IDirect_SimplexInfra_Q3FY13=20-2-13

7/29/2019 IDirect_SimplexInfra_Q3FY13=20-2-13

1/8

February 19, 2013

ICICI Securities Ltd|Retail Equity Research

Result Update

WHATS CHANGED

PRICE TARGET ....................................................................... Changed from | 262 to | 228

EPS (FY13E) ......................................................................... Changed from | 17.1 to | 11.9

EPS (FY14E) ......................................................................... Changed from | 23.9 to | 15.3

RATING............................................................................................................... Unchanged

Execution improvement expected in H2FY14Simplex Infrastructure (SIL) reported dismal Q3FY13 results led bysubdued execution on account of liquidity crunch from the client side.Furthermore, WC deteriorated further to 155 days while debt levelincreased further to | 2670 crore in Q3FY13. The business environmentremains challenging. However, we maintain BUY on the stock with anSOTP based target price of | 228 on account of its strong well diversifiedorder book, relatively better quality of management and executioncapabilities that make it a strong candidate for re-rating in multiples whenthe macro environment improves.Stretched working capital leads to poor executionNet sales declined ~15.3% YoY to | 1351.6 crore vs. our estimate of

| 1722.8 crore mainly due to slower execution led by stretched working

capital. The EBITDA margin, however, at 9.6% was ahead of our estimate

of 9.1%. The bottomline, consequently, was lower at | 10.8 crore vs. our

estimate of | 23.3 crore due to lower topline. The working capital

deteriorated further to 155 days in Q3FY13 vs. 140 days in Q2FY13. As a

result, the debt increased further to | 2670 crore in Q3FY13 vs. | 2542

crore in Q2FY13. On the positive side, it has seen a marginalimprovement in WC at 150 days and marginal reduction of ~| 30-35 crore

in debt in January, 2013.

Order book healthy, residential building division moving slowThe order book stood at | 15,064 crore implying 2.5x order book to bill

(on a TTM basis). Additionally, it has L1 orders worth | 1900 crore. The

company has indicated that the residential building segment of the order

book (~23% of the order book) continues to move slowly due to the

financial crunch of clients. The company also lowered its topline guidance

to 5-10% for FY13 vs. 10-15% earlier. SIL indicated that execution should

improve in H2Y14E with interest rate softening and working capital

improvement.

Quality order book, execution capabilities to tide over tough timesStretched working capital could lead to muted execution for the next

couple of quarters. However, we remain positive on SIL given its strong

well diversified order book, relatively better quality of management and

execution capabilities that make it a strong candidate for re-rating in

multiples when the macro environment improves. We maintain our BUYrecommendation on the stock with an SOTP target price of | 228. Rising

leverage levels remain a key risk to our call.

Exhibit 1:Financial Performance| crore Q3FY13 Q3FY13E Q3FY12 Q2FY13 YoY Gr (%) QoQ Gr (%)

Net sales 1351.6 1722.8 1596.4 1397.6 -15.3 -3.3

EBITDA 129.2 157.2 129.4 118.3 -0.2 9.2

EBITDA Margin (%) 9.6 9.1 8.1 8.5 145bps 109bps

Depreciation 50.6 52.1 48.7 49.5 3.9 2.1

Interest 73.9 73.8 55.0 69.3 34.3 6.7

Reported PAT 10.8 23.3 18.0 11.0 -40.2 -1.8 Source: Company, ICICIdirect.com Research

Simplex Infrastructure (SIMCON)

