June 5, 2017 ICICI Securities Ltd | Retail Equity Research Result Update Execution stays muted due to stretched Wcap Simplex Infrastructure’s (SIL) topline de-grew 0.5% YoY to | 1550.1 crore and was below our estimate of | 1666.5 crore possibly on account of stretched working capital causing muted execution EBITDA margin expanded 79 bps YoY to 13.2% (our estimate: 11.0%) despite muted execution on account of lower raw material expenses (30.5% as percentage of sales in Q4FY17 vs. 34.5% in Q4FY16) PAT zoomed 2.5x YoY to | 66.8 crore (our estimate: | 28.2 crore) despite lower other income and topline de-growth, mainly on account of EBITDA margin expansion and negative tax rate = The board has recommended a dividend of | 0.5/share for FY17 Receives strong order inflows in FY17… SIL has seen robust order inflows worth ~| 8117 crore in FY17, taking its order book to ~| 16518 crore, 2.9x order book to bill ratio, providing strong revenue visibility over the next few years. Additionally, the company is L-1 bidder for orders worth | 558 crore. Furthermore, of these order inflows, SIL received orders worth ~| 4200 crore in Q4FY17 largely driven by power division. It includes a power project from Bhel worth | 1475 crore and some road projects from North-East worth ~| 1000 crore. Overall, the management has guided for an order inflow guidance of ~| 8000-9000 crore keeping in mind its strong bidding pipeline. Hence, we have built in order inflows of | 8000 crore and | 8500 crore for FY18E and FY19E, respectively. The management expects execution to improve in FY18E and has guided for topline growth of ~10-15%. Consequently, with improvement in order inflow and strong execution, we expect topline to grow at 11.0% CAGR to | 6910.4 crore in FY17-19E. Working capital remains stretched… Currently, SIL’s gross debt (including current maturities) is at | 3325 crore as on FY17 due to stretched working capital (WC) cycle. The management continues to focus on WC improvement and has guided for recoveries to the tune of ~| 1000 crore from old debtors over next two years. Furthermore, SIL recovered | 210 crore from debtors. Hence, with these recoveries coupled with claims from arbitration, the company is planning to reduce its debt by ~| 300 crore by FY18E end. We believe that an improvement in its working capital position & consequent debt reduction will remain the key for SIL’s bottomline growth. We expect the bottomline to grow at 26.5% CAGR to | 192.4 crore over FY17-19E. Execution hinges on working capital improvement… We like Simplex given its focused approach towards EPC business, healthy order book and strong execution capabilities. In our view, SIL would be a key beneficiary of the government’s focus on infrastructure development coupled with cabinet’s move to boost liquidity in the sector. However, debt remains at elevated levels. The company has failed to reduce its debt and working capital still remains stretched which might hinder its execution, going forward. Furthermore, the recent rally in the stock (up 53% in last three months) leaves limited room for upside. We have rolled over valuation to FY19E. We have a HOLD recommendation on the stock with a target price of | 480/share. We value its EPC business at | 460/share (at 6.5x FY19E EV/EBITDA), oil rigs business at | 7.4/ share and BOT road projects at | 12.7/ share (at 0.7x P/BV). Simplex Infrastructure (SIMCON) | 468 Rating matrix Rating : Hold Target : | 480 Target Period : 12-18 months Potential Upside : 3% What’s changed? Target Changed from | 365 to | 480 EPS FY18E Changed from | 31.3 to | 23.5 EPS FY19E Introduced at | 38.9 Rating Changed from Buy to Hold Quarterly performance Q4FY17 Q4FY16 YoY (%) Q3FY17 QoQ (%) Revenue 1,550.1 1,557.3 (0.5) 1,386.4 11.8 EBITDA 205.1 193.7 5.9 159.3 28.7 EBITDA (%) 13.2 12.4 79 bps 11.5 174 bps PAT 66.8 26.3 153.7 18.4 263.0 Key financials (| Crore) FY16 FY17 FY18E FY19E Net Sales 5,811.6 5,607.5 6,129.6 6,910.4 EBITDA 631.5 688.7 703.8 807.2 Adj. Net Profit 66.3 120.3 116.5 192.4 EPS (|) 13.4 24.3 23.5 38.9 Valuation summary (x) FY16 FY17E FY18E FY19E P/E 34.9 19.2 19.9 12.0 Target P/E 35.9 19.8 20.4 12.3 EV / EBITDA 8.8 8.1 7.6 6.5 P/BV 1.5 1.5 1.4 1.3 RoNW (%) 4.3 7.9 7.1 10.4 RoCE (%) 10.6 11.8 12.0 13.8 Stock data Particular Amount Market Capitalization (| Crore) 2,314.1 Total Debt (| Crore) 3,372.0 Cash and Investments (| Crore) 25.0 EV (| Crore) 5,661.1 52 week H/L 475 / 260 Equity capital (| Crore) 9.9 Face value (|) 2.0 Price performance Return % 1M 3M 6M 12M NCC Ltd (11.0) 8.8 14.2 23.4 Simplex Infra 7.5 52.9 54.0 71.0 NBCC (0.3) 18.3 32.5 50.4 Research Analyst Deepak Purswani, CFA deepak,[email protected]Vaibhav Shah [email protected]
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June 5, 2017
ICICI Securities Ltd | Retail Equity Research
Result Update
Execution stays muted due to stretched Wcap
Simplex Infrastructure’s (SIL) topline de-grew 0.5% YoY to | 1550.1
crore and was below our estimate of | 1666.5 crore possibly on
account of stretched working capital causing muted execution
Price Idirect target Consensus Target Mean % Consensus with BUY
Source: Bloomberg, Company, ICICIdirect.com Research
Key events
Date Event
May-12 Acquires Joy Mining Services to expand its footprint into underground mining
Sep-12 Divests its stake in Joy Mining Services
Sep-13 Recovery in stock price as inflows remain buoyant
Apr-14 Recovery in stock price on the back of formation of stable government at the centre and it's 10 year agenda to focus on infrastructure
Jun-14 Surge in the stock price post Finance Ministry's two-pronged plan to boost infrastructure investment
Jul-15 The government plans to award road construction projects worth | 1.26 lakh crore during FY16. It is targeting to award a total of 273 projects covering a total length
of 12,900 kms which would offer humungous opportunities for Simplex Infrastructure
Nov-15 Simplex Infrastructure plans to buy balance 49% stake in Maa Durga Expressways (MDEPL), which is involved in the four-laning of the stretch spanning Mahulia to
Baharagora to Kharagpur on NH-6 in Jharkhand and West Bengal.
Dec-15 The government has set up a | 40,000 crore National Investment and Infrastructure fund (NIIF), which is meant to fund development of infrastructure projects,
including reviving stalled ones, positive for the company
Apr-16 The Mumbai Metropolitan Region Development Authority (MMRDA) has awarded contracts to design and construct the 16.5 km Metro-VII corridor in 3 packages from
Andheri East to Dahisar East to Simplex Infrastructure, NCC and J Kumar Infra.Simplex will design and construct the first package
Source: Company, ICICIdirect.com Research
Top 10 Shareholders Shareholding Pattern
Rank Name Latest Filing Date % O/S Position (m) Change (m)
ICICI Securities Ltd | Retail Equity Research Page 13
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