Accumulate Simplex Infra; target Rs 235: Aditya Birla Money

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Accumulate Simplex Infra; target Rs 235: Aditya Birla Money

Aditya Birla Money has maintained accumulate rating on Simplex Infra with a revised target price of Rs 235.9 in its November 22, 2011 research report.

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Aditya Birla Money has maintained accumulate rating on Simplex Infra with a revised target price of Rs 235.9 in its November 22, 2011 research report.

"Simplex Infrastructures (SIL) sales grew by 25.7%y-o-y and 4.8% q-o-q to Rs 13,220 mn despite a seasonally weak quarter; mainly on account of growth in the international business which was declining over the past couple of quarters. The company's order inflow during H1FY12 has been strong (received orders worth ~ Rs 19,000mn in H1F12) taking the order backlog to Rs 150339 mn; however the management has indicated that H2FY12 seems to be a challenging environment and hence has also revised its order inflow guidance for FY12E from Rs 80bn to Rs 70-75bn."

"The company's operating profit increased by 12.8% y-o-y to Rs 1,190mn; however the operating margin shrinked marginally by 50bps to 9.0% mainly due to increase in raw material expenses and MTM forex loss of Rs 60mn; Adjusted for MTM loss the margin has been flat at 9.5%. We expect the company to maintain the operating margin at ~9.5-9.7% levels given the order book quality and majority of the order book (~80%) under price escalation clause."

"SIL's strong order intake coupled with execution capabilities lends comfort on the revenue front while the quality order book and risk mitigation strategies provide sufficient comfort on the sustainability of the operating performance. The biggest concern is the balance sheet (D:E-1.6:1) which has been deteriorating (in line with peer group) due to intense competitive scenario and overall slowdown in the industry on account of various issues; however management has indicated that it will be focusing more on its balance sheet and will be selective in order bidding."

"Despite strong top-line performance we maintain our top-line estimates; however given the increasing competitive business environment (factoring higher working capital days and slow down in real estate and power sector which comprises ~40% of the order book) we tone down our profit estimates by 30% and 6.5% for FY12E and FY13E respectively and maintain our "Accumulate" rating with a revised target price of Rs 235.9 (previously Rs 251.2), says Aditya Birla Money report.

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To read the full report click on the attachment