod Modi Contact: (022) binod.modi@relianceada.com 1

2 Promoters of SIPL Sadbhav Engineering Ltd (SEL) Vishnubhai M. Patel Sadbhav Engineering Ltd (SEL) SEL was originally incorporated as a private limited company on October 3, 1988 under the Companies Act, SEL was converted from a private limited company to a public limited company and a fresh certificate of incorporation was issued on May 17, The equity shares of SEL are listed on the BSE and the NSE. The main objects of SEL include:- Carry on business as civil, electrical and mechanical contractors, designers and engineers, structural contractors, earthwork contractors and related consultancy services; Build, establish, maintain, operate, lease or transfer canals, irrigation projects, dams, bridges, roads, state and national highways, by-pass under various schemes, such as BOT, BOLT and BOOT; and Carry on business in both conventional and non conventional energy generation sectors and to deal in any source of energy as may be developed or invented in future Exhibit 1: Organization Structure Chart Sadbhav Engineering Limited (SEL) 77.42% Note: EPC Business Transport Irrigation Mining Xander & Norwest Venture Partners 1. Including stake currently held by SEL and proposed to be transferred to SIPL 2. Stake will increase to 100% post Lenders and Client approval 3. Stake will increase to 100% post Lenders and Client approval 20.81% Sadbhav Infrastructure Project Ltd (SIPL) BOT Projects Portfolio Stake 1 Aurangabad Jalna Tollway Limited (AJTL) 100% 2 Ahmedabad Ring Road Infrastructure Limited 80% 2 3 Nagpur Seoni Expressway Limited (NSEL) 100% 1 4 Maharashtra Border Checkpost Network Ltd (MBCNL) 90% 1 5 Bijapur-Hungund Tollway Private Limited (BHTPL) 77% 6 Hyderabad Yadgri Tollway Private Limited (HYTPL) 60% 4 7 Dhule Palesner Tollway Limited (DPTL) 40% 1 8 Rohtak Panipat Tollway Private Limited (RPTPL) 100% 9 Shreenathji-Udaipur Tollway Private Limited (SUTPL) 100% 10 Bhilwara Rajsamanad Tollway Private Limited (BRTPL) 100% 11 Rohtake Hisar Tollway Private Limited (RHTPL) 100% 12 Mysore Bellary Highway Private Limited (MBHPL) 74% 1 Source: Company 2

3 Exhibit 2: A snapshot of SIPL s BOT Projects Projects Stake (%) Competitive Strengths Diverse portfolio of projects in several states of India SIPL has a project portfolio consisting of ten projects of which six road projects are fully operational, one project is partially operational and the remaining three road projects are in various stages of development. We believe that its project portfolio is well distributed to cover both urban and rural vehicular traic and includes national and state highways. Strong corporate promoter backing SEL, SIPL s listed Promoter, which currently holds 77.4% stake in SIPL, has an established track record of executing projects with over 25 years of experience in construction activities of transport, mining and irrigation sectors. Due to SEL s financial strength and experience in executing several infrastructure projects, SEL is a pre-qualified bidder for NHAI with respect to large public infrastructure projects for developing and operating road assets up to a value of Rs34bn as on December 31, 2015 and will continue to support SIPL in bidding for new projects. Eective toll collection and toll management systems SIPL has robust toll collection systems to manage critical day-to-day toll collection and toll management of its projects. Categorization of vehicles at toll plazas is done manually by the toll collector as well as using technology for weight-in-motion (WIM) and Automatic Vehicle Classification (AVC) cameras. Further, the entire process is monitored by supervisors using pan-tilt-zoom camera surveillance. Since a significant portion of the toll fees is paid in cash, SIPL closely monitors the collection of toll fees in order to reduce revenue leakages in toll collections. A focused road & highways and BOT player, with the timely execution of projects As on May 31, 2015, SIPL has completed four out of six fully operational BOT projects on time or prior to the scheduled completion date (including any extensions, if granted). Type Length (Lane kms) Cost (Rs bn) Commencement of Operation Concession End. FY15- Revenue (Rs mn) FY15- Profit/ (Loss) (Rs mn) Operational Projects Aurangabad Jalna Tollways (AJTL) 100 Toll July, 2009 June, (246) Ahmedabad Ring Road (ARRIL) 80 Toll May, 2008 January, (260) Nagpur Seoni Expressway (NSEL) 100 Annuity May, 2010 Nov, (156) Maharashtra Border Check post (MBCPNL) 90 Service Fee 22 Border Check posts 14.1 Aug, Years 837 (598) Bijapur-Hungund Tollway (BHTPL) 77 Toll Mar, 2012 Sept, (446) Hyderabad Yadgiri Tollway (HYTPL) 60 Toll Dec, 2012 July, (175) Rohtak-Panipat Tollway (RPTPL) 100 Toll Jan, 2014 April, (899) Under Construction Projects Shreenathji-Udaipur Tollway (SUTPL) 100 Toll Oct, 2015 April, 2040 Bhilwara-Rajsamanad Tollway (BRTPL) 100 Toll April, 2016 Oct, 2043 Rohtak Hisar Tollway (RHTPL) 100 Toll June, 2016 Dec, 2035 Source: Company, RHP 3

