Simplex Infrastructure (SIMCON) 314

Transcription

1 [ [ [ [ Result Update Rating matrix Rating : Buy Target : 365 Target Period : months Potential Upside : 16% What s changed? Target Changed from 390 to 365 EPS FY17E Changed from 23.5 to 20.1 EPS FY18E Changed from 30.4 to 31.3 Rating Unchanged Quarterly performance Q3FY17 Q3FY16 YoY (%) Q2FY17 QoQ (%) Revenue 1, ,402.4 (1.8) 1, EBITDA (0.3) EBITDA (%) bps bps PAT (35.4) Key financials ( Crore) FY15 FY16 FY17E FY18E Net Sales 5, , , ,580.4 EBITDA Adj. Net Profit EPS ( ) Valuation summary (x) FY15 FY16 FY17E FY18E P/E Target P/E EV / EBITDA P/BV RoNW (%) RoCE (%) Stock data Particular Amount Market Capitalization ( Crore) 1,554.3 Total Debt ( Crore) 3,372.0 Cash and Investments ( Crore) 25.0 EV ( Crore) 4, week H/L 362 / 188 Equity capital ( Crore) 9.9 Face value ( ) 2.0 Price performance Return % 1M 3M 6M 12M NCC Ltd Simplex Infra NBCC Research Analyst Deepak Purswani, CFA deepak,purswani@icicisecurities.com Vaibhav Shah vaibhav.shah@icicisecurities.com Await improvement in working capital... February 16, 2017 Simplex Infrastructure (SIMCON) 314 Simplex Infrastructure (SIL) reported Q3FY17 results, which were marginally below our estimates on the topline and bottomline front while in line on the EBITDA margin front Topline de-grew 1.8% YoY to crore (our estimate: crore) due to stretched working capital causing muted execution The EBITDA margin expanded 70 bps YoY to 11.6% and was in line with our expectation: 11.7%) despite muted execution, mainly on account of lower raw material expenses (28.3% as percentage of sales in Q3FY17 vs. 30.2% in Q3FY16) PAT de-grew 35.4% YoY to 18.4 crore and was marginally below our estimate of 19.9 crore. The de-growth was mainly on account of muted execution, higher interest expenses ( crore in Q3FY17 vs crore in Q3FY16) and lower other income ( 34.4 crore in Q3FY17 vs crore in Q3FY16) Witnesses strong order inflows in YTDFY17E SIL witnessed robust order inflows worth ~ 5641 crore in YTDFY17, taking its order book to ~ crore, 2.5x order book to bill ratio, providing strong revenue visibility over the next couple of years. Additionally, the company is L-1 bidder for orders worth 1818 crore. Further, in Q4FY17, so far the company has received orders worth 1795 crore. The orderbook includes a thermal power project in South from BHEL and Ahmedabad metro project worth ~ 725 crore. Overall, the management has guided for an order inflow guidance of ~ crore in FY18E keeping in mind its strong bidding pipeline. Consequently, we build in order inflows of 6500 crore, 7500 crore for FY17E, FY18E, respectively. Though the management expects flat topline growth for FY17E, it expects execution to improve in FY18E and has guided for topline growth of ~10-12%. Consequently, with an improvement in order inflows and execution, we expect the topline to grow moderately at 6.4% CAGR to crore in FY16-18E. Debt reduction on the cards SIL s gross debt (including current maturities) is at 3372 crore as on Q3FY17 due to stretched working capital (WC) cycle. The management continues to focus on WC improvement and has guided for recoveries to the tune of ~ crore from old debtors in FY17E. Furthermore, SIL has claims worth ~ crore from the government in its favour, which it expects to receive under the new arbitration law. Hence, with these recoveries coupled with claims from arbitration, the company is planning to reduce its debt by ~ crore by FY17E end. We believe that improvement in its working capital position & consequent debt reduction will remain the key for SIL s bottomline growth, going forward. Consequently, we expect SIL s bottomline to grow at 52.9% CAGR to crore in FY16-18E. Orderbook stays strong; await working capital improvement; BUY We like Simplex given its focused approach towards EPC business, healthy order book & strong execution capabilities. In our view, SIL would be a key beneficiary of government s focus on infrastructure development coupled with cabinet s move to boost liquidity in the sector. Hence, we maintain our BUY recommendation on the stock with a target price of 365/share. We have valued its EPC business at 346/share (at 6.5x FY18E EV/EBITDA). ICICI Securities Ltd Retail Equity Research

