May-14 Jul-14 Aug-14 Sep-14 Nov-14 Dec-14 Jan-15 Mar-15 Apr-15 May-15 India Research Infrastructure May 27, 2015 QUARTERLY REVIEW Bloomberg: SINF IN Reuters: SINF.BO HOLD Working capital ease to improve performance (SIL) posted 6.8% YoY growth (highest in last 10 quarters) in Q4FY15 standalone sales to Rs15.4bn, in line with our expectations. Revenue growth for the quarter was driven by better execution in its key segments (Building, Industrial, Power and Urban). However, EBITDA margin declined by 46bps YoY to 8.9% (155bps below our expectation), due to higher sub-contractors' charges / employee cost (which as a percentage of net sales rose to 28.8%/8.8% vs 25.5%/7.9% in Q4FY14). Net profit increased 4% YoY to Rs222 mn (10% above our expectations), primarily due to lower depreciation (down 15.9% YoY) and higher other income (up 143% YoY). For FY15, top-line grew 1.2% YoY to Rs55.8 bn, EBITDA margin improved by 71bps YoY to 10.1% and net profit grew 3.1% YoY to Rs624mn (primarily affected by 15% YoY surge in interest cost to Rs3.8 bn). Robust order book and strong inflow enhance revenue visibility SIL s order inflow declined 10.8%/17.6% YoY to Rs8.6 bn/rs64.9 bn in Q4FY15/FY15, leading to an order book of Rs161 bn (2.9x FY15 revenue). SIL received fresh orders worth Rs5.5 bn post FY15 and it is L1 in orders worth Rs10.6 bn. Moreover, it has healthy bid pipeline of Rs350 bn. Considering all these, we expect 10% YoY growth in fresh orders to Rs71.4 bn/rs78.5 bn in FY16E/FY17E. Outlook and Valuation We maintain our revenues and EBITDA margin estimates for FY16E/FY17E. However, we upgrade our EPS estimates by 2.5% to Rs25.4/39.0 for FY16E/FY17E, respectively due to lower interest cost led by reduction in debt by Rs1.9 bn/rs2.6 bn in FY16E/FY17E. We expect SIL s 9.9% revenue CAGR, during FY15-17E, improvement in EBITDA margin to 11% in FY17E and savings in interest costs would drive a CAGR of 75.7% in its bottom line (FY15-17E). Hence, we expect 323bps improvement in RoCE to 13.4% in FY17E. Accordingly, we upgrade our rating from SELL to HOLD on the stock with a revised SOTP target price of Rs462 (Exhibit 2). We have assigned a higher P/E multiple of 12x for FY17E EPS (30% discount to its 1 year forward P/E multiple) as we have upgraded our EPS for FY16E and FY17E and steps taken by the company to ease working capital pressure coupled with reduction in debt have addressed most of our concerns. Recommendation CMP: Target Price: Previous Target Price: Rs405 Rs462 Rs369 Upside (%) 14% Stock Information Market Cap. (Rs bn / US$ mn) 20/316 52-week High/Low (Rs) 508/205 3m ADV (Rs mn /US$ mn) 25/0.4 Beta 1.8 Sensex/ Nifty 27,531/8,339 Share outstanding (mn) 49 Stock Performance (%) 1M 3M 12M YTD Absolute (6.9) (0.2) 75.2 13.7 Rel. to Sensex (7.2) 4.2 57.3 13.5 Performance 31,000 27,000 23,000 19,000 15,000 Sensex (LHS) Source: Bloomberg Earning Revision (%) FY16E FY17E Sales - - EBITDA - - EPS 2.5% 2.5% Source: Karvy Stock Broking 550 450 350 250 150 50 SIMPLEX INFRA (RHS) Key Financials Y/E March (Rs mn) FY13 FY14 FY15 FY16E FY17E Revenue 58,208 55,130 55,816 61,142 67,465 EBITDA 4,681 5,159 5,620 6,625 7,443 EBITDA margin (%) 8.0 9.4 10.1 10.8 11.0 Adj. Net profit 598 606 624 1,257 1,927 EPS (Rs) 12.0 12.2 12.6 25.4 39.0 RoE (%) 4.8 4.5 4.4 8.4 11.6 RoCE (%) 9.9 9.6 10.2 11.7 13.4 P/E (x) 33.5 33.1 32.1 16.0 10.4 P/BV (x) 1.6 1.4 1.4 1.3 1.1 EV/EBITDA (x) 9.3 9.2 9.0 7.7 6.6 Analysts Contact Shravan Shah 022 6184 4311 shravan.shah@karvy.com
