Result Update Simplex Infrastructures Sell Working capital pressure continues SIL posted 7.4% YoY rise in Q1FY18 standalone revenue (increased post 6 consecutive quarters of de-growth) to `15.1bn (in line with estimates) primarily due to better execution in Power and Urban segments. EBITDA margin down 25bps YoY to 11.4% (in line with estimates), due to rise in construction cost which was partly offset by reduction in employee cost. PAT grew 67.% YoY to `287mn (62.5% above estimates) due to lower tax rate of 21.1% in Q1FY18 vs. 37.7% in Q4FY17. We maintain Sell on the stock due to stretched working capital primarily higher debtors days, high D:E (2x FY19E) being our big concerns. Order book at 2.9x TTM revenue SIL s order inflow grew 22.8% YoY to `14.1bn in Q1FY18. Accordingly, order book increased 18.6% YoY to `164.2bn (2.9x TTM revenue). Currently, the company is L1 for projects worth `1.3bn. Moreover, it has a strong bid pipeline of `253bn. Accordingly, we have considered fresh orders of `74.7bn (as expected by management) each in FY18E and FY19E. Outlook and Valuation We upgraded our revenue estimates by 9%/ 1.1% for FY18E/ FY19E to factor in management s growth guidance of 15%/ 1% for FY18E/ FY19E. However, we expect this is difficult to achieve as it did not grow in last five years due to stretched working capital. Accordingly, our PAT estimates are up by 31%/ 21% for FY18E/ FY19E, while we maintained our EBITDA margin at 11.6%. SIL is still struggling to ease its working capital pressure, primarily collection from debtors. Its debtors including unbilled revenue stood at elevated level of `51.9bn (~91% of TTM revenue) as on Q1FY18. Its investment in net working capital (% of revenue) also remained elevated, though we considered on lower side at 62.7%/ 6.3% for FY18E/ FY19E vs. 65.2% for FY17. Its working capital days to remain at elevated level of 221 days (FY19E) vs. 24 days (FY17). Accordingly, SIL s debt to rise marginally by `2.6bn over FY17-19E to stay at elevated level of `35.7bn. Though we revised upward our SOTP based target price to `397 (Exhibit 1) from earlier `322, we maintain Sell on the stock. Q1FY18 Result (` Mn) Particulars Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%) Revenue 15,119 14,74 7.4 15,51 (2.5) Total expenditure 13,391 12,43 7.7 13,45 (.4) EBITDA 1,728 1,644 5.1 2,51 (15.7) Depreciation 479 52 (4.6) 486 (1.6) Operating profit 1,25 1,142 9.4 1,565 (2.1) Other income 247 21 23. 57 336. EBIT 1,497 1,343 11.4 1,621 (7.7) Interest 1,132 1,67 6.2 1,129.3 EBT 364 276 31.8 492 (26.) Provision for taxation 77 14 (26.4) (176) - Net Income 287 172 67. 668 (57.) Adjustments - (32) - Adjusted net income 287 172 67. 348 (17.5) bps bps EBITDA margin (ex. O.I.) 11.4 11.7 (25) 13.2 (18) EBITDA margin (in. O.I.) 13.1 13.1 (4) 13.6 (53) NPM (%) 1.9 1.2 66 2.2 (37) Tax / PBT (%) 21.1 37.7 (1666) (35.8) 5,684 Const. cost / Revenue(%) 79.3 78.9 41 78.5 8 CMP ` 482 Target/Downside ` 397/18% BSE Sensex 31,795 NSE Nifty 9,94 Scrip Details Equity / FV Market Cap 52-week High/Low `99mn/`2/- `24bn USD371mn `59/`26 Avg. Volume (no) 23,434 NSE Symbol Bloomberg Code SIMPLEXINF Shareholding Pattern Jun 17(%) SINF IN Promoters 56.3 MF/Banks/FIs 18.1 FIIs.3 Public / Others 25.3 Valuation (x) FY17E FY18E FY19E P/E 27. 