Simplex Infrastructures – ADD Muted 2Q:: IIFL

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Simplex Infrastructures – ADD Muted 2Q


• Simplex Infra’s 2QFY11 revenue growth of 2.6% YoY was lower than
our muted expectation. FY11 revenue growth guidance of 15%
implies 25% growth in 2HFY11 versus 4% growth in 1HFY11.
• Order inflow at Rs22.3bn was strong helped by Rs5bn order for its
captive BOT road project. End-2QFY11 order book of Rs129.7bn
provides visibility for the next nine quarters.
• While interest costs were stable in 2Q, it remains a concern due to
rising debt level (up 10.5% during 1HFY11). Increase in workingcapital
cycle from 103 days in FY10 to 124 days currently necessitated
the higher borrowings. The management is targeting a workingcapital
cycle of ~95 days over the next four quarters.
• At 11.1x FY11 PER, the stock is trading at reasonable valuations.
Ramp-up in execution rate holds the key for a rerating. Maintain ADD.


• 2Q revenue growth of 2.6% was impacted by a 54% YoY decline in
overseas revenues due to lacklustre order booking in those
geographies. Domestic revenues grew 23% YoY in 2Q. Given that
order inflow during last three quarters has been for domestic projects,
2HFY11 revenue growth of 25% would be driven by domestic projects.
• 1Q order inflow includes a Rs5bn order from the captive BOT road
project where Simplex has a 26% stake. Another Rs5.5bn from this
project is also included in the Rs12.2bn L1 orders as of end-2QFY11.
• Post the Rs40.9bn order inflow in 1H, the management was confident
of overshooting its order inflow target of Rs65bn in FY11. New orders
would be driven by the power, urban infra, building, industrial and
road sectors. 3Q should also see good traction in international orders.
• The management expects to maintain margins and does not see risk
from hardening raw-material prices as fixed-price orders contribute
only 7%-8% of order book and these too are short cycle piling orders.
• Simplex holds 26% stake in the Rs16.3bn Chandikole-Bhubaneshwar
BOT road project. The company would execute the entire EPC work
worth Rs13bn (Rs5bn included in order book). The tolling would start
post achieving financial closure by December 10.