Simplex Castings - Recommendation Review

BSE Code    513472
Reco Price    Rs 85

We had recommended Simplex Castings in DSIJ Issue no. 18 (dated August 15-28, 2011), when the scrip was trading at Rs 85. Our recommendation was backed by factors like the steady financial performance of the company, a consistent dividend paying track record (cum dividend at the time of recommendation) and lower valuations. Orders worth Rs 100 crore in hand, which were to be executed in FY12, were an added advantage for the company. We had also stated the company’s plans of entering into a JV for the business of manufacturing oil rigs.

However, after our recommendation, the scrip did not witness any up-move. The management had commented that the company is expected to touch a topline of Rs 240 crore in FY12 and a net profit of around Rs 14-15 crore. But with a topline of Rs 109.69 crore and a bottomline of Rs 5.34 crore for H1 FY12, achieving this seems to be difficult in a scenario where the economy itself is not picking up pace. Further, a majority of the orders (40 per cent) come from the railways, but with policy paralysis at the government level, we do not expect orders from the railways to come in. Though, with a good order book, revenue visibility for the company is sustained. Hence, keeping factors like lower valuations (a P/E of just 2.42x) in mind, we recommend that investors hold on to the counter.