gladiator stocks – infrastructure...

Gladiator Stocks – Infrastructure Thematic

Scrip I-Direct Code Action Target StoplossJK Lakshmi Cement JKLAKS Buy in the range of 445-455 542.00 405.00Heidelberg Cement HEICEM Buy in the range of 122-126 150.00 109.50Ashoka Buildcon ASHBUI Buy in the range of 207-211 258.00 184.00Simplex Infrastructure SIMINF Buy in the range of 382-388 452.00 345.00Time Frame: 6 Months

Research AnalystsDharmesh Shah [email protected] Pabitro Mukherjee [email protected] Kunte CMT nitin kunte@icicisecurities com Vinayak Parmar vinayak parmar@icicisecurities com

Time Frame: 6 Months

Nitin Kunte, CMT [email protected] Vinayak Parmar [email protected] Dagha [email protected]

April 11, 2017

Deal Team – At Your ServiceFocus on Infrastructure spending augurs well...

• With Infrastructure development being one of the key focus areas for the government, we anticipate plethora ofopportunities for infrastructure players, going ahead. The priority towards infrastructure was already visible in itsUnion Budget 2017-18 with the record allocation of |3.96 lakh crore (13.5% YoY). The tendering activity has alsopicked up pace by growing robustly at 28.5% YoY to |7.4 lakh crore during April2016-Feb2017.

• Among the infrastructure space, we believe road vertical is expected to remain in sweet spot, going ahead. The roadg p , p p , g gsector has witnessed highest ever awarding/construction 16000 km/8144 km in FY17. Additionally, the governmenthas rolled over its ambitious awarding/construction target of 25000kms/15000 kms respectively for FY18 indicatingstrong momentum to continue in road sector. Beside this, InVIT listing would help the private players unlock the valuepotential of their BOT portfolio, going ahead.

• Higher budgetary allocation towards development of roads & highways along with governments focus on ruraldevelopment & affordable housing is expected to lead to increased demand for cement resulting in increasedutilisation (up from 65% in FY16 to 75% in FY19E). Consequently, we expect cement demand to reach 323 MT byFY19E (i.e. at CAGR growth of 7.0%) vs. (CAGR of growth 5.4% over last five years)

• Railway is expected to remain another key pillar for infrastructure development. The government has increasedallocation by 9.2% YoY to | 1.31 lakh crore in Union Budget 2017-18. The enhanced outlay is largely in line withrailway targeted five year investment outlay of |8.56 lakh crore till 2020.

• Sagarmala would be another thrust area for infrastructure development. The government has identified 150 projectsunder Sagarmala entailing an investment of | 400000 crore over the next 10 years. This would result capacity inalmost doubling of Indian ports capacity to 2500 MMT in FY25E from 1400 MMT currently

2

JK Lakshmi Cement (JKLAKS): Resumption of uptrend...

CMP | 455 00 B i R | 445 455 T t | 542 00 St l | 405 00 U id 20%

Key technical observationsThe share price of JK Lakshmi Cement resumed its primary uptrend after registering a breakout past the bullishDouble Bottom pattern and post demonetisation high of | 445 in March 2017. The stock is forming higher high, higherlow on the monthly time frame signalling persistent demand at elevated levels. We believe the current consolidationb h b k f id f h i f di i id h

Stock Data

CMP: | 455.00 Buying Range: | 445-455 Target: | 542.00 Stop loss: | 405.00 Upside: 20%

52 Week High / Low 513/329.3050 days EMA 422

200 days EMA 402above the breakout area of | 445 provides a fresh entry opportunity for medium term investors to ride the next upmove within the structural uptrend.Bullish Double Bottom pattern at long term rising trend line...The stock hit an all-time high of | 513 in October 2016 and, thereafter, entered a consolidation phase. The price wisedecline following the demonetisation drive in November 2016 saw the stock attract strong demand at its major longterm rising trend line joining the major yearly lows of 2014 and 2016 placed around | 330. The stock witnessed asteady base formation above its long term rising demand line and oscillated between the broad range of | 330 and

