Simplex Infrastructure Ltd’s revenue growth of 9% for the March quarter came in much lower than the company’s forecast of 15-20%.
The weak performance of the international business has been a major concern in the last fiscal. Hopes that things would be better in the fourth quarter were dashed. In fact, the disappointment in its international performance explains the large difference between the forecast and actual figures. It was the local business that saved the day.
In the March quarter, the domestic business revenue grew by 16%, while for the full year, it increased by 23% and accounted for 89% of the total revenue. Revenue from the international business declined by 29% last quarter. The performance of the international business actually improved during the quarter, considering that revenue for the nine months ended December had declined by 47%.
Operating profit margin for the quarter fell by 23 basis points to 10% on account of faster rate of increase in raw material costs and other expenses. One basis point is one-hundredth of a percentage point. As a result, operating profit increased by only about 7%. But net profit declined 20% to Rs37 crore because of higher interest expenses and an additional tax liability related to earlier years. For the full year, operating margin and net profit remained flat compared with the previous year.
Meanwhile, Simplex has done better as far as order inflows are concerned. Order inflows increased by 40% in the last fiscal and the order book rose by 28% to Rs14,707 crore as of March, which is three times last year’s revenue.
While that offers good revenue visibility, the outlook for the current fiscal is not very bright. That is considering the sluggish operating environment in general, as commodity prices and interest rates are high. Also, order inflows could be subdued this year.
The company’s stock has underperformed the BSE-500 Index of the Bombay Stock Exchange in the last one year. But so have other infrastructure stocks. While that makes the valuation attractive, high interest rates are not only hitting demand, but also leading to higher interest expenses, which will affect profitability adversely. That should limit the upside in the stock in the near term.
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