Stock market Result Update on Simplex Infrastructures for 1QFY2012

Stock market Result Update on Simplex Infrastructures for 1QFY2012 with an Accumulate recommendation and a Target Price of `306 (12 months).

For 1QFY2012, Simplex Infra’s (Simplex) numbers came below our expectations mainly on the bottom-line front (due to higher interest cost). At the end of the quarter, the company’s order book stood at `14,348cr (2.9x FY2011 revenue). Simplex had order inflow of mere `873cr for the quarter, down 59.7% qoq and 51.9% yoy. We have revised our estimates to reflect the weak results, rising interest rate scenario along with increasing debt levels and weak business environment. Hence, we downgrade the stock to accumulate from Buy.

Disappointing numbers: On the top-line front, Simplex reported growth of 7.1% yoy to `1,261cr (`1,177cr), in-line with our estimate of `1,261cr. The muted revenue performance was due to slowdown faced by the company and increased competition on the international business front. EBITDAM dipped by 70bp yoy to 9.5% (10.2%) for the quarter, marginally lower than our estimate of 10.2%, which was mainly on account of lower top-line growth. PAT declined by 33.6% yoy to `24.0cr (`36.2cr), below our estimate of `32.5cr. Poor bottom-line performance was due to higher-than-expected interest cost, which grew by 36.9% qoq and 78.6% yoy, respectively. Notably, higher other income (`7.7cr) booked during the quarter helped to salvage the bottom line plunge to some extent.

Outlook and valuation: Simplex is facing slowdown on the international front and is venturing into newer geographies, leading to stretched working capital and higher interest cost. Management refrained itself from giving any guidance and maintained that growth would depend upon the domestic environment. We are downgrading our target price for the stock to factor in 1) lower top-line growth given subdued order booking expected in FY2012, 2) elongated working capital cycle on account of diversification into newer geographies and 3) higher interest outflow on account of increased debt levels along with rising interest rates. Our revised target price for the stock is `306 (`438), based on 10x (earlier 11x) FY2013E earnings. We recommend Accumulate view on the stock.