Exhibit 1: SIL s Q4FY15 performance Y/E March (Rsmn) Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 YoY (%) QoQ (%) FY14 FY15 YoY (%) Total revenue 14,411 13,474 12,591 14,357 15,394 6.8 7.2 55,130 55,816 1.2 Operating expenditure 13,057 12,123 11,207 12,848 14,018 7.4 9.1 49,971 50,196 0.5 EBITDA 1,354 1,351 1,384 1,509 1,376 1.6 (8.8) 5,159 5,620 8.9 Depreciation 344 352 367 359 289 (15.9) (19.5) 1,356 1,368 0.9 Operating profit 1,010 999 1,017 1,150 1,087 7.6 (5.5) 3,804 4,252 11.8 Other income 105 111 112 53 254 143.0 382.7 394 530 34.6 EBIT 1,115 1,110 1,128 1,202 1,341 20.3 11.5 4,198 4,782 13.9 Interest 899 910 929 967 1,037 15.4 7.2 3,342 3,843 15.0 EBT 216 201 199 235 304 40.7 29.5 856 939 9.7 Income tax 3 73 72 88 82 2,940.7 (6.2) 250 315 25.7 Net income 214 127 127 148 222 4.0 50.6 606 624 3.1 Extra-ord (inc)/exp. - - - - - - - - - - Reported net income 214 127 127 148 222 4.0 50.6 606 624 3.1 Adjustments - - - - - - - - - - Adjusted net income 214 127 127 148 222 4.0 50.6 606 624 3.1 Equity capital (FV Rs.2) 99 99 99 99 99 0.0 0.0 99 99 EPS (Rs.) 4.3 2.6 2.6 3.0 4.5 4.0 50.6 12.2 12.6 3.1 bps bps bps EBITDA margin (%) 9.4 10.0 11.0 10.5 8.9 (4) (48) 9.4 10.1 71 OPM (%) 7.0 7.4 8.1 8.0 7.1 5 (7) 6.9 7.6 7 NPM (%) 1.5 0.9 1.0 1.0 1.4 (5) 2 1.1 1.1 2 2
Valuation: Upgrade to HOLD We expect working capital/sales of SIL to ease from 64.5% in FY15 to 57.4%/50.8% in FY16/FY17E. The ease in working capital coupled with 10% YoY growth in fresh orders during FY15-17E would result in 9.9% CAGR in revenue over FY15-17E. We also expect ongoing improvement in EBITDA margin to continue over FY16-17E and expect further improvement of 96bps in EBITDA margin to 11.0% by FY17E. Moreover, savings in interest cost led by reduction of Rs1.9 bn/rs2.6 bn in debt in FY16E/FY17E would drive a net profit growth of 75.7% CAGR over FY15-17E. Hence, we expect RoCE to improve by 323bps to 13.4% in FY17E. The stock s valuation at 16.0x/10.4x FY16E/FY17E standalone EPS is reasonable, in our view. We have valued SIL on a standalone basis at 12x FY17E EPS and its investment in Road BoT projects at 1x BV. Thus, we have arrived at our SOTP based target price of Rs462 per share (Exhibit 2), which provides an upside potential of 14% from CMP, therefore we upgrade SIL from SELL to HOLD, on account of valuation comfort. Exhibit 2: SOTP valuation summary Component Valuation Method Old Rs per share New Standalone construction business 12.0 x FY17E EPS 359.8 451.9 97.5 Road BoTs 1x BV 9.1 10.0 2.0 Total 368.9 461.9 100.0 CMP 405.40 Potential Up/ (Down) side (%) 13.9 Downside risk to our valuation SIL s net working capital, as a percentage of revenue, increased from 30.5% (average) during FY06-12 to 56.7%/64.5% in FY14/FY15, which impacted its revenue growth (down 5.3% in FY14 and marginally up 1.2% in FY15). We believe that lower-than-expected easing of working capital requirement in comparison to our estimates of 57.4%/50.8% in FY16E/FY17E will result in the company s revenue