Simplex Infrastructure - Slower execution impacts results... - ICICIdirect

Simplex Infrastructure (SIL) reported disappointing Q2FY13 results led by slower execution on account of liquidity crunch from the client side and consequent lower margins owing to unabsorbed fixed cost. The PAT, consequently, at Rs.11 crore was lower than our estimates of Rs.16 crore. The company also booked profit of Rs.5.4 crore (pre-tax) on sale of its investments in Joy Mining Services, which was acquired in Q1FY13. SIL indicated that residential building segment orders are moving slow due to financial crunch of clients. Consequently, while we have now built in slower execution in FY13, we believe the same should improve in FY14 on the back of easing in interest rates. We maintain our BUY rating.

Poor show in Q2FY13

SIL's revenues grew 7.8% YoY to Rs.1397.6 crore vs. our estimate of Rs.1484.8 crore mainly due slower execution during the quarter on account of liquidity crunch from the client side. The EBITDA margin at 8.5% was lower than our expectation owing to unabsorbed fixed cost due to sluggish execution. The bottomline, consequently, was lower at Rs.11 crore vs. our estimate of Rs.16 crore. The stretched working capital remains a concern as it deteriorated further to 137 days in Q2FY13 vs. 132 days in Q1FY13. As a result, the debt increased further to Rs.2542 crore in Q2FY13 vs. Rs.2400 crore in Q1FY13.

Order book at Rs.15,203 crore, 2.4x order book to bill (on a TTM basis)...

The order book stood at Rs.15,203 crore implying 2.4x order book to bill (on a TTM basis). Additionally, it has L1 orders worth Rs.1484 crore. SIL has seen an order inflow of Rs.1183 crore in Q2FY13 [~Rs.3014 crore inflow in H1FY13, largely driven by the road vertical (41% of inflows) & power vertical (23% of the inflows)]. The company has indicated that the residential building segment of the order book (~20% of the order book) is moving slow due to the financial crunch of clients. Consequently, we have built in slower execution in FY13 while we believe the same should improve in FY14 on the back of easing in interest rates.

Maintain BUY on execution capabilities & lower equity commitment...

We continue to have a positive stance on SIL given its strong well diversified order book, relatively lower equity commitment towards subsidiary and execution capabilities that make it a strong candidate for re-rating in multiples when the macro environment improves. We maintain our BUY recommendation on SIL with an SOTP target price of Rs.262/share. Rising leverage levels remain a key risk to our call.

Source : Equity Bulls

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