4 Concerns High leveraged balance-sheet SIPL s balance-sheet has weakened consistently over the last four years as consolidated D/E has jumped from 1.8x in FY11 to 7.7x in FY15. Gross debt stands at Rs62.4bn and debt balance is unlikely to reduce in the medium term as three of its projects (aggregate cost ~Rs31bn) are still under construction phase. The company s debt balance is likely to reach around ~Rs82bn by FY18E (as per current project portfolio). Though SIPL intends to add more projects in ensuing years, we do not foresee any major debt reduction in SIPL s balance-sheet. Consistent deterioration in EBITDA/interest ratio On consolidated basis, SIPL generated EBITDA of Rs3.1bn during FY15, whereas interest payment has been to the tune of Rs5.3bn. It reflects a weak debt/interest servicing as EBITDA/Interest comes poorly at 0.6x at the end of FY15. Notably, its EBITDA/interest ratio has been deteriorating for the last four years, which raises red flags about its debt servicing capability. Net Worth eroded by ~19% in the last two years Consistent reported loss (owing to higher finance costs) resulted in ~19% erosion of net worth of SIPL to ~Rs7.9bn. Though SIPL may witness a healthy growth in revenue owing to commencement of revenue flow from new commissioned projects, we are still doubtful about any improvement in net worth in medium term due to bulging debts and higher interest outgo. No EPC expertise and cash flow is dependent only on Toll collection SIPL has no expertise in executing EPC projects. Hence, it will deprive from imminent cash flow from EPC segment, which historically made many EPC players to bid for BOT projects just to get EPC components in their kitty. Its parent, SEL will execute the EPC components, which however, entails no benefits to the shareholders of SIPL. Further, long gestation and risk of traic flow will always pose a serious risk to the company and its ability to repay the debt. Ambiguity over equity funding of fresh projects Looking at current balance-sheet size, it appears that SIPL is not in a position to meet any equity commitment for fresh projects. It is already in need to Rs690mn for balance equity infusion in its projects, which are under construction (a part of IPO proceeds will be utilized for this). However, SIPL has guided that they will continue to add projects in ensuing years and they may go for securitization or divest its operational assets in order to fund equity component for fresh projects. 4

5 Profit & Loss Statement Y/E March (Rs mn) FY11 FY12 FY13 FY14 FY15 Income 695 1,760 2,872 3,711 5,003 % yoy growth Operating Expenses ,414 Employee Costs Other Exps Total Expenses ,176 1,295 1,915 EBITDA ,696 2,416 3,088 EBITDA Margin (%) Depreciation & Amortization ,406 Finance Costs ,952 3,552 5,259 Other Income PBT (473) (1,836) (3,299) Tax % Tax (10.6) (6.6) (0.0) Net Profit- Reported (523) (1,957) (3,300) YoY Growth (%) (95.0) (94.8) (634.0) Net Profit- Adjusted (523) (1,957) (3,300) Net Profit Margin (%) (18.2) (52.7) (66.0) 5

6 Balance Sheet Statement Y/E March (Rs mn) FY11 FY12 FY13 FY14 FY15 SOURCES OF FUNDS Share Capital ,110 Reserves & Surplus 6,757 8,205 9,427 7,921 4,772 Total Shareholder's funds 7,021 8,469 9,710 8,204 7,882 Minority Interest 977 1,262 1,586 1, LT Borrowings 13,144 27,615 35,778 45,010 57,062 Other LT Liabilities 1 1 4,181 22,415 22,330 LT Provisions ,392 29,268 41,660 69,666 80,957 Short term borrowings ,007 4,977 Trade payables Other current liabilities 1,576 1,755 1,182 3,562 4,642 Short term provisions ,600 2,196 2,477 8,348 10,113 Total Liabilities 23,014 39,933 53,846 86,219 98,952 Application of Funds Tangible Assets CWIP Intangible Assets 6,915 6,734 30,531 69,791 70,523 Intangible Assets under dev. 9,682 26,217 16,653 7,762 19,378 Goodwill on Consolidation ,183 Non Current Investments Long term loans and advances 4,221 3,515 3,663 5,351 3,632 Other non-current assets ,218 37,464 51,894 84,033 95,512 Current Investments , Trade Receivables Cash & Bank Balances 518 1, ,696 ST Loans & Advances 690 1, Other Current Assets Total Current Assets 1,796 2,468 1,952 2,185 3,441 Total Assets 23,014 39,933 53,846 86,219 98,952 6

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