Stock Report On Sadbhav Engineering

Stock report on mid cap stock Sadbhav Engineering with stock price target. It is one of the good stocks to buy from Infrastructure sector with interests and operations in mining industry.

Sadbhav Engineering Ltd. is a leading Infrastructure company operating in the road
construction and the BOT segment. Prospects for Sadbhav look promising as there is huge market opportunity in roads BOT over the next 5 years and also for the mining sector where demand is seen increasing from the power, metals and cement industries. With higher orders expected from the mining sector (submitted bids worth Rs6000 Cr, expected order book to be 32.8% from mining in FY13), the OPM is also expected to improve going forward.

Huge Opportunity in Roads and Highways
Over the last year, the government has brought the plans for upgrading roads & highways on the front burner and it has now become its top priority. The NHAI has plans to award roads & highways projects worth around 33000 km over the next 4-5 years. Sadbhav Engineering Ltd (SEL) is expected to be a major beneficiary of this in the years to come.

Mining to spearhead future growth
Going forward we expect mining to be a major growth driver for SEL as there exist a huge opportunity in mining owing to increased demand for coal, iron and other minerals. According to the business monitor international, the overall mining industry is expected to grow at a CAGR of 9% during FY8-FY12 reaching Rs 1.9 trillion by 2012. It is expected to contribute 2.7% to the GDP in FY12 from currently around 2%.

Stock Valuation
SEL’s execution capabilities are good. Sadbhav Engineering is going to be one of the major beneficiaries of the upcoming investment in the roads and highways. We can reckon that the management has rightly identified mining as a next big opportunity and has already started working towards that. This will benefit the future revenue growth as well as operating margins as mining projects yield better operating margins.

As per business valuations done by stock market investment research team of Anagram securities, the core construction business of the company contributes Rs 611 per share (11 times FY11E EPS compared to 15 times and 14 times for Nagarjuna Const and IVRCL Infra respectively). The BOT projects, contribute Rs 1002 per share taking 1 year forward stock price target to Rs 1613 (upside of 23% from current levels). Stock broking house has initiated coverage of SEL with a BUY STOCKS rating.

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