Simplex Infrastructures - Execution slows on working capital pressures - Avendus

SINF's revenue growth decelerated significantly to 6% in 2QFY13, impacted by rising working capital and the previous year's high base. While the EBITDA margin declined to 8.5% on lower revenue, the management indicated the EBITDA margin on the order backlog remains high at c10.2%. Order inflows for the quarter were lower as the company refrained from undercutting on margins. A stagnant order backlog and delays in road BOT project clearances may continue to constrain execution for a few quarters. However, inflows and earnings are likely to significantly pick up once the prevailing monetary tightness eases up. We cut the FY13f-FY15f EPS by up to 9%, factoring lower inflows in FY13f. We cut our Sep13 TP to INR222. Maintain Add.

Revenue growth decelerates sharply on high working capital impact

SINF's revenue growth stood at 6% for the Sep12 quarter, sharply lower from the average 30% growth during the past four quarters. The management indicated tight liquidity as a key reason for slowing execution, as it focused on containing the receivables cycle. Collections from the residential buildings segment (c20% of the order backlog) were especially slow. Lower revenues also impacted the EBITDA margin, which declined to 8.5% for the quarter. The management estimates the EBITDA margin on the order backlog at 10.2%, implying that it is likely to bounce back once revenues increase.

Cut FY13f-FY15f EPS by up to 9% on lower inflows and execution

Sustained working capital pressures and a high base may continue to impact the company's execution and revenue growth in the next few quarters. Execution of three road BOT projects (c14% of the order book) is delayed over pending clearances and may start from 4QFY13. Lower inflows in 1HFY13 have led to stagnation in the order book since Mar12. The management indicated a preference for maintain margins over accelerating growth. Considering the above, we cut the order inflow growth estimate for FY13 from 10% to 0%; this implies a 14% rise in the 2H run rate over the 1H. Our FY13f-FY15f revenue is cut by up to 5%, while the EPS is cut by up to 9%.

Maintain Add with TP of INR222; growth revival awaiting liquidity ease

We cut our Sep13 TP to INR222 (INR237 earlier). Our target P/E is retained at 8.0x and EV/EBITDA at 5.0x. The TP is based on the average of fair values arrived at using the above two methods. We maintain the rating on the stock at Add. Execution has decelerated sharply and may pick up again once liquidity starts easing. Rising working capital over tight liquidity, an increase in commodity prices and lower orders are the key risk factors.

Source : Equity Bulls

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