growth and profitability below our expectations. Change in Estimate and Valuation We maintain our revenues and EBITDA margin estimates for FY16E/FY17E. However, we upgrade our EPS estimates by 2.5% to Rs25.4/39.0 for FY16E/FY17E, respectively due to lower interest cost led by reduction in debt by Rs1.9 bn/rs2.6 bn in FY16E/FY17E. % Exhibit 3: Change in Estimates Y/E March (Rs. mn) FY16E FY17E New Old % change New Old % change Net revenues 61,142 61,142 0.0 67,465 67,465 0.0 EBIDTA 6,625 6,625 0.0 7,443 7,443 0.0 EBIDTA margin (%) 10.8 10.8 0 11.0 11.0 0 Adj. Net Profit 1,257 1,226 2.5 1,927 1,881 2.5 EPS (Rs) 25.4 24.8 2.5 39.0 38.0 2.5 3
Exhibit 4: Rs161 bn orderbook break-up Piling 3% Marine 3% Power 12% Industrial 5% Bridges 9% Railways 3% Roads 13% Urban Utilities 13% Building & Housing 39% Exhibit 5: Orderbook trend Rsbn (x) 200 3.2 150 2.9 100 2.6 50 2.3 0 2.0 Order book Order inflow Order book /sales (RHS) Exhibit 6: 9.9% revenue CAGR during FY15-17E Exhibit 7: Improvement in EBITDA margin Rsbn 80.0 60.0 40.0 20.0 0.0 25.7 9.5 10.3 (1.3) 1.2 (5.3) % 30 20 10 0 (10) Rs bn 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 10.8 11.0 10.1 9.4 7.8 8.0 % 12 11 10 9 8 7 6 Revenue Revenue growth (RHS) EBITDA EBITDA margin (RHS) Exhibit 8: Ease in working capital pressure Rsbn 80.0 60.0 40.0 20.0 0.0 (x) 0.65 0.55 0.45 0.35 Exhibit 9: Declining net D:E Rsbn 35.0 30.0 25.0 20.0 15.0 10.0 2.4 2.2 2.0 1.8 1.6 1.4 1.2 1.0 Net WC Revenue Net WC/ Revenue (x) Net Debt Networth Net D:E (RHS) 4
Exhibit 10: Profit and Loss Statement Y/E Mar (Rs mn) FY13 FY14 FY15 FY16E FY17E Net Sales 58,208 55,130 55,816 61,142 67,465 % growth (1.3) (5.3) 1.2 9.5 10.3 Operating expenditure 53,527 49,971 50,196 54,517 60,022 EBITDA 4,681 5,159 5,620 6,625 7,443 % growth 2.0 10.2 8.9 17.9 12.4 Depreciation 1,304 1,356 1,368 1,454 1,552 Other income 420 394 530 470 480 EBIT 3,797 4,198 4,782 5,641 6,371 Interest 2,894 3,342 3,843 3,720 3,500 PBT 903 856 939 1,921 2,871 Tax 305 250 315 664 944 Extra-ord (inc)/exp - - - - - Adjusted PAT 598 606 624 1,257 1,927 % growth (32.9) 1.3 3.1 101.3 53.4 Exhibit 11: Balance Sheet Y/E Mar (Rs mn) FY13 FY14 FY15 FY16E FY17E Cash & cash equivalents 720 807 227 256 261 Trade receivables 22,743 20,951 21,654 22,623 23,410 Inventories 7,849 8,619 9,524 9,813 10,804 Loans & advances 7,719 7,589 8,658 9,211 10,142 Other assets 18,046 21,391 25,645 26,322 26,736 Investments 1,269 1,341 1,476 1,486 1,496 Fixed Assets 12,385 12,169 11,208 11,255 11,203 Total assets 70,732 72,867 78,393 80,965 84,052 Current liabilities & provisions 16,210 17,635 17,859 19,598 21,916 Other liabilities 12,855 9,884 11,942 13,492 14,973 Deferred tax liabilities (net) 2,049 2,073 1,919 1,884 1,835 Debt 26,778 29,296 32,251 30,342 27,780 Total liabilities 57,892 58,889 63,971 65,315 66,504 Shareholders' equity 99 99 99 99 99 Reserves & surpluses 12,741 13,879 14,323 15,550 17,449 Shareholders' funds 12,840 13,978 14,422 15,650 17,548 Total Equity and Liabilities 70,732 72,867 78,393 80,965 84,052 5
