Sadbhav Infrastructure: RTI to MSRDC provides clarity on MBCP; reiterate LONG |Sadbhav Infrastructure: Event Update | IndiaNotes.com
In a reply to a RTI filed by us, the Maharashtra State Road Development Corporation (MSRDC) has confirmed that the Transport Department will continue to operate at Sadbhav Infra’s (SIPL) flagship Maharashtra Border Check Post (MBCP) Project even post GST. We have also updated the SPV-wise Annual Reports for FY17 and the latest toll-collection data. With +2%/+12% EE/yoy toll collections and positive channel checks on resumption of activity across corridors, we expect a decent recovery in traffic post the dual blows of demonetisation and GST. Maintain LONG with a rolled over Sep’18 SoTP-based TP of Rs 161 (from a Jun’18 TP of Rs 137 earlier).
2QFY18 toll data indicates stabilization of traffic post GST: A positive surprise on 2QFY18 toll collections despite a weak first month suggests rising transport demand across verticals. Several projects like Rohtak-Panipat, Hyderabad-Yadgiri, Bhilwara-Rajsamand, Rohtak-Hissar, Dhule-Palasner and Shrinathjji-Udaipur saw ~10%+ yoy growth. We are confident of a three-year revenue CAGR of 14% over FY17A-FY20E, and see upside risks on certain corridors in case of a rise in construction activity.
MSRDC attributes MBCP delays to land acquisition: MSRDC clarified that land acquisition was one of the main reasons for MBCP project delays, and a favourable extension of time (EoT) is expected once the project attains COD. While we have not factored in EoT, two-thirds of the project is operational and we expect 20+ check posts to be operational by Mar’18. Given MBCP’s 41% share in gross project valuation, streamlining of this project is crucial for an overall re-rating.
On-track HAM execution to support standalone revenue growth: Work has commenced and is in full swing at five sites now, and should commence at all 7 sites by December. Given a high probability of HAM project awards over EPC/BOT in the coming 2-3 years, the likelihood of SIPL getting a multiple on this business is high if it manages to bag another 3-4 HAM projects in FY18E.
High financial flexibility in an operational portfolio: While near-term net worth could turn negative, SIPL is currently trading at fair valuations of 12.1x/11.0x FY19E/FY20E EV/EBITDA. The investment phase is now over, and SIPL should see higher revenues with inflation/traffic growth as finance costs reduce due to repayments. We also derive comfort from the financial flexibility of SIPL’s 100% operational toll portfolio with a reasonable history. Major risks are premature termination of any state concessions and lower growth.
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