Asset monetisation: Sadbhav group engineers 1.7 times return on investment

Re-rating of stock likely after transaction but eyes will be on new order wins, scaling up of operations

The much-awaited monetisation of assets has taken place at Sadbhav group.
 
Sadbhav Infrastructure Projects (SIPL), a subsidiary   of Sadbhav Engineering (SEL), will sell nine operational road projects to IndInfravit Trust, which will provide the funds needed for deleveraging.
 
This will also help it infuse equity, fund new projects, and boost new order wins. The deal pegs the enterprise value of SIPL’s nine assets at Rs 6,610 crore.
 
This includes net debt of Rs 4,060 crore, which will be transferred to IndInfravit Trust, while the equity value is pegged at Rs 2,550 crore.
 
That the firm was able to recover 1.7 times its equity investments made in those assets, in depressed market conditions, is a positive.
 
Of the Rs 2,550 crore in equity proceeds, some will be in the form of units in IndInfravit, while Rs 1,900 crore is the cash consideration. SIPL will pay its parent SEL Rs 600 crore, which the latter could use to pay out its debt of Rs 1,450 crore.

 
While improvement in the balance sheet will be positive, whether Sadbhav Engineering uses its balance sheet to fund SIPL’s requirements for new projects remains to be seen, as this could again increase its debt load, say analysts at Motilal Oswal Financial Services.
 
The Street, possibly, remains watchful as the stock has declined in the last two trading sessions after the deal announcement on Monday.
 
SIPL will be left with three operational projects after the asset monetisation, in addition to the 12 HAM (Hybrid Annuity Model) projects at various stages of construction.
 
Cash received by way of monetisation will also help fund the remaining equity requirement in the HAM projects, in addition to aiding in debt reduction. Therefore, the analysts see the overall development in positive light.
 
Analysts at Antique Stock Broking say there is a case for rerating after closing of the transaction.
 
Edelweiss Research believes that future project wins will come as major boosts for the stock. A lot, however, depends on the ability of the group to meaningfully scale up its business.