Buy Simplex Infra; target of Rs 246: SPA Research

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Buy Simplex Infra; target of Rs 246: SPA Research

SPA Research is bullish on Simplex Infra and has recommended buy rating on the stock with a target of Rs 246 in its January 04, 2012 research report.

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SPA Research is bullish on Simplex Infra and has recommended buy rating on the stock with a target of Rs 246 in its January 04, 2012 research report.

"Simplex Infra (SIL) is one of the leading Kolkata based infrastructure company having strong track record of executing projects across all verticals. Strong and good quality order book and continued preference for pure contracting space with a focus on short duration projects, along with risk mitigation by way of geographical and business mix diversification, provides the company with a great platform to achieve decent growth, going forward."

"SIL has a de-risked business model as it is one of the most diversified infrastructure players having presence across various verticals with power, urban infra and bridges accounting for bulk of revenues (63% in H1FY12). This allows it to capture more opportunities and also protects the company from downturns in any one particular sector. SIL has a robust and well diversified order backlog of ~INR 150 bn (order book to bill ratio of 2.9x), which provides strong revenue visibility. The blended margin of current order backlog is ~10.5% and ~87% of the order book is under price escalation clause. The company plans to focus on high margin segments like power, urban infra and bridges, thereby enabling it in maintaining its margins. The bid pipeline stands at INR 240 bn and it is L1 for orders worth ~INR 13 bn. We expect order backlog to grow at a CAGR of 9% to INR 174 bn over FY11-13E, implying an order book to bill ratio of 2.9x in FY13."

"SIL's order book is also well diversified in terms of geographies with presence in Bangladesh and West Asian geographies like Abu Dhabi, Dubai, Oman and Qatar. International orders account for 13% of the total order book. Importantly all these orders are funded by world bank/local government. SIL scores over its peers on account of superior return ratios (RoE of 12.0% in FY11 compared to 0.89% and 8.6% for IVRCL and NCC respectively), asset light business model, and higher focus on private sector (79%). On valuation parameters too, SIL is better placed given the earnings growth that the company is likely to witness. It is one of the few infrastructure companies that has minimal equity dilution risk."

"Infrastructure sector remains a long term play and SIL with proven track record & efficient project delivery mechanisms is expected to be one of the prime beneficiaries of emerging opportunities in the sector. We expect the company's revenues to grow at a CAGR of 12% aided by 18% CAGR in order execution over the period FY11-13E. Net profit is expected to grow at a CAGR of 5% over FY11-13E. Currently the stock trades at a P/E multiple of 6.2x FY13E earnings. It is also attractively valued at EV/EBITDA of 4.8x FY13E earnings and at P/BV of 0.7x FY13E BV. We recommend a "BUY" on the stock with a price target of INR 246 based on 9x FY13E earnings of INR 27.4," says SPA Research report.

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To read the full report click on the attachment