*Recommendation given on i-click to gain on April 112017 at 10:02 hrs

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52 Week EMA 399

Face Value (|) 5Market Capitallisation (| Cr.) 5413

y g g g| 430 levels for nearly four months between November 2016 and February 2017. The two distinct monthly lows ofNovember and December 2016 at | 330 represent a Bullish Double bottom pattern. The double bottom formation atthe major value area and subsequent basing formation highlight accumulation by stronger hands at the long termvalue area. The stock registered a resolute breakout past the neckline of double bottom pattern (| 432) and surpassedits demonetisation high of | 445 in March 2017 to signal the conclusion of the secondary corrective phase andresumption of the primary uptrend. We believe the current consolidation above the breakout area of | 445 is a positivesign confirming strength in the price breakout as the stock is building a higher base that will act as the launch pad for a

Stock price vs. BSE 500

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further northward journey.We believe the rising 200 day EMA currently placed around | 402, which also coincides with the 50% retracement ofthe entire up move since January 2017 till date (| 345 to | 472) placed around the | 408 region will act as a strongbase for the stock, going forward.

Momentum oscillators indicate build-up of positive momentumAmong oscillators, the weekly MACD (E-12/26/9) remains in a rising trajectory and has ventured above its trigger linePrice performance in last five years

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along with the price breakout from the bullish double bottom pattern during March 2017. It highlights strength in theprice breakout and supports continuance of the upward momentum from a medium term perspective.

ConclusionBased on the aforementioned technical observations, we believe the stock has concluded a secondary correctivephase and resumed its primary uptrend. We believe the stock provides a good entry opportunity for medium terminvestors to ride the next up move towards | 545 region over the medium term. The measuring implication of thebullish Double bottom pattern i e the distance between the neckline to the bottom (| 430 to | 330 = 100 points)2012 2013 2014 2015 2016

Yearbullish Double bottom pattern i.e. the distance between the neckline to the bottom (| 430 to | 330 = 100 points)projected from the breakout point of | 445 opens upsides towards | 545 over the coming months.

Source: Bloomberg, BSE, ICICIdirect.com Research

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JK Lakshmi Cement (JKLAKS): Weekly Bar Chart

M i i li i f b lli h

Breakout from a bullish Double Bottom pattern formedat long term rising trendline signals resumption ofuptrend and offers fresh entry opportunity

513

Measuring implication of bullishDouble Bottom pattern @ 545

432

52 W k EMA52 Weeks EMA

Bullish Double Bottom at long termrising trendline placed around |330

Weekly MACD is in rising trajectory above its trigger line and divergingfrom its nine period average highlighting strength in the underlying trend

Source: Bloomberg, ICICIdirect.com Research

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JK Lakshmi (JKLAKS): Fundamental View

Fundamental ViewFundamental ViewJK Lakshmi sells ~70% of its cement production in the north and has been one of the most cost effective players inthe industry. The company has gradually shifted from coal usage to low cost pet-coke, which also avoidsuncertainty about coal availability. As a result, fuel consumption has reduced gradually. The company has 100%captive power capacity with 54 MW of thermal power plant and 12 MW of waste heat recovery.

Higher infra spend by government to drive growth…

Stock Data

Amount

Mcap | 5379 crore

Debt (FY16) | 1853 crore

Cash & Invest (FY16) | 256 crore

Particular

The company sells its cement production in the north and east, which has witnessed robust volume growth led byan increase in infrastructure spend by the government (especially in the road sector and low cost housing) therebyhelping it to maintain healthy utilisation. Going forward, we expect utilisation to improve led by better monsoon andhigher budgetary allocation to infra projects and affordable housing (as witnessed in the current Budget).

