>SIMPLEX INFRASTRUCTURE (ICICI DIRECT)

Uptick in order inflow indicates growth ahead…

Simplex Infrastructures’ (SIL) Q4FY10 results came below our expectation due to lower-than-expected revenues led by poor execution of overseas orders. However, better-than-expected OPM and lowerthan- expected interest outgo due to efficient working capital management and reduced interest expenses, uptick in order book after eight quarters along with upward revision in FY11 revenue growth guidance to 15-20% (earlier 10%) are key positive takeaways from the Q4FY10 results. We are maintaining our price target at Rs 521 and reducing our recommendation to ADD from BUY earlier.

■ Uptick in order book and healthy management guidance
In Q4FY10, SIL witnesses an order intake of Rs 2,166 crore and showed an uptick in the order book at Rs 11,491 crore, 2.5x FY10 revenues. The company is currently L-1 bidder of Rs 1,334 crore. Furthermore, the company has now revised its FY11 revenue guidance to 15-20% compared to 10% earlier and expects to maintain the EBITDA margin at 10-10.5%, going forward.

■ Poor execution in overseas orders lead to disappointing Q4FY10
SIL’s topline in Q4FY10 continued to decline and remained below estimates due to poor execution in overseas orders. However, much better than expected operating margins (up 129 bps sequentially), lower interest expenses due to efficient working capital management and reduction in borrowing cost and a sharp pick-up in order inflows are key positive takeaways from the Q4FY10 results.

Valuation
At the CMP, the stock is trading at attractive valuation of 11.8x FY12E earning estimates and 1.8x FY12 P/BV considering earning CAGR of 28.1% during FY10-FY12E. Given the management’s focus on quality of the order book and to maintain the EBITDA margin at current levels coupled with the anticipated uptick in the order book, we see a possibility of earnings upgradation, going forward. We are maintaining our price target at Rs 521 and reducing our recommendation to ADD.

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