2 Variance analysis Q3FY17 Q3FY17E Q3FY16 YoY (%) Q2FY17 QoQ(%) Comments Revenues 1, , , , Topline de-growth could be possibly on account of stretched working capital causing muted execution Other Income Other expenditure EBITDA EBITDA Margin (%) bps bps EBITDA margin expanded 67 bps YoY to 11.7% on account of lower raw material expenses (28.3% as a % of sales in Q3FY17 vs. 30.2% in Q3FY16) Depreciation Interest PBT Taxes PAT PAT de-growth was mainly on account of muted execution, higher interest expenses ( crore in Q3FY17 vs crore in Q3FY16) and lower other income ( 34.4 crore in Q3FY17 vs crore in Q3FY16) Change in estimates FY17E FY18E ( Crore) Old New % Change Old New % Change Comments Revenue 5, , , , We have factored in execution slowdown EBITDA EBITDA Margin (%) bps bps Adj. PAT EPS ( ) Assumptions Current Earlier crore FY14 FY15 FY16E FY17E FY18E FY17E FY18E Comments Order inflow 5, , , , , , ,500.0 We have maintained our estimates Order Backlog 15, , , , , , ,472.8 Execution - Average (%) ICICI Securities Ltd Retail Equity Research Page 2

3 Conference call highlights Orderbook details: SIL s order book as of December, 2016 was at crore excluding the L1 of 1818 crore. The new order inflow in the quarter was at 1722 crore. Till YTDFY17, the company received order inflows worth ~ 5641 crore. Apart from this, the company had order inflows of 1795 crore in January, 2017 Management guidance: The management has given an order inflow guidance of crore and 10-12% YoY topline growth for FY18E Working capital details: The company has total debtors of 4940 crore (including unbilled revenue of 2980 crore). Further, the management aims to reduce debtors by ~ crore in FY17E (already reduced ~ 195 crore in YTDFY17), which does not include recovery from Bangladesh project. SIL s average cost of borrowing for Q3FY17 was at 10.76%. Further, debt was at ~ 3372 crore in Q3FY17. The company expects to reduce it by ~ crore by FY17 end. The management does not expect any recoveries from the Abhijeet group (outstanding: 180 crore) in FY17E Claims update: The company has claims worth ~ 1800 crore pending largely against government bodies. Additionally, claims worth ~ 441 crore are in favour of the company and company expects to receive it under the new arbitration law BOT project update: SIL s Chandikol project is complete and the company is expecting partial commercial operations date (PCOD) in February, Post PCOD, there will be ~40% hike in tariff against current tariff of ~ 25 lakh/day Oil rig business: The company is expecting to hive off its oil rig business by May, 2017 and expects to receive ~ 80 crore from the sale ICICI Securities Ltd Retail Equity Research Page 3

4 Company Analysis Robust orderbook at 13,824 crore excluding L1 status of ~ 1818 crore The order book was at 13,824 crore implying a 2.5x orderbook to bill ratio on a TTM basis. In terms of segments, buildings & housing constituted mainly with ~43% share and power constituted ~17%. SIL had an order inflow of ~ 1722 crore in Q3FY17, which bodes well for execution, going ahead. The management has guided an order intake of ~ crore in FY17E. However, considering current working capital scenario we have built in order inflow of 6500 crore and 7500 crore in FY17E and FY18E, respectively. With an improvement in execution on the back of anticipated recovery, order book would reach to crore and crore in FY17E and FY18E, respectively. Exhibit 1: Quarterly order book Exhibit 2: Order book (Annual) (x) ,855 14,069 13,846 13,485 13,824 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY ,257 16,104 14,069 14,707 15,656 FY14 FY15 FY16 FY17E FY18E Orderbook Orderbook to bill ratio (RHS) Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research Exhibit 3: : Quarterly Order book break-up (Segment wise) (%) Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Piling & Grd eng Power Marine Industrial Roads, Railways & Bridges Urban Utilities Bldg & Housing ICICI Securities Ltd Retail Equity Research Page 4

