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For 3QFY2011, Simplex Infra (SI) posted lacklustre and lower-than-expected
performance on a standalone basis. At the end of the quarter, SI’s order book
(OB) stood at `13,912cr (2.9x FY2011E revenues). Order inflow of `2,128cr
(including captive orders of `500cr). The company is facing slowdown on the
international front (cancellation of Libyan orders worth `590cr in 2QFY2011)
and is venturing into newer geographies leading to stretched working capital and
higher interest cost. We revise our estimates and target multiple downwards to
reflect the weak results. Hence, we downgrade the stock to Accumulate from Buy.
Results disappoint: For 3QFY2011, SI posted yoy top-line growth of mere 9.4%
v/s our expectation of 17.4%. The company is most likely to miss its revenue
guidance of 15% for FY2011, which was lowered in 2QFY2011 by 15-20%. We
have factored in the same in our estimates and pruned our FY2011 and FY2012
estimates accordingly. OPM stood flat yoy at 9.2% (9.1%), with interest cost
increasing on the back of rates hardening from an average 5.9% in 4QFY2010
to 6.4% in 1QFY2011 and 7.2% in 2QFY2011 to 8.14% in 3QFY2011.
Outlook and Valuation: We are downgrading the stock to Accumulate from Buy
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) lower P/E multiple than its
historical average given that the company is expected to post subdued growth in
the near to medium term. Our revised Target Price for the stock is `378 (`521),
based on 12x (earlier 14x) FY2012E earnings.
Earnings under pressure due to subdued top-line and increasing
interest burden
On the operating front, EBITDA margins for the quarter came in at 9.2% (9.1%),
below our estimate of 10.0%. The company continues to be conservative and
selective in order bidding and has given guidance of EBITDA margins of
~10.0-10.5% for FY2011 and FY2012. Interest cost during the quarter increased
with the rates hardening from an average of 5.9% in 4QFY2010 to 6.4% in
1QFY2011 to 7.2% in 2QFY2011 to 8.14% in 3QFY2011. Hence, bottom-line
de-grew to `23.0cr (`23.1cr).
Order book analysis
SI’s OB as on 3QFY2011 stood at `13,912cr (2.8x FY2011E revenues), which is
spread across eight segments. Order inflow stood at `2,128cr. The company is
facing slowdown on the international front (cancellation of Libyan orders worth
`590cr in 2QFY2011) for the past few quarters. However, management has
guided for an improving trend in order inflow as it has also ventured into newer
geographies.
Outlook and Valuation
We are downgrading the stock to Accumulate from Buy 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) lower P/E multiple than its historical average given that the
company is expected to post subdued growth in the near to medium term. Our
revised Target Price for the stock is `378 (`521), based on 12x (earlier 14x)
FY2012E earnings.
Investment Arguments
Diversified play
SI is one of the oldest infrastructure companies in India (over eight decades of
work log). Since inception, it has been involved in the different segments of the
infrastructure sector from piling (1924) to power (1960), to roads, railways and
bridges (1980), and the real estate business (2007). SI has executed over 2,300
projects, and is currently involved in 150 ongoing projects in India and abroad.
This indicates the company's execution capabilities, apart from qualifying it to
successfully execute complex and numerous projects on time. The company is also
well-spread geographically, with a presence in the Middle-Eastern countries of
Qatar, Oman, Dubai and Abu Dhabi (17.7% of the order backlog). In terms of its
client profile too, SI has a healthy mix of government and private sector projects.
This successful diversification has not only provided the company the experience of
executing different and complex projects, but also qualified it to bid for bigger
ticket size projects going ahead.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Simplex Infrastructures – 3QFY2011 Result Update
Angel Broking recommends an Accumulate on Simplex Infrastructures with a Target Price of Rs. 378.