Exhibit 12: Cash Flow Statement Y/E Mar (Rs mn) FY13 FY14 FY15E FY16E FY17E PBT 903 856 939 1,921 2,871 Depreciation 1,304 1,356 1,368 1,454 1,552 Interest 2,894 3,342 3,843 3,720 3,500 Other income (141) (232) (530) (470) (480) Other non-cash adjustments 656 711 (14) - - Tax paid (744) 166 (347) (699) (993) Chgange in working capital (6,205) (4,212) (4,649) 801 675 Cash flow from operating activities (1,333) 1,986 610 6,727 7,125 (Incr) / decr in capital expenditure (469) (1,045) (666) (1,500) (1,500) (Incr) / decr in investments (428) (80) (136) (10) (10) Others 126 291 530 470 480 Cash flow from investing activities (771) (834) (272) (1,040) (1,030) Incr / (decr) in borrowings 5,312 2,333 2,954 (1,909) (2,561) Issuance of equity - - - - - Dividend paid (115) (58) (29) (29) (29) Interest paid (2,824) (3,329) (3,843) (3,720) (3,500) Others 23 (11) - - - Cash flow from financing activities 2,396 (1,065) (918) (5,658) (6,090) Net change in cash 292 87 (580) 29 5 Opening Cash 428 720 807 227 256 Closing Cash 720 807 227 256 261 Exhibit 13: Key Ratios Y/E Mar (%) FY13 FY14 FY15 FY16E FY17E EBITDA margin 8.0 9.4 10.1 10.8 11.0 EBIT margin 6.5 7.6 8.6 9.2 9.4 Net profit margin 1.0 1.1 1.1 2.0 2.8 Dividend payout ratio 9.7 4.8 4.6 2.3 1.5 Net debt: equity (x) 2.0 2.0 2.2 1.9 1.6 Interest/EBIT (x) 76.2 79.6 80.4 65.9 54.9 RoCE 9.9 9.6 10.2 11.7 13.4 RoE 4.8 4.5 4.4 8.4 11.6 Exhibit 14: Valuation Parameters Y/E Mar FY13 FY14 FY15 FY16E FY17E EPS (Rs) 12.0 12.2 12.6 25.4 39.0 DPS (Rs) 1.0 0.5 0.5 0.5 0.5 Book value per share (Rs) 259.5 282.5 291.5 316.3 354.7 P/E (x) 33.5 33.1 32.1 16.0 10.4 P/BV (x) 1.6 1.4 1.4 1.3 1.1 EV/EBITDA (x) 9.3 9.2 9.0 7.7 6.6 EV/Sales (x) 0.7 0.9 0.9 0.8 0.7 6
Stock Ratings Absolute Returns Buy : > 15% Hold : 5-15% Sell : < 5% For further enquiries please contact: research@karvy.com Tel: +91-22-6184 4300 Disclosures Appendix Analyst certification The following analyst(s), who is (are) primarily responsible for this report and whose name(s) is/ are mentioned therein, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report. Disclaimer Karvy Stock Broking Limited [KSBL] is a SEBI registered Stock Broker, Depository Participant and Portfolio Manager and also distributes financial products. Subsidiaries and group companies of KSBL [associates] provide services as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services, realty services, data processing, profiling and related services. Therefore associates of KSBL are likely to have business relations with most of the companies whose securities are traded on the exchange platform. The information and views presented in this report are prepared by Karvy Stock Broking Limited and are subject to change without any notice. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KSBL. While we would endeavor to update the information herein on a reasonable basis, KSBL is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent KSBL from doing so. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KSBL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither KSBL nor any associate companies of KSBL accepts any liability arising from the use of information and views mentioned in this report. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. Actual results may differ materially from those set forth in projections. Associates of KSBL might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. 7
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