Simplex Infrastructures – 2QFY2011 Result Update- Angel Broking

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Simplex Infrastructures – 2QFY2011 Result Update

Angel Broking downgrades from Buy to Accumulate on Simplex Infrastructures with a revised Target Price of Rs521.

For 2QFY2011, Simplex Infra (SI) posted lacklustre and lower-than-expected

performance on a consolidated basis particularly on the earnings front. At the end

of the quarter, SI’s order book (OB) stood at `12,964cr (2.5x FY2011E revenues).

Order inflow at `1,729cr (adjusting for captive orders of `500cr) was below our

expectations and implies that the ordering environment for the company has still

not improved as expected. The company is also facing slowdown on the

international front (cancellation of Libyan orders in 2QFY2011 worth `590cr) and

is venturing into newer geographies leading to stretched working capital and

higher interest cost. We downgrade the stock to Accumulate from Buy.

Results disappoint: For 2QFY2011, SI posted yoy top-line growth of mere 2.6%

v/s our expectation of 4.9%. Management has lowered its revenue guidance to

15% for FY2011 from 15-20%; we have factored in the same in our estimates

and pruned our FY2011 and FY2012 estimates. OPM came in at 10.1% (10.4%).

Interest cost increased with the rates hardening from an average 5.9% in

4QFY2010 to 6.4% in 1QFY2011 and 7.2% in 2QFY2011.

Outlook and Valuation: We are downgrading the stock from Buy to Accumulate

on the back of: 1) poor quarterly performances and downward revision in

earnings estimates, 2) elongated working capital cycle on account of

diversification into newer geographies, and 3) steep run-up in the last few

quarters and rich valuations v/s peers given that the company is expected to turn

in subdued growth in the near to medium term. Hence, we downgrade the stock

to Accumulate from Buy, with a revised Target Price of `521 (`573) based on 14x

FY2012E earnings.