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Research
Accumulate Simplex Infrastructures- Visibility improves - Elara Capital
Posted On : 2010-11-16 10:32:31( TIMEZONE : IST )
- Rating : Accumulate
- Target Price : INR488
- Upside : 6%
- CMP : INR461 (as on 12 November 2010)
Results below estimates; maintain 15% yearly growth guidance
SIL reported a meagre 2.6% rise in YoY revenues to INR10.5bn as the contribution from overseas projects declined for the third consecutive quarter - this time by a whooping ~53% to INR1.2bn. Operating margins too dropped, though marginally by 33bps YoY, owing to a 4.3% YoY rise in material consumption. Consequently, operating profits remained flat at ~INR1.1bn. Though interest and depreciation charges for the quarter remained largely in check, impacted by a poor operational performance, net profits slipped ~4% YoY to INR269mn.
Order backlog improves further, bags fresh jobs worth INR22.3bn
The order backlog as of Sep'10 2010 stood at ~INR130bn (2.7x FY11E revenues) excluding the potential L1 positions across new jobs worth INR12.2bn. The company has a bid pipeline for works worth INR387bn (including overseas bids) - clarity on which should emerge in subsequent quarters. With the private sector capex gaining momentum, we expect SIL to further add jobs worth ~INR40bn in the remaining two quarters of the fiscal.
Maintain Accumulate with a revised price target of INR488
Disappointed by a weak H1FY11 performance even against our conservative expectations, we tone down our earnings estimates for FY11 and FY12 by ~14% and 6.3% respectively. We remain skeptical on SIL's prospects despite a heartening pick up in domestic revenues and fresh order inflows since Q4FY10. The same explains our expectations of a meager 8.4% YoY revenue growth in FY11 vis-Ã -vis the management's guidance of 15%.
We roll forward our valuation metrics to FY12 and revise our target price downwards to INR488. We value SIL's core construction business at 13x FY12E earnings (~20% premium to industry peers) and overseas subsidiaries and Bhubaneshwar Chandikol BOT at 1.5x and 1.1x P/BV respectively. We maintain 'Accumulate' rating.