2.3 15.3 EV/EBITDA 8.3 7.8 7.2 ROE 6. 7.4 9.1 ROCE 11.8 12.2 12.9 Estimates (` mn) FY17E FY18E FY19E Net Sales 56,75 64,473 7,892 EBITDA 6,887 7,477 8,222 PAT 883 1,173 1,561 EPS 17.8 23.7 31.5 Sr. Analyst: Shravan Shah Tel: +9122 496 9749 E-mail: shravans@dolatcapital.com Associate: Maulik Shah Tel: +9122 496 9775 E-mail: mauliks@dolatcapital.com August 17, 217
SOTP Valuation Component Valuation Method `/sh % Standalone cons business 12x FY19E EPS 378.6 95.3 BoTs 1xBV 18.5 4.7 Total 397.1 1. CMP 481.7 Potential downside (%) 17.6 Risk to our valuation SIL s net working capital, as a percentage of the revenue, increased from 3.5% (average) during FY6-12 to 63.2% (average) during FY15-FY17, which resulted into flattish revenue growth during FY15-17. We believe that lower-than-expected working capital requirement in comparison to our estimates of 62.7%/ 6.3% in FY18E/ FY19E will result in higher profitability for the company and vice versa. We have not factored in any equity dilution. The Board of directors has approved `1bn equity raising enabling resolution which is pending for shareholders approval at coming AGM. Q1FY18 Performance (Standalone) Particulars (` mn) Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%) FY17 FY16 YoY (%) Revenue 15,119 14,74 7.4 15,51 (2.5) 56,75 59,46 (5.) Consumption of materials 5,28 4,192 24.2 4,725 1.2 16,422 19,714 (16.7) Employee cost 1,43 1,328 5.6 1,283 9.4 5,143 5,111.6 Other expenses 6,78 6,91 (1.9) 7,443 (8.9) 27,623 27,398.8 Total expenditure 13,391 12,43 7.7 13,45 (.4) 49,188 52,224 (5.8) EBITDA 1,728 1,644 5.1 2,51 (15.7) 6,887 6,822.9 Depreciation 479 52 (4.6) 486 (1.6) 1,978 2,36 (2.9) Operating profit 1,25 1,142 9.4 1,565 (2.1) 4,99 4,787 2.6 Other income 247 21 23. 57 336. 891 981 (9.3) EBIT 1,497 1,343 11.4 1,621 (7.7) 5,8 5,768.5 Interest 1,132 1,67 6.2 1,129.3 4,454 4,286 3.9 EBT 364 276 31.8 492 (26.) 1,346 1,482 (9.2) Provision for taxation 77 14 (26.4) (176) - 143 421 (66.) Net income 287 172 67. 668 (57.) 1,23 1,61 13.3 Adjustments - (32) - (32) (8) - Adjusted net income 287 172 67. 348 (17.5) 883 981 (1.) EPS (`) 5.8 3.5 67. 7. (17.5) 17.8 19.8 (1.) bps bps bps EBITDA margin (ex. O.I.) 11.4 11.7 (25) 13.2 (18) 12.3 11.6 73 EBITDA margin (in. O.I.) 13.1 13.1 (4) 13.6 (53) 13.9 13.2 65 NPM (%) 1.9 1.2 66 2.2 (37) 1.5 1.6 (8) Tax / PBT (%) 21.1 37.7 (1666) (35.8) 5,684 1.6 28.4 (1778) Const. cost / Revenue (%) 79.3 78.9 41 78.5 8 78.5 79.8 (124) August 17, 217 2