For 3QFY2011, Simplex Infra (SI) posted lacklustre and lower-than-expected
performance on a standalone basis. At the end of the quarter, SI’s order book
(OB) stood at `13,912cr (2.9x FY2011E revenues). Order inflow of `2,128cr
(including captive orders of `500cr). The company is facing slowdown on the
international front (cancellation of Libyan orders worth `590cr in 2QFY2011)
and is venturing into newer geographies leading to stretched working capital and
higher interest cost. We revise our estimates and target multiple downwards to
reflect the weak results. Hence, we downgrade the stock to Accumulate from Buy.
Results disappoint: For 3QFY2011, SI posted yoy top-line growth of mere 9.4%
v/s our expectation of 17.4%. The company is most likely to miss its revenue
guidance of 15% for FY2011, which was lowered in 2QFY2011 by 15-20%. We
have factored in the same in our estimates and pruned our FY2011 and FY2012
estimates accordingly. OPM stood flat yoy at 9.2% (9.1%), with interest cost
increasing on the back of rates hardening from an average 5.9% in 4QFY2010
to 6.4% in 1QFY2011 and 7.2% in 2QFY2011 to 8.14% in 3QFY2011.
Outlook and Valuation: We are downgrading the stock to Accumulate from Buy
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) lower P/E multiple than its
historical average given that the company is expected to post subdued growth in
the near to medium term. Our revised Target Price for the stock is `378 (`521),
based on 12x (earlier 14x) FY2012E earnings.
Top-line disappoints once again; Company to miss its guidance
For 3QFY2011, SI posted yoy top-line growth of mere 9.4% v/s our expectation of
17.4% and lower than consensus estimates also by 10-15%. The major reasons
cited for the same were de-growth recorded by the international segment.
SI’s order inflow for the quarter stood at `2,128cr (including the captive order of
`500cr). The company is 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.
Against this backdrop, we have pruned our FY2011 and FY2012 top-line estimates
to factor in slower growth in the international segment and gestation period of the
newer segments.
Earnings under pressure due to subdued top-line and increasing
interest burden
On the operating front, EBITDA margins for the quarter came in at 9.2% (9.1%),
below our estimate of 10.0%. The company continues to be conservative and
selective in order bidding and has given guidance of EBITDA margins of
~10.0-10.5% for FY2011 and FY2012. Interest cost during the quarter increased
with the rates hardening from an average of 5.9% in 4QFY2010 to 6.4% in
1QFY2011 to 7.2% in 2QFY2011 to 8.14% in 3QFY2011. Hence, bottom-line
de-grew to `23.0cr (`23.1cr).
Order book analysis
SI’s OB as on 3QFY2011 stood at `13,912cr (2.8x FY2011E revenues), which is
spread across eight segments. Order inflow stood at `2,128cr. The company is
facing slowdown on the international front (cancellation of Libyan orders worth
`590cr in 2QFY2011) for the past few quarters. However, management has
guided for an improving trend in order inflow as it has also ventured into newer
geographies.
Outlook and Valuation
We are downgrading the stock to Accumulate from Buy 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) lower P/E multiple than its historical average given that the
company is expected to post subdued growth in the near to medium term. Our
revised Target Price for the stock is `378 (`521), based on 12x (earlier 14x)
FY2012E earnings.
Investment Arguments
Diversified play
SI is one of the oldest infrastructure companies in India (over eight decades of
work log). Since inception, it has been involved in the different segments of the
infrastructure sector from piling (1924) to power (1960), to roads, railways and
bridges (1980), and the real estate business (2007). SI has executed over 2,300
projects, and is currently involved in 150 ongoing projects in India and abroad.
This indicates the company's execution capabilities, apart from qualifying it to
successfully execute complex and numerous projects on time. The company is also
well-spread geographically, with a presence in the Middle-Eastern countries of
Qatar, Oman, Dubai and Abu Dhabi (17.7% of the order backlog). In terms of its
client profile too, SI has a healthy mix of government and private sector projects.
This successful diversification has not only provided the company the experience of
executing different and complex projects, but also qualified it to bid for bigger
ticket size projects going ahead.
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