5 Exhibit 4: Geography wise orderbook break-up Exhibit 5: Clientele wise orderbook break-up 8% 49.7% 50.3% 92% Domestic Overseas Government Private Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research Exhibit 6: Geography wise revenue break-up Exhibit 7: Clientele wise revenue break-up 16% 43% 57% 84% Domestic Overseas Government Private Source: Company, ICICIdirect.com, Research Source: Company, ICICIdirect.com, Research BOT update Currently, SIL has a BOT road portfolio of only one project post amicable termination of Mahulia Kharagpur and Jowai Meghalaya project. SIL s Chandikol project is complete and the company is awaiting CoD. It is already collecting toll of 25 lakh per day. Post PCOD, 40% hike in tariff is expected. For projects, viz. Mahulia Kharagpur & Jowai Meghalaya, SIL had not yet received land and other clearances. Consequently, the company has served a notice for amicable termination of the projects. The management has also indicated it will now focus on EPC, which is its forte. We also derive comfort from this stand of SIL, as it ensures no equity commitment going forward, given the already stretched balance sheet. Exhibit 8: BOT project details SIL's stake (%) Project Cost Debt Equity Grant/ (Prem.) crore SIL's Equity Invested till date ( crore) Bhubaneshwar - Chandikol 35 1,411 1, Construction is completed, CoD certificate is expected in one month Mahulia Kharagpur 51 1, Company has served notice for amicable termination Jowai Meghalaya Company has served notice for amicable termination Remarks ICICI Securities Ltd Retail Equity Research Page 5

6 Revenues to grow at 6.4% CAGR during FY16-18E In FY09-15, revenue has grown at a CAGR of 3.0%. The sluggishness in growth can be broken down into two phases. During FY09-12, the sluggish growth in revenue can be attributed mainly to stagnant order inflow. During FY13-15, de-growth in revenue was mainly due to a stretched balance sheet and delay in execution. Going ahead, we expect revenues to grow at a CAGR of 6.4% during FY16-18E mainly due to an improvement in macroeconomic scenario and moderate improvement in working capital cycle. This is expected to lead to a pick-up in execution, going ahead. Exhibit 9: Revenue trend % CAGR FY14 FY15 FY16 FY17E FY18E Exhibit 10: Q3FY17 revenue break-up 7% 16% Piling & Grd eng 36% Power 3% Marine Industrial Roads, Railways & Bridges 13% Urban Utilities Bldg & Housing 15% 10% ICICI Securities Ltd Retail Equity Research Page 6

7 Margins to expand 60 bps to 11.5% till FY18E Historically, the EBITDA margin has remained in the range of 9-9.5%. This was mainly due to muted growth in order inflow and delay in execution primarily owing to slow payment cycle and client side delays. However, SIL has posted a healthy EBITDA margin of 11.3% and 10.9% in FY15 and FY16, respectively. Going ahead, we expect EBITDA margins to improve by 60 bps to 11.5% in FY18E on the back of robust order inflow and moderate improvement in working capital cycle. Exhibit 11: EBITDA and EBITDA margin trend (%) FY14 FY15 FY16 FY17E FY18E 10 9 EBITDA EBITDA Margin (RHS) Working capital remains a concern but improvement visible Currently, the debt to equity of SIL is at 2.1x level. Going ahead, SIL s insistence on focusing on EPC only gives us comfort in terms of no further equity commitment for BOT. While we do anticipate an improvement in working capital cycle mainly due to Simplex effort through collection drive and some arbitration, the pick-up in execution is likely to offset the improvement. Hence, we expect net debt to equity to be at 1.8x and working capital (WC) (ex-cash) days to be at ~225 days in FY18E. Exhibit 12: Working capital days and net debt/equity trend (days) (x) FY14 FY15 FY16 FY17E FY18E 0.0 Working Capital days Net Debt / Equity (RHS) ICICI Securities Ltd Retail Equity Research Page 7

