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Simplex --------------------------------------------------------------------------------- Maintain NEUTRAL
3Q11 disappoints mainly on account of decline in international revenues
● Simplex’s 3Q FY11 recurring PAT at Rs232 mn was flat YoY and
31% below our estimates. Key reason for the disappointment was
lower-than-expected revenue from its international business that
constitutes 12% of sales and declined 46% YoY.
● Lower-than-expected sales hit operating margins led by operating
leverage which, combined with a high interest expense on
account of rising interest rates and a high working capital cycle (at
114 days versus 95 days at Mar 2010), led to muted profits.
● Simplex cut its sales guidance for FY11 to 10% growth compared
to 15% earlier. However, it guided for recovery in international
business from 4Q FY11 onwards and expects its FY12 sales
growth at 20-25%. We are at the lower end of this guidance.
Management guided for operating margins to be in the range of
10-10.5% versus our estimate of 9.8%.
● We cut our EPS by 17-23% over FY11-13E, led by weak 3Q
results, high working capital cycle and borrowing costs and
slower-than-expected execution at international orders. We cut
our target price to Rs376 and maintain our NEUTRAL rating.
3Q11 disappoints on lower international revenues
Simplex’s 3Q FY11 results were disappointing as reported PAT of
Rs232 mn was 31% below our estimates and was flat YoY. Key
reason was lower-than-expected revenue of Rs10.7 bn (up only 9%
YoY versus our expectations of a 14% growth). Revenues were
mainly driven by domestic sales (up 28% YoY) and comprised 88% of
total sales. Disappointment in sales was led by a 46% YoY decline in
its overseas revenues. Lower-than-expected sales impacted operating
margins on account of operating leverage. This combined with high
interest expense on account of rising interest rates and increased
borrowings to finance a high working capital cycle led to flat growth in
profits. Working capital cycle net of cash is now at 114 days (versus
95 days as of Mar 2010). However, the company has been able to
maintain its working capital cycle sequentially unlike its peers that
have seen a deterioration led by delayed payments on government
contracts.
Guidance for FY11 lowered, expects robust growth in FY12
Management has cut its sales guidance for FY11. It now expects 10%
sales growth (implies 20% YoY growth for 4Q FY11) compared to its
earlier guidance of 15%.
Management expects its overseas sales to pick-up going forward.
Simplex highlighted that the magnitude of decline in overseas
revenues has already started to slow down with a decline of only 7%
YoY during Dec-10. It expects to start witnessing a growth in overseas
sales from 4Q FY11. Management has also guided for a 20-25%
revenue growth during FY12. Based on our estimates, we are
currently at the lower-end of this guidance. Operating margins are
expected to be in the range of 10-10.5% versus our estimate of 9.8%.
Orderbook remains robust at Rs139 bn
Simplex’s orderbook at Rs139 bn as of Dec-10, increased 31% YoY.
Order inflow during 3Q was at Rs21.3 bn, of which Rs1.9 bn was
earned from overseas orders. The company has been able to garner
strong order inflows during 9M FY11 at Rs62 bn, which is equivalent
to 84% of our FY11 order inflow estimates. We expect our order inflow
estimates to be met as the company has already won orders worth
Rs9 bn during Jan 2011 and is the lowest bidder in orders worth
another Rs19.4 bn. Simplex expects to have an orderbook of about
Rs150 bn by Mar 2011 (Rs143 bn as per our estimates). Besides,
Simplex’s orderbook is well diversified across business segments –
power (24%), buildings & housing (20%), industrials (16%), urban
utilities (14%), transportation (19%); geographies – 85% domestic,
15% overseas; and client base – government (33%), private sector
(60%) & BoT projects (7%).
