Simplex Infrastructures
Price: Rs523 Target Price: Under Review
Sales disappoint but margin improve…
* FY10 sales guidance lowered to 10%: Simplex Infrastructures’
(Simplex) 2QFY10 sales growth remained low at 5% YoY. Management
indicated that current order book will sustain sales growth of 10% in
FY10E. EBITDA margin improved 60 bps YoY and coupled with lower
interest cost, PAT grew 12% YoY despite lower sales growth.
* Robust order book at Rs105 bn: Simplex maintained a robust order
book of Rs105 bn (2.3x FY09 sales) at the end of 2QFY10, driven by
Rs15 bn of order inflows (see Exhibit 1). The company is L1 on Rs7.4
bn worth of projects and has submitted bids for another Rs390 bn of
projects. Management indicated that they are looking to be selective in
their bidding strategy given focus on improving margins from current
levels. Higher margin power sector orders now contribute 27% of the
order book (See Exhibit 2) v/s 17% at the end of 2QFY09. Also, 32%
of the projects for which bids have been submitted are in power sector.
* Sluggish sales growth continue: Sales grew at 5% YoY in 2QFY10,
lower than expectation of 25%, due to slowdown in execution. The
sales growth in 2HFY10E will be higher given higher revenue
recognition. However, management lowered their FY10E sales growth
guidance to 10% from original 15-20%. Incremental upside in growth
would be driven by new order flows which are expected post Dec’10. In
terms of sector-wise distribution, power and industrial construction
segments contributed 38% of the revenues in 2QFY10 (See Exhibit 3).
* Margins improved by 60 bps YoY: Simplex’s EBITDA margins
remained stable at 10.4% v/s 10.3% in 1QFY10 and improved 60 bps
YoY in 2QFY10. Management indicated that the focus will be on
maintaining and improving over current levels of margin and guided
2HFY10 margins to be greater than 10%. Accordingly, new order
inflows in 2HFY10 will happen at margin levels higher than average
margin of 10.5% for the current order book.
* PAT increased 12% YoY despite lower sales growth: Simplex’s
PAT for 2QFY10 came in at Rs302 mn v/s Rs269 mn in 1QFY09. The
management indicated that cost of borrowings decreased 11% YoY and
17% on a sequential basis. Around 85% of the Rs13 bn of borrowings
(at the end of 2QFY10) are rupee denominated and the average cost is
now at around 8% p.a. Depreciation came in line.
* The stock is currently trading at PE of 17x and 13x on FY10E and
FY11E estimates respectively.
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