8 [ Earnings to grow at 52.9% CAGR during FY16-18E In FY09-15, PAT de-grew at 10.4% CAGR. This was primarily due to an increase in the debt level mainly required to finance its stretched working capital. However, with the improvement in WC days and debt reduction, going ahead, we expect earnings to grow at 52.9% CAGR to crore in FY16-18E on the back of topline growth (mainly due to its focus on the EPC business, well-built diversified order book and strong execution capabilities) and similar level of interest expense. Exhibit 13: PAT and PAT margin trend (%) FY14 FY15 FY16 FY17E FY18E PAT PAT Margins (RHS) Return ratios to improve from hereon In the past, Simplex has enjoyed return ratios in the range of 13-17%. However, it slipped in the last couple of years mainly due to a stretched balance sheet leading to PAT de-growth. However, going forward, we expect RoCE and RoNW to improve to 12.7% and 8.6%, respectively, in FY18E on the back of growth in topline and bottomline. Exhibit 14: Return ratios trend (%) FY14 FY15 FY16 FY17E FY18E RoNW RoCE ICICI Securities Ltd Retail Equity Research Page 8

9 [ We have valued SIL based on our SOTP based price target of 365/share Valuation We like Simplex given its focused approach towards EPC business, healthy order book & strong execution capabilities. In our view, SIL would be a key beneficiary of government s focus on infrastructure development coupled with cabinet s move to boost liquidity in the sector. Hence, we maintain our BUY recommendation on the stock with a TP of 365/share. We have valued its EPC business at 346/share (at 6.5x FY18E EV/EBITDA). Exhibit 15: SOTP valuation Businesses Per share ( ) Comment Construction business 4, x FY18 EV/EBITDA Oil rig business DCF based valuation BOT road project valuation at 0.7x P/BV Less: Net debt -3, FY18E Net Debt Fair value 1, Rounded off target price Exhibit 16: EV/EBITDA trend 9,000 7,500 6,000 4,500 3,000 1,500 0 Feb-06 Feb-07 Feb-08 Feb-09 Feb-10 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Feb-16 Feb-17 EV ( s Cr) EV 10x 8x 6x 4x Exhibit 17: Valuations metrics Sales Sales ( cr) Growth (%) EPS ( ) EPS Growth (%) P/E (x) P/BV (x) RoNW (%) FY FY FY17E FY18E RoCE (%) ICICI Securities Ltd Retail Equity Research Page 9

10 [ Recommendation History vs. Consensus ( ) (%) Feb-15 Apr-15 Jul-15 Sep-15 Dec-15 Feb-16 May-16 Jul-16 Sep-16 Dec Feb-17 Source: Bloomberg, Company, ICICIdirect.com Research Price Idirect target Consensus Target Mean % Consensus with BUY Key events Date May-12 Sep-12 Sep-13 Apr-14 Jun-14 Jul-15 Nov-15 Dec-15 Apr-16 Event Acquires Joy Mining Services to expand its footprint into underground mining Divests its stake in Joy Mining Services Recovery in stock price as inflows remain buoyant 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 Surge in the stock price post Finance Ministry's two-pronged plan to boost infrastructure investment 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 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. 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 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 Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) Change (m (in %) Jun-16 Sep-16 Dec-16 1 Anupriya Consultants Pvt. Ltd. 30-Sep % Promoter RBS Credit & Financial Developments Pvt. Ltd. 30-Sep % Public HDFC Asset Management Co., Ltd. 30-Sep % Others Reliance Nippon Life Asset Management Limited 30-Sep % 4.3 (0.0 Total Mundhra (Bithal Das) 30-Sep % Mundhra (Yamuna) 30-Sep % Mundhra (Amitabh Das) 30-Sep % Baba Basuki Distributors Pvt. Ltd. 30-Sep % Mundhra (Rajiv) 30-Sep % East End Trading & Engineering Consultants Services Pvt. 30-Sep % Source: Reuters, ICICIdirect.com Research Recent Activity Buys Sells Investor name Value (m) Shares (m) Investor name Value (m) Shares (m) Abu Dhabi Investment Authority Nuvo ChrysCapital Advisors Pvt. Ltd. (2.4) (0.5) Birla Sun Life Asset Management Company Ltd. (1.4) (0.3) UTI Asset Management Co. Ltd. (1.1) (0.3) Reliance Nippon Life Asset Management Limited (0.1) (0.0) State Bank of India (0.0) (0.0) Source: Reuters, ICICIdirect.com Research ICICI Securities Ltd Retail Equity Research Page 10