…capacity expansion to further boost volumesKey Metrics

EV | 6976 crore

52 week H/L | 514 / | 326

Equity cap | 274.2 crore

Face value | 10

The company commissioned the 1.8 MT cement plant at Durg in Chhattisgarh and is further expanding Durgcapacity to 2.7 MT by March 2017. Also, it has commissioned 1.4 MT grinding unit at Surat in October 2016 and is inthe process of setting up another 0.6 MT grinding unit at Odisha. This is expected to lead to total capacity of 11.4MT (standalone capacity) by FY18E from 8.3 MT in FY16. We expect the benefit of these expansions to lead to asales volume growth of 15.6% over FY16-18E.

C i li i D l d i i

FY15 FY16 FY17E FY18E

P/E 56.1 337.2 66.2 32.3

EV/EBITDA 19.6 25.6 17.9 11.5

EV/Tonne($) 172.9 140.1 115.8 84.9

P/BV 4.0 4.0 3.9 3.5

RoNW (%) 7 2 1 2 5 8 10 7 Cost rationalisation at Durg plant to drive margins

The company is setting up a grinding unit and railway siding at the Durg facility, which will help reduce freight cost/tby ~| 300/t. Further, the company is also setting up WHRMS (7 MW, sufficient for 30% of Durg facility’s powerrequirement) and captive power of 20 MW in the Durg facility that will help rationalise power cost/t by ~| 200/t. Inaddition, commissioning of conveyor belt (saving of ~| 40/t) and sourcing of power from private players at a lowercost in the Durg facility will further help in rationalisation of cost, thereby positively impacting margins.

Financial Highlights

| Crore FY15 FY16 FY17E FY18E

Net Sales 2307.1 2619.9 2872.2 3721.1

RoNW (%) 7.2 1.2 5.8 10.7

RoCE (%) 7.8 3.4 6.8 11.9

Capacity expansion, cost rationalisation to boost profitability

Revival in cement demand coupled with capacity expansion of 2.8 MT (i.e. 32% of capacity) is expected to result in19.2% CAGR in revenues over FY16-18E. Further, cost control initiatives like setting up of grinding unit, captivepower plant, WHRMS and conveyor belt at Durg are expected to drive margins in FY16-18E. We expect OPM toimprove from 10.4% in FY16 to 15.4% in FY18E. The stock is currently trading at FY18E EV/EBITDA of 12x andEV/Tonne of US$85/tonne

EBITDA 349.5 272.6 384.4 573.4

Net Profit 95.8 15.9 81.3 166.4

EPS (|) 8.1 1.4 6.9 14.1

EV/Tonne of US$85/tonne.

Source: Company, ICICIdriect.com Research

5

Heidelberg Cement (HEICEM): Basing formation at key support...

CMP | 126 00 B i R | 122 126 T t | 150 00 St l | 109 50 U id 21%

Key technical observationsCement stocks, especially North based players, have been witnessing consolidation over the past couple of quartersas investors focused more on south based players amid better earnings visibility. The share price of HeidelbergCement has been consolidating well over the past five months, thus pricing in the negatives out of demonetisation.H l l k l h l h i / i i b i d d h l f

Stock Data


52 Week High / Low 150.5/90.2050 days EMA 120

200 days EMA 116However, a closer look at long term charts reveal the price/time correction may be nearing an end and the next leg ofup trend may be round the corner indicating an opportunity for medium term investors with favourable risk-reward

Basing pattern near key support of | 102...The stock entered a secondary corrective phase after hitting a high of | 150 in October 2016. The corrective declinehalted near key support of | 102 during November 2016 before entering a time wise corrective phase, which went onover following four months period. The key support at | 102 is confluence of following technical parameters:


200 days EMA 116

52 Week EMA 114


over following four months period. The key support at | 102 is confluence of following technical parameters:Value of rising 52-week EMA, which was then placed at | 10961.8% retracement of 2016 rally (| 63-150) placed at | 100October 2014 swing high at | 104

The steady sideways consolidation over the five months period seems to have factored in negative news flow andtapered the expectations built over preceding rally. From the perspective of a larger up trend, such a base buildingexercise at key support levels augurs well and offers fresh entry opportunity for investors.


