SIMPLEX INFRASTRUCTURES- Steady quarter led by strong order intake:Edelweiss

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􀂄 Revenue and EBITDA margin remain flat
Simplex Infrastructures’ (SINF) Q2FY11 standalone revenues were marginally
below our estimate. Revenue, at INR 10.5 bn, grew 3% Y-o-Y, but dipped 10.6%
Q-o-Q. EBITDA margin, at 10.1%, was more or less flat Q-o-Q but declined
30bps Y-o-Y. Tight control on capital costs translated into PAT of INR 269 mn,
higher than our estimate. PAT margin, at 2.6%, declined 10bps Y-o-Y and 50bps
Q-o-Q.


Top line growth could have been higher but for heavy monsoon which affected
revenue booking in some domestic projects. Also, pick up in execution on some
power projects in the domestic territory was lower than expected; the same is
now expected in the subsequent quarter. Profitability was impacted by increase
in working capital cycle, which led to increase in borrowings.

􀂄 Order intake maintains upwards trajectory
Revival in order intake continued for SINF with fresh orders during the quarter at
~INR 22.3 bn (INR 18.6 bn in Q1FY11). Order book at Q2FY11 end was INR 129
bn against INR 123 bn at Q1FY11 end and INR 115 bn at FY10 end. In addition,
L1 orders at the end of quarter stood at INR 12.2 bn.
SINF is witnessing significant traction in the power, buildings, urban infra and
industrial segments. While its overseas order intake was muted during the
quarter, it expects revival of order intake in foreign markets going ahead.

􀂄 Outlook and valuations: Positive; maintain ‘HOLD’
We have calibrated our estimates keeping in mind H1FY11 performance. At CMP
of INR 462, for revised fully diluted standalone EPS estimate of INR 29.2 and
INR 38.4, SINF is trading at P/E of 15.8x and 12.0x FY11E and FY12E,
respectively.

We believe the company’s long-term outlook is promising, it being the most
diversified contractor, both segment-wise and geographically. It stands to
benefit handsomely from the upturn in the private sector capex which is likely to
boost margins and improve working capital. We expect future stock performance
to track order intake and execution. We maintain ‘HOLD’ recommendation on
the stock and rate it ‘Sector Performer’ on relative return basis.