11 Financial summary Profit and loss statement Crore ( Crore) FY15 FY16 FY17E FY18E Net Sales 5, , , ,580.4 Growth (%) Raw Material Cost 1, , , ,165.0 Employee Cost 2, , , ,498.6 Other Expenditure 1, , , ,160.6 Total Operating Expenditure 4, , , ,824.1 EBITDA Growth (%) Other income Depreciation EBIT Interest PBT Tax Rep. PAT Exceptional items Adj. Net Profit Growth (%) EPS ( ) Cash flow statement Crore ( Crore) FY15 FY16 FY17E FY18E crore Profit after Tax Depreciation Interest paid Cash Flow before wc changes Net Increase in Current Liabilities (Increase)/Decrease in Inventories (Increased/Decrease in Debtors Net cash flow from op. activities (Purchase)/Sale of Fixed Assets (Purchase)/Sale of Investments Other income Net cash flow from inv. activities Proceeds from Long Term Borrowings Proceeds from Short Term Borrowings Dividend and Dividend Tax Paid Net cash flow from fin. activities Net Cash flow Cash and Cash Equivalent in beginning Cash and cash equivalents at end Balance sheet Crore ( Crore) FY15 FY16 FY17E FY18E Liabilities Equity capital Reserves & Surplus 1, , , ,791.6 Shareholder's fund 1, , , ,801.5 Secured & unsecured debt 3, , , ,263.7 Deferred Tax Liablity Sources of funds 4,859 4,967 4,972 5,230 Assets Gross Block 2, , , ,444.5 less: Acc. Depreciation , , ,494.8 Net Block 1, , , Capital WIP Net Fixed Assets 1, , , Investment Inventories ,076.9 Trade Receivables 2, , , ,153.8 Cash Loans & Advances ,013.2 Other current assets 2, , , ,204.6 Total current assets 6, , , ,669.0 Current Liab. & Prov. 2, , , ,399.1 Net Current Asset 3, , , ,269.9 Application of funds 4,859 4,967 4,972 5,230 Key ratios FY15 FY16 FY17E FY18E Per share data ( ) Reported EPS Cash EPS BV per share Revenue per share 1, , , ,323.4 Cash Per Share Operating Ratios (%) EBITDA Margin PBT / Net Sales PAT Margin Inventory days Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / EBITDA EV / Net Sales Price to Book Value Solvency Ratios (x) Debt/EBITDA Net Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 11

12 ICICIdirect.com coverage universe (Construction) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) P/B (x) RoE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E NBCC (NBCC) Hold 17, IRB Infra (IRBINF) Hold 8, PNC Infratech (PNCINF) Buy 2, Sadbhav Engg. (SADENG) Buy 4, Ashoka Buildcon (ASHBUI) Buy 3, Simplex Infra (SIMCON) Buy 1, NCC (NAGCON) Buy 4, ICICI Securities Ltd Retail Equity Research Page 12

13 RATING RATIONALE ICICIdirect.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 target 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 pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ICICI Securities Ltd Retail Equity Research Page 13

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