Simplex Infrastructure: Mixed bag of results
- Top-line in line with estimates; Order book healthy: SIL sales grew by 25.7% YoY to Rs15,853.9 mn in line with Aditya Birla Money's estimates. Order inflow for Q1FY13 was ~Rs18.8bn in line with the management guidance which expects a flat inflow growth YoY. Company has an order book of ~Rs155.1bn with an indicative EBITDA margin of 10.1%. During the quarter company received orders to the tune of ~Rs18.9bn of which 65% were from the roads segment and majority of them are in-house orders. The management maintains its top-line guidance of 10-15% growth for FY13. Aditya Birla Money estimates a top-line growth of 11% for FY13 to Rs65.7bn.
- Operating margin surprises positively; Guidance intact: The Company’s operating profit increased by 12.1% YoY to Rs1,347mn; while the reported (before adjustments) operating margin contracted by 103bps to 8.5%. Operating margin are below 9% levels as SIL has classified tools amortization as an operating expense (tools amortization was earlier classified under the depreciation and amortization expense below EBITDA) and hence adjusting for the same operating margin stands at 9.7% for Q1FY13. Aditya Birla Money expects the company’s operating margin to be at ~9.3% levels.
- High leverage (1.8x); Investments in BOT’s to keep the debt levels high: Company’s net profit declined by 57.8% YoY to Rs101.5 mn hit badly by higher interest costs. Interest cost increased by 38.6% YoY to Rs695.3mn due to higher debt and increase in cost of debt. Company’s debt to equity stands at ~1.8x and is likely to continue at the current levels or rise higher given the working capital requirements and likely investments in the BOT projects.
Other Key Highlights:
- Joy Mining Services Ltd- Strong Financial performance; Consolidation by year end: SIL recently acquired 100% stake in Joy mining services and the company has contracts visibility for next 2-2.5 years. During the quarter Joy Mining services reported a top-line on Rs200mn and a PAT of Rs90mn and the financials are likely to be consolidated by year end.
- Gammon Infra Swap deal: Gammon Infrastructure and Simplex Infrastructure have entered into an understanding for taking up 49% equity stake in each two of each other’s projects. Both the deals are done at par on book values.
A. Gammon Infrastructure will take up 49% equity stake in SIL’s Maa Durga Expressway(Kharagpur BOT) project
B. SIL will pick up 49% equity stake in Gammons Vijayawada project.
Stock Valuations and Recommendation:
SIL’s has performed well vis-a-vis its peer group and has delivered an in line top-line growth. Operating margin have been stabilizing at 9.5% levels and are likely to stabilize at those levels given the current order book mix and competitive scenario. Company’s profitability has been badly impacted on account of high debt and interest costs.
Aditya Birla Money estimates company’s top-line to grow by ~11% YoY during FY13 to Rs65.7bn while on the operating front they expect the margin to settle at ~9.3% range. Aditya Birla Money expects the high debt levels of 1.7-1.8x to continue in the medium term given the working capital requirements and investment requirements. On the back of high debt and interest cost pressures they revise their Net profit estimates downwards by 2% and 11% respectively to Rs1,086mn and 1,140mn for FY13 and FY14 respectively. Aditya Birla Money values the company at 9x FY14 EPS of Rs23.0 and arrive with a rolled over August 2013 price of Rs217/share and also value its BOT project at book value (Jagannath Expressway and Raichur Sholapur transmission - Rs8/share) to arrive at a SOTP target price of Rs225.3 and maintain their “Accumulate” view on SIL. At the CMP of Rs208.0 SIL trades at FY14 P/E 9.1x and 4.6x its FY14E EV/EBITDA.
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Aditya Birla Money formerly known as Apollo Sindhoori Capital Investments is a leading player in the broking space with nearly 15 years of experience. It became a part of Aditya Birla Group in March 2009, when the group acquired 76% of the company. The Company has a strong distribution network of over 800 own branches and franchisee network, a large customer base in excess of 1,80,000, a strong technology backbone and a range of products delivered through a robust online and offline model. The Company boasts of immense talent pool and vertical specialists which add to its positioning as a major player in this segment.
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