Simplex Infrastructure sinks 18% after ICICI Direct raises concerns over its debt position

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Shares of Simplex Infrastructure fell 18 percent intra-day on June 7 as ICICI Direct maintained its reduce call on the stock, citing higher debt levels and likely muted execution in FY20.

The stock recovered from the day’s low but was still down five percent to Rs 139 on the BSE at 14:28 hours IST.

“With Simplex currently focusing on improving internal operations & recovery of old debtors, its execution could remain muted in FY20. While the stock’s around 68 percent fall in the past six months is reflective of concern on old debtors, we have not seen meaningful debtors recovery. Even debt levels have not been as per the company’s expectations and continue to remain elevated,” the brokerage reasoned for keeping reduce rating on the stock with a target price at Rs 130, implying 11 percent potential downside.

Simplex’ gross debt on books increased by Rs 115 crore QoQ to Rs 3,651 crore in Q4FY19, higher than its target of Rs 3,200-3,400 crore in FY19. This was due to lower debtors recovery of just Rs 375 crore in FY19 as against a target recovery of Rs 800 crore.

Total debtors (including unbilled revenue – Rs 4,380 crore) increased Rs 133 crore to Rs 6,309 crore as of Q4 FY19. The management expects to recover from debtors around Rs 550 crore in FY20, ICICI Direct stated.

With this recovery and additional Rs 280-300 crore proceeds from sale of BOT project (expected to be received in second half of FY20), Simplex aims to pare its debt, going ahead, it said.

Meanwhile, the auditor has drawn attention on old balances viz unbilled revenue, loans/advances, trade receivables, retention monies, inventories at project sites and claims recoverable aggregating Rs 689.2 crore, Rs 285.5 crore, Rs 155.8 crore, Rs 535.4 crore, Rs 28.5 crore and Rs 69.1 crore, respectively.

They were unable to comment on the extent of recoverability of Rs 1,281.7 crore out of the aforesaid amounts, the brokerage said.

Simplex infrastructures’ topline degrew 6.1 percent YoY to Rs 1,547.7 crore in Q4 FY19. EBITDA margin expanded 202 bps to 11.6 percent. PAT grew 14.5 percent to Rs 33.6 crore but was below ICICI Direct’s estimate of Rs 40.8 crore mainly on account of higher tax rate and lower-than-expected topline growth.