| 166

ting matrix

ing : Buy

get : | 228

get Period : 12-15 months

ential Upside : 38%

y Financials

crore FY11 FY12 FY13E FY14E

t sales 4691.2 5897.6 6059.2 6787.5

ITDA 478.2 527.7 545.3 621.7

j. Net profit 123.2 89.2 59.2 75.9

luation summary

FY11 FY12 FY13E FY14E

S (|) 24.8 18.0 11.9 15.3

(x) 6.7 9.2 13.9 10.8

rget PE(x) 9.2 12.7 19.1 14.9

/EBITDA(x) 5.0 5.5 6.2 5.7

BV(x) 0.8 0.7 0.7 0.6

NW(%) 12.0 7.8 5.1 5.8

CE(%) 12.7 11.4 9.5 10.3

ock data

cap | 822 crore

bt | 2,670 crore

sh & Invst | 50 crore

| 3,442 crore

week H/L (Rs) 264/160

uity cap | 10 crore

ce Value | 2.0

Holding (%) 21.0

Holding (%) 11.8

ce movement

100

150

200

250

300

350

Feb-13Nov-12Aug-12May-12Mar-12

2,600

3,250

3,900

4,550

5,200

5,850

6,500

Price (R.H.S) Nifty (L.H.S)

alysts name

eepak Purswani, CFA

[email protected]

hupendra Tiwary

[email protected]


2/8

ICICI Securities Ltd|Retail Equity Research Page 2

Q3FY13 performance stretched working capital leads to poor execution

Net sales declined ~15.3% YoY to | 1351.6 crore vs. our estimate of| 1722.8 crore mainly due slower execution during the quarter on

account of the stretched working capital of the company.

Exhibit 2:Revenue composition - vertical wise (Q3FY13)Piling

7%Industrial

11%

Building & Housing

18%

Power

32%

Marine

1%

Roads & Railways

8%

Bridges

13%

Urban Infrastructure

10%

Source: Company, ICICIdirect.com Research

The EBITDA margin, however, at 9.6% was ahead of our estimate of9.1%

The bottomline, consequently, was lower at | 10.8 crore vs. ourestimate of | 23.3 crore due to lower topline

On the negative side, the working capital deteriorated further to 155days in Q3FY13 vs. 140 days in Q2FY13. As a result, the debt

increased further to | 2670 crore in Q3FY13 vs. | 2542 crore in

Q2FY13

Exhibit 3:Deteriorating working capital remains a concern

103

125130 132

137

60

90

120

150

FY10 FY11 FY12 Q1FY13 Q2FY13

Working Capital Days (ex- cash)


Robust order book at | 15,064 crore, 2.5x order book to bill ratio

The order book stood at | 15,064 crore implying 2.5x order book tobill (on a TTM basis). Additionally, it has L1 orders worth | 1900

crore

SIL has seen an order inflow of | 1239 crore in Q3FY13 largely drivenby the power vertical (32% of inflows) and buildings vertical (18% of

the inflows))

The company also informed that it has received orders worth | 1400crore in the first 1.5 months of Q4FY13, which takes the total order

inflows in FY13 YTD to ~| 5600 crore

Maximum revenue contribution (~32%) came from the

power segment in Q3FY13

The working capital deteriorated further to 155 days in

Q3FY13 vs. 140 days in Q2FY13. As a result, the debt

increased further to | 2670 crore in Q3FY13 vs. | 2542

crore in Q2FY13


3/8


Exhibit 4:Trend in order book & order book to bill ratio

15,03414,440

15,22415,508

15,203 15,064

2.92.8

2.62.5

2.42.5

8000

10000

12000

14000

16000

Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13

|

crore

2.0

2.3

2.5

2.8

3.0

3.3

3.5

(x)

Orderbook (LHS) Orderbook to bill ratio (RHS)


Exhibit 5:Order book break up

5 4 4 4 3 3

26 26 25 23 25 24

2 2 2 1 1 1

14 14 11 10 9 7

17 19 21 29 26 28

10 9 8 8 10 9

24 27 29 25 26 28

0

20

40

60

80

100

Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13

(%)

Piling & Grd eng Power Marine

Industrial Roads, Railways & Bridges Urban Utilities

Bldg & Housing


Exhibit 6:Geography wise order book break-up

Domestic

92%

Overseas

8%


Exhibit 7:Clientele wise order book break-up

27%

54%

19%

Government Private PPP


The order book stood at | 15,064 crore, 2.5x order book to

bill (on a TTM basis)


4/8


BOT update

The equity commitment for the Bhubaneswar Chandikol project hasbeen made and the company has also received ~ 25% of grant i.e.

