Overseas business has been a key concern for Simplex Infrastructures Ltdfor the nine months ended December. Overseas business revenue has decreased by 47% on a year-on-year basis for the first three quarters this fiscal and accounted for 14% of the total revenue.
However, the good news is that the situation could turn around from this quarter onwards. Simplex maintains that though overseas business revenue declined 46% in the quarter ended December, the contraction in the month of December was just 7%. According to the company, January has been better and it expects the trend in the overseas business to reverse slowly in the days to come.
In the December quarter, domestic revenue accounted for 88% and grew by a decent 28%. The rest of the revenue came from the overseas business, which fell 46%. To an extent, the weakness in the overseas business has been reflected in overall revenue growth at 9% to Rs 1,170 crore, which is not very impressive. Operating margins, too, improved just slightly by 15 basis points to 9.2%, but higher interest costs and finance charges spoilt net profit performance, which was flattish at Rs 23 crore.
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In keeping with other infrastructure stocks, Simplex, too, has underperformed this fiscal. But “when infrastructure stocks will start performing, Simplex should be one of the better performers given its comparatively better working capital management, high corporate governance and simpler business model. On a broad basis, peers have a working capital of more than five months”, said Abhinav Bhandari of Elara Securities (India) Pvt. Ltd.
The company has improved its working capital situation to 121 days in the December quarter compared with 131 days in the September quarter due to the improvement in receivables. Simplex is also comfortable as far as order inflows are concerned, with inflows at the end of nine months ended December at about Rs 6,000 crore. The order book as on December stood at Rs 13,900 crore.
Even as the company hopes to deliver 15-20% revenue growth in the current quarter, revenue growth for the year is likely to be sluggish. Investors could look forward to better performance in the next fiscal, as the overseas business performance improves, though higher interest rates and commodity prices will continue to weigh heavily on infrastructure companies in the near term.
Graphic by Yogesh Kumar/Mint