Jan 08, 2018 01:34 PM IST | Source:

Buy Simplex Infrastructure; target of Rs 750: ICICI Direct

ICICI Direct recommended is bullish on Simplex Infrastructure has recommended buy rating on the stock with a target price of Rs 750 in its research report dated December 26, 2017.

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ICICI Direct's research report on Simplex Infrastructure

Simplex Infrastructure (SIL) had passed an enabling resolution in Q1FY18 to raise up to Rs 1000 crore, which would help it in debt reduction and consequent working capital improvement. However, the management has changed its stance. Now, it is looking to reduce debt via receipt of old debtors. It aims to recover ~Rs 450-500 crore in FY18E and Rs 800 crore in FY19E from old debtors. SIL’s debt has increased significantly by Rs 248 crore to Rs 3611 crore as on Q2FY18. Furthermore, SIL expects to receive Rs 100 crore from the Bangladesh project by year-end. We believe that an improvement in its working capital position & consequent debt reduction will boost its bottomline growth. Consequently, we expect SIL’s bottomline to grow robustly at 33.2% CAGR to Rs 284.1 crore in FY17-20E.


BUY… Currently, the stock is trading at a cheap valuation of 10.1x FY20E EPS among peers due to its stretched working capital position and high debt (D/E: 2.1x). However, the management has recently mentioned in the conference call that it aims to recover ~Rs 450-500 crore in FY18E and Rs 800 crore in FY19E from old debtors. This should lead to substantial debt repayment and subsequent improvement in the working capital position thereby aiding profitability. In our view, this is the key to re-rating of the stock. As a result, we have upgraded our recommendation to BUY on the stock with a revised SOTP based target price of Rs 750. We value its EPC business at Rs 730/share (at 7x FY20E EV/EBITDA), oil rigs business at Rs 7.1/ share and BOT road projects at Rs 14.5/ share (at 0.8x P/BV).

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