Sadbhav Engineering (SEL) posted 23% q-o-q decline (up 4% y-o-y) in Q4FY21 top line; however, exceptional items and tax write-back boosted profitability with PAT rising 341% q-o-q. Toll collection fell 8% q-o-q. Order book declined q-o-q to ~Rs 93 bn; fall in revenue (down 28% y-o-y) means book-to-bill remains optically elevated at 5.7x. Working capital cycle deteriorated to 527 days (489 at end-Q3FY21).
Muted order inflows, sluggish execution and stretched working capital cycle are major concerns stalling the business, in our view. Asset monetisation and deleveraging are urgently needed 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 required and exceptional profits lifted Ebitda margin by 370bps y-o-y and 280bps q-o-q to 16.1%. The company 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 company has completed the entire equity infusion of Rs 10.7 bn in its HAM portfolio. It is looking to monetise the Ahmedabad Ring Road (ARRIL) project, the Maharashtra Border Check Post (MBCPNL) project and the three HAM projects that have achieved PCOD. We believe this is paramount for the company to deleverage its balance sheet and improve execution.
Outlook: Discontinuing coverage– Incremental order intake, pick-up in execution, improvement in working capital cycle, reduction in debt and timely asset monetisation will be the key triggers, in our view.