`164.2 bn order book break up Order book trend Urban Utilities 19.7% Building & Housing 27.7% Roads 8.7% Pow er 25.7% Railw ays 3.% Bridges 6.7% Industrial 4.7% Piling 2.8% Marine 1.% 2 15 1 5 Order book Order inflow Order book /sales (RHS) x 3 2 8 6 4 2 Revenue CAGR of 12.4% over FY17-19E Revenue Revenue growth (RHS) % 18 14 11 7 4 (4) (7) EBITDA Margin trend 1 8 6 4 2 EBITDA EBITDA margin (RHS) % 15 12 9 Pressure on working capital to continue Highly leveraged 8 x.8 `bn 4 x 2.8 6 3 2.1 4.6 2 1.4 2 1.7.4 Net WC Revenue Net WC/ Revenue (x). Net Debt Networth Net D:E (RHS) August 17, 217 3
Income Statement (Standalone) Particulars (` mn) Mar16* Mar17 Mar18E Mar19E Revenue 59,46 56,75 64,473 7,892 Growth (%) 5.8 (5.) 15. 1. Total Expenditure 52,224 49,188 56,996 62,67 Consumption of materials 19,714 16,422 2,631 23,394 Sub-contractors' charges 17,373 17,341 2,322 22,579 Employee cost 5,111 5,143 5,554 5,999 Other Expenses 1,26 1,283 1,488 1,698 Other Income 981 891 917 945 EBIDTA (Excl. OI) 6,822 6,887 7,477 8,222 Growth (%) 8.6.9 8.6 1. EBIDTA (Incl. OI) 7,84 7,777 8,394 9,166 Depreciation 2,36 1,978 2,117 2,21 EBIT 5,768 5,8 6,277 6,965 Interest 4,286 4,454 4,5 4,6 Profit Before Tax 1,482 1,346 1,777 2,365 Tax 421 143 64 84 Net Profit 1,61 1,23 1,173 1,561 Adjustments (8) (32) Adj. Net Profit 981 883 1,173 1,561 Growth (%) 57.2 (1.) 32.9 33.1 * Note Estimated Ind AS Balance Sheet Particulars (` mn) Mar16 Mar17 Mar18E Mar19E Sources of Funds Equity Capital 99 99 99 99 Reserves 14,1 15,24 16,347 17,878 Net Worth 14,199 15,33 16,446 17,977 Long Term Loans 6,448 6,239 6,683 7,213 Short Term Loans 27,543 27,11 28,867 28,667 Loan Funds 33,991 33,25 35,55 35,88 Deferred Tax Liability 798 1,64 1,32 99 Total Capital Employed 48,988 49,618 53,28 54,847 Applications of Funds Gross Block 23,714 24,27 25,142 26,142 Less: Accumulated Dep. 1,92 12,297 13,71 15,179 Net Block 12,811 11,73 11,432 1,963 Capital Work in Progress 123 115 Investments 1,23 1,339 1,349 1,359 Current Assets, Loans & Advances Inventories 7,281 7,464 8,834 9,714 Sundry Debtors 12,89 15,294 18,53 2,559 Cash and Bank Balance 233 329 234 275 Loans and Advances 894 1,468 1,684 1,91 Other Current Assets 43,643 46,437 5,724 53,99 sub total 64,941 7,993 79,528 86,358 Less: Current Liabilities & Provisions Current Liabilities 29,97 34,387 39,74 43,596 Provisions 147 172 26 237 sub total 3,117 34,559 39,28 43,832 Net Current Assets 34,824 36,434 4,248 42,526 Total Assets 48,988 49,618 53,28 54,847 E Estimates Cash Flow (Standalone) Particulars (` mn) Mar16 Mar17E Mar18E Mar19E Profit before tax 964 1,346 1,777 2,365 Depreciation 1,375 1,395 1,413 1,469 Finance cost 4,293 4,454 4,5 4,6 Other income (451) (891) (917) (945) Others 755 466 Direct taxes paid 38 (412) (636) (847) Change in Working Capital (1,712) (1,514) (3,99) (2,236) (A) CF from Operations 5,263 4,844 2,228 4,47 Capex (1,756) (35) (1,) (1,) Free Cash Flow to Firm 3,56 4,539 1,228 3,47 Inc./ (Dec.) in Investments (19) (1) (1) Other 432 891 917 945 (B) CF from Investments (1,325) 477 (93) (65) Issue of Equity/ Preference Inc./(Dec.) in Debt 253 (74) 2,299 33 Interest exp net (4,155) (4,454) (4,5) (4,6) Dividend Paid (Incl. Tax) (3) (3) (3) (3) (C) CF from Financing (3,932) (5,224) (2,23) (4,3) Net Change in Cash 6 96 (96) 42 Opening Cash balances 227 233 329 234 Closing Cash balances 233 329 234 275 Important Ratios Particulars Mar16 Mar17 Mar18E Mar19E (A) Measures of Performance (%) EBIDTA Margin (excl. O.I.) 11.6 12.3 11.6 11.6 EBIDTA Margin (incl. O.I.) 13.2 13.9 13. 