Simplex Infrastructures' Q4FY18 results (Outperformer) - Improved cash cycle to help accelerate growth
Q4FY18 result highlights
- Simplex Infrastructures’ (Simplex) earnings declined 56.1%yoy to Rs294m, sharply below estimate of Rs529m due to lower revenue/margins, higher interest cost and higher effective tax rate.
- Revenue grew 6.3%yoy to Rs16.5bn, below estimate of Rs17.7bn. Revenue remained impacted due to slow down in execution owing to stretched working capital situation.
- EBITDA grew 2%yoy to Rs1.6bn, below estimate of Rs2bn due to lower revenue and also due to write off of debtors of Rs810m. EBITDA margin declined 40bp yoy to 9.6%, below estimate of 11.5%.
- Other income declined 9.6%yoy to Rs498m, but was sharply above estimate of Rs227m led by Rs220m of Ind-AS adjustments. Interest cost grew 11%yoy and 9.2%qoq to Rs1.3bn and gross debt grew Rs290m qoq at Rs36bn. Net D/E as on Mar 2018 stood at 2.1x. NWC intensity improved qoq to 247days from 257days in Dec 2017.
- FY18 order inflow stood at Rs76.7bn and order backlog as on Mar 2018 stood at Rs186bn (3.2x TTM revenues). Order inflow guidance for FY19 is Rs90-100bn.
- Simplex has recovered overdue payments of Rs4.3bn in FY18 and has guided for recoveries of Rs8bn/Rs10bn in FY19/FY20. As on Mar-18, receivables include impact of ~Rs6bn due to GST linked delays in settlement and approvals. The company expects to recover these payments in FY19.
- FY19 guidance: Revenue target of Rs81bn (+40%yoy over FY18), gross debt at ~Rs28bn as on Mar 2019, EBITDA margin at ~12.5%, tax rate at ~34% and capex of ~Rs2bn.
Key positives: Strong order backlog.
Key negatives: Auditor qualifications on unbilled revenue and doubtful recoveries (details inside).
Impact on financials: Downgrade in FY19E/FY20E earnings by 12%/2.6% mainly due to dilution in equity led by recent QIP and preferential issue.
Valuations & view
Simplex’s order inflows have continued to remain strong for the past several quarters and the current order backlog of Rs186bn (3.2x TTM revenue) is the highest ever and provides strong growth visibility over the next 2-3 years. We expect recovery of overdue receivables to gather pace with Rs4.3bn being recovered in FY18. Simplex has also guided for Rs8bn and Rs10bn recovery of debtors each in FY19 and FY20. These recoveries should improve liquidity and accelerate execution while also driving reduction in leverage. We maintain our Outperformer rating with a revised FY20 based target price of Rs656. The downgrade in our price target is mainly due to dilution in equity led by recent QIP and preferential issue, not adequately compensated by incremental growth/working capital reduction.
Simplex Infrastructures Limited is engaged in the business of contract constructing infrastructural facilities. The Company's segments include Construction business and Others. The Others segment includes oil drilling services, real estate, and hire of plant and equipment. The Company is engaged in building rail infrastructure, including rail tracks, station buildings, bridges and culverts; marine structures, including ports and bridges; design and construction of high-rise infrastructure, including multistoried residential towers, institutional or information technology buildings, hotels, hospitals and mass housing projects; construction of power infrastructures, such as thermal, hydel and nuclear, as well as ultra-mega power projects (UMPP), and renovation and modernization of airports. The Company offers projects for cement, aluminum, copper, engineering, automobiles, petrochemicals, fertilizers, paper textiles, pharmaceuticals, chemicals and other industrial plants.
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