Cut EPS by 17-23% over FY11-13, target price to Rs376
We cut our EPS by 17-23% over FY11-13E led by weak 3Q results,
high working capital cycle and borrowing costs and slower-thanexpected
execution at international orders. Consequently, we cut our
target price to Rs376 from Rs491 and maintain our NEUTRAL rating.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Simplex --------------------------------------------------------------------------------- Maintain NEUTRAL
3Q11 disappoints mainly on account of decline in international revenues
● Simplex’s 3Q FY11 recurring PAT at Rs232 mn was flat YoY and
31% below our estimates. Key reason for the disappointment was
lower-than-expected revenue from its international business that
constitutes 12% of sales and declined 46% YoY.
● Lower-than-expected sales hit operating margins led by operating
leverage which, combined with a high interest expense on
account of rising interest rates and a high working capital cycle (at
114 days versus 95 days at Mar 2010), led to muted profits.
● Simplex cut its sales guidance for FY11 to 10% growth compared
to 15% earlier. However, it guided for recovery in international
business from 4Q FY11 onwards and expects its FY12 sales
growth at 20-25%. We are at the lower end of this guidance.
Management guided for operating margins to be in the range of
10-10.5% versus our estimate of 9.8%.
● We cut our EPS by 17-23% over FY11-13E, led by weak 3Q
results, high working capital cycle and borrowing costs and
slower-than-expected execution at international orders. We cut
our target price to Rs376 and maintain our NEUTRAL rating.
3Q11 disappoints on lower international revenues
Simplex’s 3Q FY11 results were disappointing as reported PAT of
Rs232 mn was 31% below our estimates and was flat YoY. Key
reason was lower-than-expected revenue of Rs10.7 bn (up only 9%
YoY versus our expectations of a 14% growth). Revenues were
mainly driven by domestic sales (up 28% YoY) and comprised 88% of
total sales. Disappointment in sales was led by a 46% YoY decline in
its overseas revenues. Lower-than-expected sales impacted operating
margins on account of operating leverage. This combined with high
interest expense on account of rising interest rates and increased
borrowings to finance a high working capital cycle led to flat growth in
profits. Working capital cycle net of cash is now at 114 days (versus
95 days as of Mar 2010). However, the company has been able to
maintain its working capital cycle sequentially unlike its peers that
have seen a deterioration led by delayed payments on government
contracts.
Guidance for FY11 lowered, expects robust growth in FY12
Management has cut its sales guidance for FY11. It now expects 10%
sales growth (implies 20% YoY growth for 4Q FY11) compared to its
earlier guidance of 15%.
Management expects its overseas sales to pick-up going forward.
Simplex highlighted that the magnitude of decline in overseas
revenues has already started to slow down with a decline of only 7%
YoY during Dec-10. It expects to start witnessing a growth in overseas
sales from 4Q FY11. Management has also guided for a 20-25%
revenue growth during FY12. Based on our estimates, we are
currently at the lower-end of this guidance. Operating margins are
expected to be in the range of 10-10.5% versus our estimate of 9.8%.
Orderbook remains robust at Rs139 bn
Simplex’s orderbook at Rs139 bn as of Dec-10, increased 31% YoY.
Order inflow during 3Q was at Rs21.3 bn, of which Rs1.9 bn was
earned from overseas orders. The company has been able to garner
strong order inflows during 9M FY11 at Rs62 bn, which is equivalent
to 84% of our FY11 order inflow estimates. We expect our order inflow
estimates to be met as the company has already won orders worth
Rs9 bn during Jan 2011 and is the lowest bidder in orders worth
another Rs19.4 bn. Simplex expects to have an orderbook of about
Rs150 bn by Mar 2011 (Rs143 bn as per our estimates). Besides,
Simplex’s orderbook is well diversified across business segments –
power (24%), buildings & housing (20%), industrials (16%), urban
utilities (14%), transportation (19%); geographies – 85% domestic,
15% overseas; and client base – government (33%), private sector
(60%) & BoT projects (7%).
Cut EPS by 17-23% over FY11-13, target price to Rs376
We cut our EPS by 17-23% over FY11-13E led by weak 3Q results,
high working capital cycle and borrowing costs and slower-thanexpected
execution at international orders. Consequently, we cut our
target price to Rs376 from Rs491 and maintain our NEUTRAL rating.
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