| 51 crore. In terms of construction, it has completed 46% of the

work. The toll/day is currently | 21 lakh

SIL indicated that it would require equity infusion for | 116 crore inFY14 for the new BOT project. It has so far made | 8.5 crore equity

investment in the Kharagpur project and | 9.9 crore in the Vijayawada

project. The financial closure for all projects has been done

Exhibit 8:BOT project detailsSIL's stake

(%)

Project Cost

(| crore)

Debt

(| crore)

Equity

(| crore)

Grant/ (Prem.)

| crore

SIL's Equity

(| crore)

Invested till date

(| crore)

FY14 SIL Equity

requirement Remarks

Bhubaneshwar - Chandikol 35 1411 1058 149 204 52 52 -46% construction completed, tolling

started - collects | 21 lac/day

Mahulia Kharagpur 51 1159 867 163 126 80 9 33FC done, awaiting right of way &

other clearances to begin constr.

Vijayawada Gundugolanu 49 2088 1670 419 -58 205 10 70 FC done, awaiting right of way &other clearances to begin constr.

Jowai Meghalaya 100 326 136 65 125 65 - 13 FC done Source: Company, ICICIdirect.com Research

Change in estimates

We now build in slower execution in FY13 and FY14E as guided by the

management due to stretched working capital and, consequently,

downgrade our earnings estimates by ~30% and ~36% for FY13E and

FY14, respectively.

Exhibit 9:Revision in earning estimatesParticulars

Old New % Change Old New % Change

Net Sales 6,625.9 6059.2 (8.6) 7,649.7 6787.5 (11.3)

EBITDA 596.3 545.3 (8.5) 700.7 621.7 (11.3)

EBITDA Margin 9.0 9.0 0 bps 9.2 9.2 0 bps

PAT 84.9 59.2 (30.3) 118.5 75.9 (36.0)

EPS 17.1 11.9 (30.3) 23.9 15.3 (36.0)

FY13E FY14E


Exhibit 10:Key Assumptions| crore FY12 FY13E FY14E

Order inflow 6446 6645 6627

Order Backlog 15224 15819 15659Execution - Average (%) 39.2 39.0 43.1


Valuation

Stretched working capital could lead to muted execution for the next

couple of quarters. However, we remain positive 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 the stock with an SOTP targetprice of | 228/share. Rising leverage levels remain a key risk to our call.


5/8


Exhibit 11:SOTP valuation tableEntity

Value

(| crore)Per share (|) Comment

Construction business 3,730 751 6x FY14 EV/EBITDA

Oil rig business 29.0 6 DCF based valuation

BOT road project valuation 70 14 at 1x P/BV

Less: Net debt (2,699) (544) FY14 Net Debt

Fair value 1,130 228


We have valued SIL based on our SOTP based price target

of | 228/share


6/8


Financial summary

Profit and loss statement

(| Crore) FY11 FY12 FY13E FY14E

Net Sales 4,691.2 5,897.6 6,059.2 6,787.5

Growth (%) 5.6 25.7 2.7 12.0Op.Expenditure 4,213.1 5,369.9 5,513.9 6,165.8

EBITDA 478.2 527.7 545.3 621.7

Growth (%) 10.2 10.4 3.3 14.0

Other income 22.7 19.2 44.0 27.1

Depreciation 160.8 183.3 201.6 207.4

EBIT 340.0 363.6 387.8 441.5

Interest 144.5 230.3 291.4 328.2

PBT 195.5 133.3 96.4 113.3

Tax 72.2 44.1 33.4 37.4

Extraordinary item 0.0 0.0 0.0 0.0

Rep. PAT before MI 123.2 89.2 63.0 75.9

MI 0.0 0.0 0.0 0.0

Rep. PAT after MI 123.2 89.2 63.0 75.9

Adjustment 0.0 0.0 3.8 0.0

Adj. Net Profit 123.2 89.2 59.2 75.9

Growth (%) 0.5 -27.6 -33.6 28.2

EPS (|) 24.8 18.0 11.9 15.3


Cash flow statement


Net Profit before tax 195.5 133.3 96.4 113.3

Depreciation & Amortisation 160.8 183.3 201.6 207.4Others 105.2 219.2 274.1 301.0

