Buy Simplex Infra; target of Rs 290: SPA Research

“Simplex Infrastructure reported tepid set of numbers for the quarter ended June 2012, which were inline with our estimates. While the company reported a topline growth of 28.0% YoY to INR 15830 mn in Q1FY13, profitability plunged by 16.6% to INR 201 mn due to 29 bps decline in EBIDTA margins & 35% surge in interest expenses on the back of higher cost of debt and borrowings. SIL has bagged orders worth INR 19 bn in Q1 taking the order book to INR 155 bn as on June 12 with an average execution period of 30 months. Further it enjoys L1 status for orders worth INR 12 bn as on date. We retain our BUY rating on the stock with a target of INR 290.”

“SIL reported a robust topline growth of 28.0% YoY to INR 15830 mn, which was marginally higher than our estimates, led by pickup in execution. Steady growth in both domestic and overseas revenues has aided the company to report 25%+ YoY revenue growth for the fourth consecutive quarter. Revenue contribution from domestic and overseas operations stood at 92% and 8%, respectively, in the last quarter. EBIDTA grew at a slower pace of 19.0% YoY to INR 1320 mn leading to contraction in margins by 29 bps to 8.0%, owing to 490 bps surge in material cost which as a percentage of sales stood at 39.3% in Q1FY13 vis-à-vis 34.4% in Q1FY12. Margin decline was also due to initial start-up cost incurred in few projects. Given that the blended margin of SIL's order backlog is ~10.2%, ~62% of order book is from the private sector and 82% of the order book has a price variation clause, we expect SIL's margin to stabilize around ~9.0% over the next couple of years.”

“We remain positive on the infrastructure sector 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. Strong and good quality order book and continued preference for pure contracting space, along with risk mitigation by diversification, provides the company with a great platform to achieve solid growth going forward. At the CMP of INR 200, the stock trades at a P/E and EV/EBIDTA of 6.9x and 4.5x its FY14E earnings respectively. We retain our BUY rating on the stock with a target of INR 290,” says SPA Research report.

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