Simplex Infrastructures Ltd.
BUY
CMP: Rs400
Simplex Infrastructures Ltd (SIL) is a 82-year contracting company with a profit making track record since inception. The reveals the quality of management and its focus on consistent bottomline generation. The company has also had the same auditor, ‘Price Waterhouse’, since the year 1947 when the Mundhras’
took charge, which could be seen as an indication of healthy accounting practices.
Well diversified with Rs47bn order book SIL’s order book is a well diversified one with no vertical accounting for more than 30% of the company’s turnover. The order book/FY06 sales at 3.5x offers visibility given the average execution period of 1.5 years. Backed by a healthy order book and an estimated order intake/execution of 1.7x in FY07, we expect
SIL to witness a CAGR of 45.4% in topline during FY06-08.
Big plans for the overseas market SIL earns close to 10% of its total revenues from work overseas and plans to increase this proportion to 40% in the next four years, in order to diversify geographically as well. It also expects margins to be higher by 100-200bps overseas. The company is presently executing orders in Doha, West Indies and Bahrain and has presence in many other countries too.
Targeting new verticals SIL is planning a foray into road BOTs, mainly for annuity projects. It will also work on the feasibility of BOT/EPC projects in power T&D, power generation, ports, railways, real estate development and industrial construction, in its bid
to become a US$1bn company in the next five years.
The company raised close to Rs1bn through a preferential allotment to Chrys Capital and plans for another GDR/FCCB worth US$200mn, not factored into our workings, to meet its future fund requirements.
The SIL stock is trading at a P/E of 15.5x FY08E earnings. These are attractive valuations for a company expected to witness a CAGR of 63.2% during FY06-08. The market capitalization is at 0.3x its order
book, which is low and leaves scope for an increase. We recommend a BUY with a one-year price target of Rs459.