Superior margin show yet again…
• Simplex reported a topline of | 1347.4 crore (declined 3.4% YoY) vs.
our estimate of | 1436.5 crore, implying slower execution yet again
on account of stretched working capital
• The EBITDA margin, however, was ahead of our estimate at 11.3%
(our estimate: 10.5%) vs. 10.6% in Q1FY14 mainly due to reduction in
competitive intensity, in turn, better pricing
• The PAT was reported at | 12.7 crore vs. our estimate of | 9.6 crore
as superior margins partly offset the slower execution. The company
also had other income of | 11.1 crore vs. | 5.6 crore in Q1FY14
because of | 6 crore of non-recurring income
Expect 10% topline growth in FY15E…
SIL’s order book stood at | 16,128 crore, 3.0x book to bill. SIL had order
inflow of ~ | 2,200 crore in Q1FY15, which bodes well for execution,
going ahead. We also highlight that SIL will be a key beneficiary from the
anticipated recovery in the investment cycle given its higher exposure
towards the private sector (~52% of the order book). The company
indicated that it expects the topline growth of ~10% in FY15, which again
would depend on how the macroeconomic recovery shapes up.
Guiding for debt reduction in FY15 with payment cycle improvement…
Currently, the net debt stands at ~| 2900 crore (net debt to equity of 2x)
dragged mainly due to slow payment cycle and client side delays. Going
ahead, the management has indicated it is targeting a reduction of debt
by | 300 crore through collection drive and some arbitrations. We
highlight that an improvement in payment cycle will hold key for its
targeted debt reduction. However, we do not built up debt reduction as
the improvement in the working capital cycle is likely to be offset by a
pick-up in execution. Hence, we broadly build in gross debt of | 2900-
3000 crore during FY15-16E.
Earnings to grow at 49.7% CAGR during FY14-16E…
We anticipate SIL’s revenues will grow at a CAGR of 14.2% to | 7189
crore during FY14-16E on the back of a strong order book and a pick-up in
execution given the anticipated recovery in the investment cycle. This
coupled with stable margin and leverage, makes us anticipate net profit
will grow at 49.7% CAGR to | 135.8 crore during FY14-16E.
Quality play in EPC space on recovery; maintain BUY…
We like Simplex on account of its focus on the EPC business (no equity
commitment towards BOT portfolio), its strong well diversified order book
and relatively better quality of management & execution capabilities. We
also highlight that SIL will be a key beneficiary of the anticipated recovery
in the investment cycle given its higher exposure towards private sector
(~52% of the order book). We recommend BUY on the stock with a target
price of | 354/share. We have valued its EPC business at | 328/share (at
6x FY16 EV/EBITDA, which is still at ~25% discount to its average of
FY06-14).
��
• Simplex reported a topline of | 1347.4 crore (declined 3.4% YoY) vs.
our estimate of | 1436.5 crore, implying slower execution yet again
on account of stretched working capital
• The EBITDA margin, however, was ahead of our estimate at 11.3%
(our estimate: 10.5%) vs. 10.6% in Q1FY14 mainly due to reduction in
competitive intensity, in turn, better pricing
• The PAT was reported at | 12.7 crore vs. our estimate of | 9.6 crore
as superior margins partly offset the slower execution. The company
also had other income of | 11.1 crore vs. | 5.6 crore in Q1FY14
because of | 6 crore of non-recurring income
Expect 10% topline growth in FY15E…
SIL’s order book stood at | 16,128 crore, 3.0x book to bill. SIL had order
inflow of ~ | 2,200 crore in Q1FY15, which bodes well for execution,
going ahead. We also highlight that SIL will be a key beneficiary from the
anticipated recovery in the investment cycle given its higher exposure
towards the private sector (~52% of the order book). The company
indicated that it expects the topline growth of ~10% in FY15, which again
would depend on how the macroeconomic recovery shapes up.
Guiding for debt reduction in FY15 with payment cycle improvement…
Currently, the net debt stands at ~| 2900 crore (net debt to equity of 2x)
dragged mainly due to slow payment cycle and client side delays. Going
ahead, the management has indicated it is targeting a reduction of debt
by | 300 crore through collection drive and some arbitrations. We
highlight that an improvement in payment cycle will hold key for its
targeted debt reduction. However, we do not built up debt reduction as
the improvement in the working capital cycle is likely to be offset by a
pick-up in execution. Hence, we broadly build in gross debt of | 2900-
3000 crore during FY15-16E.
Earnings to grow at 49.7% CAGR during FY14-16E…
We anticipate SIL’s revenues will grow at a CAGR of 14.2% to | 7189
crore during FY14-16E on the back of a strong order book and a pick-up in
execution given the anticipated recovery in the investment cycle. This
coupled with stable margin and leverage, makes us anticipate net profit
will grow at 49.7% CAGR to | 135.8 crore during FY14-16E.
Quality play in EPC space on recovery; maintain BUY…
We like Simplex on account of its focus on the EPC business (no equity
commitment towards BOT portfolio), its strong well diversified order book
and relatively better quality of management & execution capabilities. We
also highlight that SIL will be a key beneficiary of the anticipated recovery
in the investment cycle given its higher exposure towards private sector
(~52% of the order book). We recommend BUY on the stock with a target
price of | 354/share. We have valued its EPC business at | 328/share (at
6x FY16 EV/EBITDA, which is still at ~25% discount to its average of
FY06-14).
Link
http://content.icicidirect.com/mailimages/IDirect_SimplexInfra_Q1FY15.pdf
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