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Robust price structure...The share price has retraced its March-October 2016 rally (63-150), which took eight months, by 61.8% over a sixmonth period. Slower pace of retracement of preceding rally indicates positive price structure from long termperspective and bodes well for the stock, going forward.

Price performance in last five years

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Momentum oscillators indicate build-up of positive momentumAmong oscillators, the weekly MACD (E-12/26/9), which has been heading south, stabilised near its neutral level. Afterforming a double bottom over past few weeks, the MACD line has just crossed over its nine period’s averagereflecting built up in upward momentum

ConclusionB d th f ti d t h i l b ti b li th t k h l d d h lth ti h2012 2013 2014 2015 2016

YearBased on the aforementioned technical observations, we believe the stock has concluded a healthy corrective phaseand is set to embark on a sustained up move. We expect the share price to challenge its life-time high of | 150, whichwas registered during October 2016.Source: Bloomberg, BSE, ICICIdirect.com Research

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Heidelberg Cement (HEICEM): Weekly Bar Chart

Basing formation near key support augurs well for primary up trend

Target placed at 2016high @ 150150

102

104

61.8% retracement @ 63

Consolidation near | 100:- Rising 52 weeks EMA- 61.8% retracement of preceding rally

52 Weeks EMA

Steady increase in trading volumes indicate value buying near support levels

34

Weekly MACD generating positive cross over above its 9 period average validates positive bias building up


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Heidelberg Cement (HEICEM): Fundamental view

Fundamental ViewFundamental ViewHeidelberg Cement sells ~94% of total cement volumes in the central region, a favourable region in Indiaconsidering the demand supply scenario. The company sells the rest of the volume in the western and southernregions. Its share in the central region had gone up from 75% to over 94% led by capacity expansion in CY13. Withno major capacity addition on the cards, we believe it will likely remain a central regional player.

Improving macro to keep utilisation healthy…

Stock Data

Amount

Mcap | 2867 crore

Debt (FY16) | 1054 crore

Cash & Invest (FY16) | 8 crore

Particular

p g p y

During Q3FY17, cement demand was impacted by the recent demonetisation. Further, we expect demand toremain subdued in the near term due to election and sand mining issue in UP. However, in the long term, we expectcement demand to improve led by higher government spending on infra and revival in the rural economy. Thiscoupled with absence of new capacity addition in the central region is expected to keep utilisation above 85%.Further, consolidation of cement capacity in the region is expected to bring pricing discipline in the region.

Key Metrics

EV | 3913 crore

52 week H/L | 150 / 90

Equity cap | 226.6 crore

Face value | 10

Operating efficiencies to drive profitability

We expect improving utilisation (from 82.0% in FY16 to 90.0% in FY18E) to lead to operating leverage benefit of~| 25-30/t. Further, the 12 MW waste heat recovery plant commissioned by the company will help the companyreduce power cost by ~10-20/t and lower dependence on grid power. In addition, freight cost may reduce by~| 45-50/tonne led by installation of a conveyor belt between its limestone reserves and clinker units.

FY15*# FY16 FY17E FY18E

PE (x) 48.1 74.4 69.9 35.1

EV to EBITDA (x) 12.6 18.6 17.6 13.7

EV/Tonne(US$) 112.5 120.8 116.3 112.4

Price to book (x) 3.3 3.2 3.1 2.8

RoNW (%) 6.8 4.3 4.4 8.1

Limited capex, healthy free cash flow to help in debt reduction

With limited capex (due to no major capacity addition) and improving margins we expect the company to generatefree cash flow of ~| 300 crore over the next two years. We believe a significant portion of this will be used toreduce debt. As a result, we expect the debt to equity to decline to 0.8x in FY18E from 1.2x in FY16.