12.9 EBIT Margin 9.8 1.3 9.7 9.8 Interest/EBIT 74.3 76.8 71.7 66. Tax/PBT 28.4 1.6 34. 34. Net Profit Margin 1.7 1.6 1.8 2.2 (B) As Percentage of Net Sales Raw Material 33.4 29.3 32. 33. Subcontracting expenses 29.4 3.9 31.5 31.9 Employees expenses 8.7 9.2 8.6 8.5 Other Expenses 17. 18.3 16.3 15.1 (C) Measures of Financial Status Debt / Equity (x) 2.4 2.2 2.2 2. Interest Coverage (x) 1.8 1.7 1.9 2. Average Cost Of Debt (%) 12.9 13.2 13.1 12.9 Debtors Period (days) 289 344 337 335 Closing stock (days) 45 49 5 5 Working Capital (days) 22 24 23 221 Fixed Assets Turnover (x) 2.5 2.3 2.6 2.7 (D) Measures of Investment Diluted EPS (`) 19.8 17.8 23.7 31.5 CEPS (`) 62.6 66.1 66.5 76. DPS (`).5.5.5.5 Book Value (`) 287. 39.3 332.4 363.4 RoANW (%) 6.9 6. 7.4 9.1 RoACE (%) 11.8 11.8 12.2 12.9 RoAIC (%) 12.2 12.1 12.6 13.3 (E) Valuation Ratios CMP (`) 482 482 482 482 P/E (x) 24.3 27. 2.3 15.3 Market Cap. (` mn) 23,914 23,914 23,914 23,914 MCap/ Sales (x).4.4.4.3 EV (` mn) 56,813 57,261 58,4 59,382 EV/Sales (x) 1. 1..9.8 EV/EBDITA (x) 8.3 8.3 7.8 7.2 P/BV (x) 1.7 1.6 1.4 1.3 FCFE Yield (%) (5.7) (2.9) (4.2) (3.7) Dividend Yield (%).1.1.1.1 E Estimates August 17, 217 4
Aug-16 Sep-16 Sep-16 Oct-16 Nov-16 Nov-16 Dec-16 Jan-17 Jan-17 Feb-17 Mar-17 Apr-17 Apr-17 May-17 Jun-17 Jun-17 Jul-17 Aug-17 DART RATING MATRIX Total Return Expectation (12 Months) Buy > 2% Accumulate 1 to 2% Reduce to 1% Sell < % Rating and Target Price History 6 55 5 45 Simplex Infra Target Rating TP (`) CMP (`) Dec 16 Reduce 29 292 Feb 17 Reduce 314 311 June 17 Sell 322 464.25 4 35 3 25 2 DART Team Purvag Shah Managing Director purvag@dolatcapital.com +9122 496 9747 Amit Khurana, CFA Head of Equities amit@dolatcapital.com +9122 496 9745 CONTACT DETAILS Equity Sales Designation E-mail Direct Lines Kishor Bagri, CFA VP - Equity Sales kishorb@dolatcapital.com +9122 496 9746 Kartik Sadagopan VP - Equity Sales kartiks@dolatcapital.com +9122 496 9762 Kapil Yadav VP - Equity Sales kapil@dolatcapital.com +9122 496 9735 Yomika Agarwal VP - FII Sales yomika@dolatcapital.com +9122 496 9773 Derivatives Strategist Designation E-mail Bhavin Mehta VP - Derivatives Strategist bhavinm@dolatcapital.com +9122 496 975 Equity Trading Designation E-mail P. Sridhar VP and Head of Sales Trading sridhar@dolatcapital.com +9122 496 9728 Chandrakant Ware AVP - Equity Sales Trading chandrakant@dolatcapital.com +9122 496 977 Derivatives Trading Designation E-mail Shirish Thakkar AVP - Derivatives shirisht@dolatcapital.com +9122 496 972 Hardik Mehta Sales Trader hardikm@dolatcapital.com +9122 496 9748 Dolat Capital Market Pvt. Ltd. 2, Rajabahadur Mansion, 1st Floor, Ambalal Doshi Marg, Fort, Mumbai - 4 1
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