In a chaotic market such as the one we are currently witnessing, it makes sense to play it safe and grab fundamentally strong counters to ride through the rough phase. Simplex Castings (SCL) is one such fundamentally strong scrip that has managed to hold its ground. The scrip has shed just a little over four per cent since the beginning of this month, even as the broader markets are down by more than eight per cent.

A history of steady financial performance, a consistent dividend-paying track record over the past six years, with FY11 dividend at Rs 2.5 per share (face value of Rs 10), and the fact that the scrip is available cum-dividend and at very low valuations of a PE ratio of 3.6x are factors that are making this a good grab at its CMP of Rs 85.

Simplex Castings is a manufacturer of heavy engineering castings of various grades. Steel castings generate 50 per cent of its total revenues, followed by 40 per cent from cast iron castings, while the balance comes from fabrication and equipments. Its products mainly include gear wheels, truck frame, casnub bogies, wind mill hubs and zero leakage coke oven doors, and it caters to various sectors such as steel, power, railways, mines, cement and chemicals. What makes SCL attractive is its enviable list of clients, including the likes of Indian Railways, BHEL, SAIL and Tata Steel, amongst others. Railways and the steel sector, together, generate around 55-60 per cent of the company’s revenues – with railways itself being the single largest client, bringing in 40 per cent of the total revenues. While some might feel that having a single major client is a risky prospect, we feel otherwise. With the massive budget outlay for FY12, and its thrust on infrastructure development, regardless of concerns over the economy slowing, the railways are likely to continue placing orders with companies such as SCL.

That apart, the company has orders worth Rs 100 crore in hand, which are to be executed within the current fiscal. There are also a few orders in the pipeline. In fact, the management says that it is targeting orders worth around Rs 300 crore in this fiscal. This, we believe, gives a good revenue visibility for the company for the current fiscal. SCL has also entered into a new business area – that of manufacturing oil rigs, in a 51:49 JV with China-based Tefico. It is expecting orders worth Rs 40-50 crore for the same very soon, which would be executed next fiscal.

Coming to the financials, SCL has grown at a five-year CAGR of 13 per cent and 36.75 per cent in topline and bottomline respectively. In fact, in Q1 FY12, where many companies have seen deceleration in their growth, SCL’s revenues and profits grew by 41 per cent and 43 per cent, to Rs 54.43 crore (Rs 38.71 crore) and Rs 2.77 crore (Rs 1.93 crore) respectively. For FY12, the management is confident of touching Rs 240 crore in revenues, while maintaining its margins. Thus, profits could be around Rs 14-15 crore. At these estimates, SCL is available at PE of mere 3.5x, which is quite low. Besides, being a cum dividend scrip with high dividend yield of 3 per cent, it is a grab at any time, with one year target of Rs 106.