Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Simplex Infra
The dark horse
ƒ Strong E&C player with robust growth outlook
ƒ FY10-13E earnings CAGR of 24%; expect EBIT & NPM expansion
ƒ Capacity to sustain growth; no additional equipment required
ƒ TP INR481: Core construction INR472, highway BOT INR9
We initiate coverage on Simplex
Infrastructure (Simplex), an engineering
and construction company, with a BUY
and a target price of INR481.
Strong revenue and EPS growth,
stable EBITDA
Simplex’s 1HFY11 order book, at
INR129.6b (2.6x FY11E revenue),
provides revenue visibility for the next 2-3
years. We estimate FY10-13E revenue
CAGR of 16.2%. Simplex had strong
order inflow of INR58b in 9MFY11, an
increase of 55.3% y-y. We estimate order
growth of 33.7% y-y in FY11 (INR400b bid
pipeline). EBITDA margins should remain
stable, as 92% of the order book is protected by escalation clauses. We
estimate an expansion in EBIT (70bp) and net margins (60bp) and 24%
FY10-13E earnings CAGR.
Latent capacity potential, at an inflection point
Simplex has invested heavily in its equipment and manpower base. We
believe this latent potential has been under-utilised in the last 2-3 years
and has been an overhang on the share price. We estimate FY10-13E
revenue CAGR of 16.2%, resulting in improved utilisation with better
efficiency metrics. Management has indicated that the existing equipment
base is sufficient to support annual turnover of INR65b-70b. This implies
that the company does not need additional equipment for 2-3 years (our
FY13 revenue estimate is INR69.9b). We expect asset turnover to
improve to 4.1x (3.6x in FY10) and revenue per employee to 6.8x (5.8x in
FY10) by FY13.
Low equity dilution risk; working capital under control
Simplex is one of the few construction companies that does not suffer
from an equity dilution overhang. Internal accruals are sufficient for capex
and equity commitments in existing build-operate-transfer (BOT) projects.
On the balance sheet front, the working-capital-to-sales ratio of 0.3x is
below the peer average of 0.5x. The company has a better ROE profile
(16.9% by FY13E) than peers we cover (Simplex’s FY10 ROE of 13.1%
was higher than the peer average of 10.1%). We estimate Simplex’s
FY13E net debt to equity of 0.9x.
Valuation
We arrive at our fair value estimate of INR481, based on a SoTP
valuation. The core construction company contributes INR472 to our fair
value, based on a 5.5x rolling one-year forward EV/EBITDA multiple
(implied FY12E P/E of 12.5x, which is the historically traded mean for the
stock ex-peak cycle). Simplex’s 26% stake in highway BOT contributes
INR9 (on a DCF valuation) to our fair value
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Simplex Infra
The dark horse
ƒ Strong E&C player with robust growth outlook
ƒ FY10-13E earnings CAGR of 24%; expect EBIT & NPM expansion
ƒ Capacity to sustain growth; no additional equipment required
ƒ TP INR481: Core construction INR472, highway BOT INR9
We initiate coverage on Simplex
Infrastructure (Simplex), an engineering
and construction company, with a BUY
and a target price of INR481.
Strong revenue and EPS growth,
stable EBITDA
Simplex’s 1HFY11 order book, at
INR129.6b (2.6x FY11E revenue),
provides revenue visibility for the next 2-3
years. We estimate FY10-13E revenue
CAGR of 16.2%. Simplex had strong
order inflow of INR58b in 9MFY11, an
increase of 55.3% y-y. We estimate order
growth of 33.7% y-y in FY11 (INR400b bid
pipeline). EBITDA margins should remain
stable, as 92% of the order book is protected by escalation clauses. We
estimate an expansion in EBIT (70bp) and net margins (60bp) and 24%
FY10-13E earnings CAGR.
Latent capacity potential, at an inflection point
Simplex has invested heavily in its equipment and manpower base. We
believe this latent potential has been under-utilised in the last 2-3 years
and has been an overhang on the share price. We estimate FY10-13E
revenue CAGR of 16.2%, resulting in improved utilisation with better
efficiency metrics. Management has indicated that the existing equipment
base is sufficient to support annual turnover of INR65b-70b. This implies
that the company does not need additional equipment for 2-3 years (our
FY13 revenue estimate is INR69.9b). We expect asset turnover to
improve to 4.1x (3.6x in FY10) and revenue per employee to 6.8x (5.8x in
FY10) by FY13.
Low equity dilution risk; working capital under control
Simplex is one of the few construction companies that does not suffer
from an equity dilution overhang. Internal accruals are sufficient for capex
and equity commitments in existing build-operate-transfer (BOT) projects.
On the balance sheet front, the working-capital-to-sales ratio of 0.3x is
below the peer average of 0.5x. The company has a better ROE profile
(16.9% by FY13E) than peers we cover (Simplex’s FY10 ROE of 13.1%
was higher than the peer average of 10.1%). We estimate Simplex’s
FY13E net debt to equity of 0.9x.
Valuation
We arrive at our fair value estimate of INR481, based on a SoTP
valuation. The core construction company contributes INR472 to our fair
value, based on a 5.5x rolling one-year forward EV/EBITDA multiple
(implied FY12E P/E of 12.5x, which is the historically traded mean for the
stock ex-peak cycle). Simplex’s 26% stake in highway BOT contributes
INR9 (on a DCF valuation) to our fair value
No comments:
Post a Comment