Simplex Infrastructures' Q4FY19 results (Underperformer) - Miss on all counts
Q4FY19 result highlights
- Simplex Infrastructure reported revenue of Rs15.7bn (est of Rs16.5bn) in Q4FY19, a decline of 5% yoy. FY19 revenue was Rs60.4bn, +5% yoy – a muted growth. As a result, the company missed its guidance of Rs81bn of revenue by wide margin.
- EBITDA was Rs1.8bn (est Rs2bn)/Rs7.2bn in Q4FY19/FY19. EBITDA margin for Q4FY19/FY19 was 11.6%/11.8% (vs guidance of 12.5%)
- Interest cost remained flat yoy at Rs1.2bn but other income declined 24.5%yoy to Rs376m on a high base.
- As a result, PAT came in at Rs336m (+14.5%yoy) in Q4FY19, below our estimate of Rs446m. FY19 PAT was Rs1.2bn, +5% yoy
- Simplex has recovered overdue payments of Rs3.7bn during FY19 vs original guidance of Rs7-8bn in FY19.
- Gross debt increased yoy to Rs36.5bn vs guidance of a decline. Simplex expects to conclude the sale of its 34% stake in the Chandikhole asset in FY20 leading to inflow of Rs3bn.
- Order inflow during Q4 was Rs7.6bn while Simplex guided for inflow of Rs25bn in Q4FY19. Order backlog as of March 19 declined by 12%yoy to Rs160bn (2.7x book to bill ratio). The company is also L1 in projects worth Rs9bn. FY19 order inflow was Rs32bn, a decline of 58% yoy
- Guidance: Rs5bn recovery of debtors and refused to give guidance for FY20 revenue till Q2FY20 end
Key positives: Strong order backlog
Key negatives: Miss in guidance on revenue, order inflow and debt reduction; Slower than guided recoveries of old debtors
Impact on financials: Downgrade FY20E earnings by 8% as we have sharply lowered our execution growth due to elevated debt levels.
Valuations & view
Simplex’s current order backlog of Rs168bn (ex of L1 orders of Rs11bn) provides strong growth visibility over the next 2-3 years. However, working capital cycle continues to remain stretched and with lower than anticipated recoveries (Rs3.7bn FY19 against original annual target of Rs7-8bn) execution remains constrained. Working capital cycle even on incremental execution remains elevated diminishing hope of a sustainable reduction in debt and rebound in execution. We value the company on SOTP basis with a revised price target of Rs127 for the stock and maintain Underperformer.
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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