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Domestic order book will lead growth
Simplex believes book to bill ratio of 2.8x provides enough revenue visibility over the next two years. Maintaining its
stance that it will not bid for road projects with an equity IRR below 20% to accelerate order inflow accretion.
Expects diversified construction capabilities to help mitigate risk of slowdown in any particular segment. The company
plans to maintain a healthy mix of project size/quality to achieve a minimum EBITDA margin of 10-10.5%.
Near-term revenues are likely to be dependent on domestic order book, with the international segment likely to pick up in
the medium to long term.
Revenue guidance for FY11 lowered to 10% from 15%; expects EBITDA margin to remain at 10-10.5%.
Simplex has cut back its entry into Libya (cancelled existing order – 5% of order book) and re-mobilized resources
(booked INR32m loss on re-mobilization during H1 FY11).
While working capital demand remains high at c125-130 days, Simplex has initiated actions to bring it down by
concentrating on private sector orders and short duration projects.
Valuation and risks
We value Simplex at INR494 (12x FY12e EPS). Our target PE of 12x is in line with peers valued between 10-12x.
Execution delays coupled with working capital deterioration are key downside risks to our valuation and a faster than
expected scale-up in order book is a key upside risk.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Domestic order book will lead growth
Simplex believes book to bill ratio of 2.8x provides enough revenue visibility over the next two years. Maintaining its
stance that it will not bid for road projects with an equity IRR below 20% to accelerate order inflow accretion.
Expects diversified construction capabilities to help mitigate risk of slowdown in any particular segment. The company
plans to maintain a healthy mix of project size/quality to achieve a minimum EBITDA margin of 10-10.5%.
Near-term revenues are likely to be dependent on domestic order book, with the international segment likely to pick up in
the medium to long term.
Revenue guidance for FY11 lowered to 10% from 15%; expects EBITDA margin to remain at 10-10.5%.
Simplex has cut back its entry into Libya (cancelled existing order – 5% of order book) and re-mobilized resources
(booked INR32m loss on re-mobilization during H1 FY11).
While working capital demand remains high at c125-130 days, Simplex has initiated actions to bring it down by
concentrating on private sector orders and short duration projects.
Valuation and risks
We value Simplex at INR494 (12x FY12e EPS). Our target PE of 12x is in line with peers valued between 10-12x.
Execution delays coupled with working capital deterioration are key downside risks to our valuation and a faster than
expected scale-up in order book is a key upside risk.
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