( )

RoCE (%) 8.4 6.0 6.2 8.9

FY15*# FY16 FY17E FY18E

Net Sales 2011.2 1628.1 1594.3 1864.7

EBITDA 289 0 210 5 214 2 265 0Infra push to drive growth

Going forward, we expect sales to increase at a CAGR of 8.6% over FY16-18E mainly led by higher governmentspending and revival in rural economy. Also, we expect the EBITDA margin to improve from 12.6% to 14.2% inFY18E mainly led by cost efficiency and operating leverage benefit. The stock is currently trading at FY18EEV/EBITDA of 14.0x and EV/tonne of US$112/tonne.

EBITDA 289.0 210.5 214.2 265.0

Net Profit 59.6 38.5 41.0 81.6

EPS (|) 2.6 1.7 1.8 3.6


8

Ashoka Buildcon (ASHBUI): Major consolidation breakout...

CMP | 211 00 B i R | 207 211 T t | 258 00 St l | 184 00 U id 23%

Key technical observationsAshoka Buildcon is one of the largest highway developers in the country with an impressive portfolio of over 31 publicprivate partnership (PPP) projects. The share price of Ashoka Buildcon remains in a strong uptrend forming risingpeaks and troughs on the long term charts. Within the structural uptrend, the stock has witnessed periodic secondary

i h h id d f h i i R d l h i f h h

Stock Data


52 Week High / Low 230.9/126.150 days EMA 188

200 days EMA 172corrections that have provided fresh entry opportunities. Recent developments on the price front suggest that thestock has concluded an elongated corrective phase in the last two years and is poised to embark upon its next majorup move thereby providing a fresh entry opportunity to medium term investors.Breakout from two year consolidation...The stock witnessed a stupendous multi-fold rally in 2013-15 rallying from a low of | 43 to | 196 in just 18 months. Thestock entered into a secondary corrective phase, thereafter, to work off the excesses of the preceding rally. The pricewise and time wise behaviour during the corrective phase highlights the overall positive price structure. Price wise,


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52 Week EMA 172


g p g g p pthe stock retraced its 2013-14 up move by 50% (| 120) as it is the lows of April and November 2016 around the samelevel indicating accumulation by stronger hands at the major retracement support. Time wise the stock spent over 22months under consolidation against the preceding rally of 18 months. Limited price wise correction and elongatedtime wise consolidation form key ingredients of a healthy corrective phase within a structural uptrend.The stock has recently registered a resolute breakout above the upper band of the last two years consolidation placedaround | 190 levels thereby signalling the end of the prolonged corrective phase and resumption of the primaryuptrend. The base of the entire consolidation is placed at the 200 weeks EMA as can be seen in the adjacent chart


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p p jsignalling a positive price structure.The 50% retracement of the current up move from | 130 to | 230 is placed around | 180 levels, which also coincideswith the recent breakout area, which will act as a major support base for the stock, going forward.Volume expansion at breakout area....Entire corrective decline since April 2015 was on the back of receding volumes. The recent breakout from the last twoyears consolidation was accompanied by strong participation as weekly volumes have increased by more than threetimes the 50 weeks average volume of 8 lakh share per week highlighting larger participation in the direct of trend


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times the 50 weeks average volume of 8 lakh share per week highlighting larger participation in the direct of trend.Momentum oscillators indicate build-up of positive momentumAmong oscillators, the weekly 14 period’s RSI is in a rising trend forming a higher high and is seen sustaining aboveits nine period average signalling strength in the price trend and augurs well for continuance of bullish momentum.ConclusionBased on the aforementioned technical observations, we believe the stock is well placed to continue its upward trendover the coming months. Therefore, it offers an opportunity to ride the same with favourable risk-reward setup. The2012 2013 2014 2015 2016