Direct tax paid -72.2 12.3 -33.4 -37.4

CF before change in WC 389.3 548.1 538.7 584.3

Inc/Dec in Trade Recv. -498.9 612.9 -116.8 -176.8

Inc/Dec in Inventories -61.3 -147.7 -63.4 -52.2

Inc/Dec in Loans & Adv -86.5 -136.9 -156.8 -45.1

Inc/Dec in other current assets -43.1 -1,471.0 -1.7 -245.3

Inc/Dec in cur liabilities 337.0 653.6 -129.2 298.9

CF from operations 36.5 59.1 70.9 363.8

Purchase of Fixed Assets -234.3 -308.7 -200.0 -200.0

(Inc)/Dec in investments 1.2 -29.1 -32.7 7.1

CF from investing -233.2 -337.7 -232.7 -192.9

Inc/(Dec) in Debt 209.2 245.3 208.6 -178.2

Inc/(Dec) in Net worth -11.5 -11.5 0.0 0.0

CF from Financing 197.7 233.8 208.6 -178.2

Net Inc/Dec in cash & eq. 1.1 -44.8 46.8 -7.2

Opening cash balance 87.3 78.5 42.8 89.5

Closing cash balance 78.5 42.8 89.5 82.3


Balance Sheet


Liabilities

Equity capital 9.9 9.9 9.9 9.9

Reserves & Surplus 1,067.8 1,191.6 1,254.6 1,330.5

Shareholder's fund 1,077.7 1,201.5 1,264.5 1,340.4

Minority Interest 0.0 0.0 0.0 0.0

Secured & unsecured debt 1,656.1 2,131.7 2,631.7 2,781.7

Deferred Tax Liablity 138.1 194.4 194.4 194.4

Sources of funds 2,871.9 3,527.7 4,090.7 4,316.6

Assets

Gross Block 1476.4 1768.2 1823.2 1973.2

less: Acc. Depreciation 371.5 506.7 708.3 915.7

Net Block 1104.9 1261.5 1114.9 1057.5

Capital WIP 27.5 44.4 189.4 239.4

Net Fixed Assets 1132.4 1305.9 1304.3 1296.8

Investment 49.2 78.3 128.3 148.3

Inventories 720.5 868.2 931.5 983.8

Trade Receivables 2291.7 1678.8 1795.5 1972.3

Cash 78.5 42.8 89.5 82.3

Loans & Advances 473.4 610.2 767.0 812.1

Other current assets 176.8 1647.8 1649.5 1894.8

Total current assets 3740.9 4847.8 5233.1 5745.3

Current Liab. & Prov. 2050.5 2704.2 2575.0 2873.8

Net Current Asset 1690.3 2143.6 2658.1 2871.5

Application of funds 2,871.9 3,527.7 4,090.7 4,316.6


Key ratios

FY11 FY12 FY13E FY14E

Per share data (|)

EPS 24.8 18.0 11.9 15.3

Cash EPS 57.2 54.9 52.5 57.1

BV 217.0 242.0 254.7 270.0

Revenue per share 944.6 1,187.8 1,220.4 1,367.1

Cash Per Share 15.8 8.6 18.0 16.6

Operating Ratios (%)

EBITDA Margin 10.2 8.9 9.0 9.2

PBT / Net Sales 4.2 2.3 1.6 1.7

PAT Margin 2.6 1.5 1.0 1.1

Work ing Capital (ex cash) days 125.4 130.0 154.7 150.0

Debtor days 49.5 49.9 58.8 63.2

Creditor days 134.0 86.7 80.7 80.6

Return Ratios (%)

RoE 12.0 7.8 5.1 5.8

RoCE 12.7 11.4 9.5 10.3RoIC 13.4 11.6 10.4 11.0

Valuation Ratios (x)

