>SIMPLEX INFRASTRUCTURE (MOTILAL OSWAL)

■ Debtors write-offs of Rs180m impacted 4QFY09 result: During 4QFY09, Simplex reported lower net profit of Rs299m (-28%YoY vs estimate of Rs330m) due to debtors write-offs of Rs180m. However, during FY09 the adjusted net profit at Rs1.32b was in-line with estimates of Rs1.36b due to lower tax rate of 28.3% as against estimated 33%. During FY09, company wrote off Rs250m of debtors from government sector (vs Rs108m in FY08) since they were long due, of which Rs180m was provided during 4QFY09. Also, the company has recovered Rs60-70m in FY09 from delayed receivables, which had been written off in the past years. We have considered the write-offs as normal business expenses, and thus have not adjusted the same as extra-ordinaries. Also, while the write-offs of overdue receivables provide tax benefits, they do not impact the ability of the company to recover the money from customers. It adjusted for debtors write-offs; the numbers are in-line with estimates.

■ Order intake during 4QFY09 at Rs11.5b (-8%YoY); expect improvement from 2QFY10/3QFY10: Order book for Simplex stands at Rs101b (+9.5%YoY, -1.7%QoQ), book to bill of 2.1xTTM revenues. Order intake during 4QFY09 stands at Rs11.5b (-8%YoY, -21%QoQ). Order intake for FY09 stand at Rs56.6b (-15.5%YoY). Management indicted that both domestic and international markets are already witnessing some revival. Thus Simplex expects order intake (with desired profitability) to show improvement from 2QFY10/3QFY10.

■ Outstanding debt reduces on working capital improvement: During 4QFY09, outstanding debt declined from Rs13.2b as at Dec 2008 to Rs12.2b, and has further reduced to Rs11.8b as on May 2009. The reduction in debt has been driven by improving working capital, with net working capital cycle at 81days in FY09 vs 98days in FY08. This working capital improvement has been driven by better inventory and debtors management.

■ Valuation and view: We have maintained our earnings estimates at Rs36.2 (+35.3%YoY) and Rs44 (+21.5%YoY). Maintain Buy with a price target of Rs437 (based on 12xFY10 earnings).

To see full report: SIMPLEX INFRASTRUCTURE