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over the coming months. Therefore, it offers an opportunity to ride the same with favourable risk reward setup. Thestock is likely to test levels of | 260 being the measuring implication of the consolidation breakout (| 190-120=70points) added to the breakout level of | 190, projects upside towards | 260 (190+ 70=260)Source: Bloomberg, BSE, ICICIdirect.com Research

9

Ashoka Buildcon (ASHBUI): Weekly Bar Chart

Breakout from last two years consolidation pattern signalsresumption of up move and offers fresh entry opportunity

Measuring implication of a rangebreakout @ 260

190

120

200 Weeks EMA

The base of the last two yearsconsolidation is placed at the 200 weeksEMA indicating a positive price structure

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200 Weeks EMA EMA indicating a positive price structure

Breakout from a long term consolidation range with strong volumeindicated larger participation in the direction of the trend

Weekly 14 period’s RSI is in uptrend and is seen sustaining aboveits nine period’s average thus validates positive bias in price


10

Stock Data

Ashoka Buildcon: Fundamental view

Fundamental ViewStock Data Fundamental ViewLeading road BOT player…Ashoka Buildcon (ABL) is a leading infrastructure player in the road and power space with robust orderbook of |6220 crore, 3.1x its construction revenues, providing strong revenue visibility over next few years. The companywitnessed robust order inflows worth | 2889 crore in 9MFY17. ABL has 19 projects in its road portfolioencompassing ~5,000 lane km and spread across India. Out of its portfolio of 19 projects, 17 are fully operational.Furthermore, it has two BOT projects under construction/development which are partially operational.

Particular Amount (| crore)Market Capitalization 3,971.3Total Debt 3,784.3Cash 41.0EV 7,714.652 week H/L (|) 232 / 127

Key beneficiary of strong set of opportunities in road sector…ABL is sitting on a record high orderbook of | 6220 crore led by strong order inflows of ~| 2889 crore. Furthermore,order inflows does not include recently won BOT project worth ~| 1228.6 crore in Ludhiana. It has also beendeclared L1 for a patch in Lucknow-Ballia expressway worth ~| 1800 crore in a 50:50 JV with ABL’s share of ~| 900crore. Even in the power T&D division, it has won a major project worth ~| 949.8 crore for rural electrification inBihar. The management is witnessing strong traction & expects order inflows of ~| 2000 crore in Q4FY17. The

Key Metrics

52 week H/L (|) 232 / 127Equity capital 93.6Face value | 5

( ) FY15 FY16 FY17E FY18E government has rolled over its ambitious awarding/ construction target of 25000 km/ 15000 km to FY18. We believethis should throw up strong opportunities for leading road player like Ashoka Buildcon, going forward.

Foraying into newer businesses …ABL won two land parcels near the Mumbai International Airport with developable built-up area of 1.17 msf(leasable area:~1.52 msf) and a lease period of 49 years including the construction period. In return, the companywill have to make a payment of refundable security deposit worth | 329 4 crore and annual lease rental of | 15 2

(x) FY15 FY16 FY17E FY18EP/E 41.1 57.3 40.3 35.3 EV / EBITDA 16.3 10.7 10.5 9.8 P/BV 2.5 1.8 1.7 1.6 RoNW (%) 6.0 3.1 4.3 4.6 RoCE (%) 2.6 4.0 3.7 4.0

will have to make a payment of refundable security deposit worth | 329.4 crore and annual lease rental of | 15.2crore to MIAL with an escalation of 15% every three years. Currently, ABL is also in discussion with various realestate players to form a JV for the project. The project would entail an equity investment to the tune of ~| 230crore. The management is expecting equity IRR of 20% plus on a conservative basis at lease rate of ~| 130/ sq ftper month. The company also forayed into city gas distribution (CGD) business by winning a project in Ratnagiriwith equity investment of | 30 crore over the next four to five years and expects equity IRR of 20% plus. The scopeof work includes building and operating CGD in areas of Ratnagiri district in Maharashtra. So, the overall equitycommitment for ABL including HAM projects would stand at | 430 crore


| Crore FY15 FY16 FY17E FY18ENet Sales 2,319.7 2,614.5 2,610.9 3,121.5 EBITDA 474.0 743.5 786.0 851.2 Adjusted PAT 81 5 115 5 83 3 95 0 commitment for ABL including HAM projects would stand at | 430 crore.