P/E 6.7 9.2 13.9 10.8

EV / EBITDA 5.0 5.5 6.2 5.7

EV / Net Sales 0.5 0.5 0.6 0.5

Price to Book Value 0.8 0.7 0.7 0.6

Solvency Ratios

Debt/EBITDA 3.3 4.0 4.7 4.3

Net Debt / Equity 1.5 1.7 2.0 2.0

Current Ratio 1.8 1.8 2.0 2.0

Quick Ratio 1.8 1.8 2.0 2.0



7/8


Company Description

Simplex Infrastructure (SIL) is one of the leading infrastructure

construction companies present across all verticals within the

infrastructure space. The company started as a piling contractor and went

on to ramp up its capabilities and currently executes projects in the

power, industrial structures, buildings, roads, railways, marine and urban

infrastructure segments. SILs diversification policy is focused on building

a versatile business model in terms of segmental mix as well as

geographical contribution. The company has also successfully entered

the Middle Eastern markets where it has achieved significant scale.

Exhibit 12:Recommendation History

0

60

120

180

240

300

360

Feb-13Jan-13Nov-12Oct-12Aug-12Jul-12May-12Apr-12Mar-12

Price Target Price

.

Source: Reuters, ICICIdirect.com Research

Exhibit 13:Recent ReleasesDate Event CMP Target Price Rating

16-Nov-11 Q2FY12 Result Update 206 285 Buy

16-Feb-12 Q3FY12 Result Update 233 331 Buy

1-Jun-12 Q4FY12 Result Update 213 301 Buy

14-Aug-12 Q1FY13 Result Update 204 283 Buy

15-Nov-12 Q2FY13 Result Update 196 262 Buy


CICIdirect.com coverage universe (Construction)CMP M Cap

(|) TP(|) Rating (| Cr) FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E FY12 FY13E FY14E

HCC (HINCON) 17 15 Sell 1,037 -1.9 -2.5 -1.8 NA NA NA 12.0 13.6 12.1 0.8 0.9 1.0 -15.7 -9.0 -9.4

VRCL (IVRINF) 31 26 Sell 941 0.6 -4.5 0.6 48.1 NA 44.1 6.6 16.7 7.6 0.4 0.4 0.4 0.6 -8.6 0.9

NCC (NAGCON) 41 45 Hold 1,060 1.4 2.3 2.3 13.0 7.8 8.1 8.3 8.3 7.3 0.5 0.5 0.5 1.5 2.5 2.3

Simplex Infra (SIMCON) 166 228 Buy 822 18.0 17.1 23.9 10.9 11.5 8.2 5.8 5.6 5.2 0.8 0.8 0.7 7.8 7.1 8.8

Supreme Infra (SUPINF) 229 301 Buy 383 54.8 63.2 75.2 3.3 2.9 2.4 4.5 3.9 3.5 1.1 0.9 0.7 24.7 22.3 21.1

Unity Infra (UNIINF) 36 53 Buy 267 14.0 12.5 10.5 2.7 3.0 3.6 3.5 3.5 3.6 0.4 0.4 0.4 14.8 11.8 9.0


Sector / Company

EPS (|) P/E (x) EV/EBITDA (x) P/B (x) RoE (%)


8/8

ICICI Securities Ltd Retail Equity Research Page 8

CICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

arget price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head Research [email protected] Research Desk,ICICI Securities Limited,1st Floor, Akruti Trade Centre,Road No. 7, MIDC,Andheri (East)

Mumbai 400 093

[email protected]

We /I, Deepak Purswani CFA, PGDM (FINANCE) Bhupendra Tiwary MBA (FINANCE) research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this

esearch report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to

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nderwriter of securities and participate in virtually all securities trading markets in India. We and our affiliates have investment banking and other business relationship with a significant percentage of

ompanies covered by our Investment Research Department. Our research professionals provide important input into our investment banking and other business selection processes. ICICI Securities

enerally prohibits its analysts, persons reporting to analysts and their dependent family members from maintaining a financial interest in the securities or derivatives of any companies that the analysts

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Documents

IDirect_SimplexInfra_Q3FY13=20-2-13