Buy Simplex Infrastructure - Motilal Oswal

Simplex Infrastructure (SINF IN; Mkt Cap USD0.4b, CMP Rs335, Buy)

Simplex Infrastructure Ltd (SIL) posted 3QFY11 revenue of Rs11.6b (up 9.4% YoY), moderately below our estimate of Rs12b (up 12% YoY).

EBITDA was Rs1b (up 11% YoY), which was below our estimate of Rs1.1b (up 17% YoY) and EBITDA margins were 9.5%, up 13bp YoY.

Net profit growth was flat YoY at Rs232m, lower than our estimate of Rs284m (up 23% YoY) mainly due to higher-than-estimated interest costs.

The order book at the end of 3QFY11 was Rs139b (up 31% YoY and up 7% QoQ). 3QFY11 order intake was Rs21b, up 75% YoY.

We have cut our FY11 and FY12 earnings estimates by 25% and 34% respectively. We believe there is downside risk to our estimates as a revenue slowdown can lead to poor fixed-cost absorption and higher interest cost can put pressure on net profit margins. We have revised our target price downwards to Rs384 (earlier Rs546) at 6x FY12E EV/EBITDA. Maintain Buy.

Source : Equity Bulls

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