Sadbhav Engineering (SEL) posted 23% q-o-q decline (up 4% y-o-y) in Q4FY21 best line on the other hand, exceptional things and tax create-back boosted profitability with PAT increasing 341% q-o-q. Toll collection fell 8% q-o-q. Order book declined q-o-q to ~Rs 93 bn fall in income (down 28% y-o-y) suggests book-to-bill remains optically elevated at 5.7x. Working capital cycle deteriorated to 527 days (489 at finish-Q3FY21).
Muted order inflows, sluggish execution and stretched working capital cycle are main issues stalling the small business, in our view. Asset monetisation and deleveraging are urgently required for operations to recover. We are discontinuing coverage our last recommendation was ‘BUY’.
Execution declines q-o-q order book falls: Write-back of provisions no longer essential and exceptional earnings lifted Ebitda margin by 370bps y-o-y and 280bps q-o-q to 16.1%. The enterprise did not win any order in Q4. It is bidding for road EPC projects to shore up its order book.
Focus on asset monetisation: The enterprise has completed the complete equity infusion of Rs 10.7 bn in its HAM portfolio. It is searching to monetise the Ahmedabad Ring Road (ARRIL) project, the Maharashtra Border Check Post (MBCPNL) project and the 3 HAM projects that have accomplished PCOD. We think this is paramount for the enterprise to deleverage its balance sheet and strengthen execution.
Outlook: Discontinuing coverage– Incremental order intake, choose-up in execution, improvement in working capital cycle, reduction in debt and timely asset monetisation will be the essential triggers, in our view.