Focus to remain on core business!!Considering the strong track record, robust orderbook, well funded BOT project portfolio and huge opportunitiesahead, we remain positive on Ashoka’s long term prospects. Furthermore, the SBI-Macquarie stake exit could leadto value unlocking of ACL’s project portfolio, which could lead to re-rating of the stock. Though the company isforaying into newer businesses, the management has reiterated that its focus would remain on core business. It


Adjusted PAT 81.5 115.5 83.3 95.0 EPS (|) 5.2 3.7 5.3 6.0

foresees a strong set of opportunities, going forward. On the financial front, we expect ABL’s revenues to grow at12.1% CAGR to | 3121.5 crore while bottomline is expected to grow robustly by 27.5% to | 95.0 crore in FY16-18E.

11

Simplex Infrastructures (SIMINF): Bullish inverse head & shoulder pattern breakout...

CMP | 388 00 B i R | 382 388 T t | 452 00 St l | 345 00 U id 17%

Key technical observationsSimplex Infrastructures is one of the construction leaders in India executing projects in several sectors like transport,energy & power, mining, buildings, marine, real estate, etc. The share price of Simplex infrastructures has witnessed asharp rebound from the February 2016 low of | 184 and is seen consolidating in the last seven months. The recent

i i i i l j l f d ff i f h i f di i

Stock Data


52 Week High / Low 394/241.5550 days EMA 311

200 days EMA 303price activity signals a major reversal of trend offering a fresh entry opportunity for medium term investors.Breakout from Inverse Head and Shoulder..An important observation on the weekly price charts of Simplex Infrastructures is that the entire price consolidationfrom August 2015 till date has taken the shape of an Inverse Head & Shoulder (H&S) pattern as highlighted in theadjoining chart. An Inverse H&S formation is a bullish reversal pattern, which has positive implication on the pricefront upon a confirmed breakout above the neckline of the pattern. The formation of a bullish inverse H&S patternwhile the stock consolidated after a major correction suggests accumulation by stronger hands. The base of the right


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j gg y g gshoulder is placed at the long term 200 weeks EMA signalling a positive price structure.During the current week’s trade, the stock has registered a strong breakout above the neckline of the bullish inversehead & shoulder pattern placed around | 362 levels signalling a reversal of trend and offers a fresh entry opportunityto ride the next up move in the stock. The breakout from the head and shoulder pattern was accompanied with strongvolume of almost three times the 50 weeks average volume of 1.5 lakh share per week signalling larger participationat the breakout levelThe recent breakout area around | 360 is likely to reverse its role and act as major support base for the stock in the

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The recent breakout area around | 360 is likely to reverse its role and act as major support base for the stock in themedium termFaster retracement of previous declining segment augurs well...The sharp rebound in the last three months from the December 2016 low of | 262 has seen the stock completelyretrace its preceding 16 weeks decline (| 362 to | 262) in 15 weeks, thus confirming a faster retracement. Fasterretracement of the last major falling segment highlights the strong demand emerging at the major value area andconfirms the bullish turnaround in price structure, auguring well for the stock, going forward.M ill i di b ild f i i


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Momentum oscillators indicate build-up of positive momentumAmong oscillators, the weekly MACD (E-12/26/9) has generated a bullish crossover above its nine period’s average. Itis seen sustaining in the positive territory signalling strength in the price trend and augurs well for continuance ofbullish momentum.ConclusionBased on the above observations, we believe the stock is attractively poised and offers good entry opportunity from amedium term horizon. We expect the stock to resolve higher and head towards | 452 over the medium term being the2012 2013 2014 2015 2016

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medium term horizon. We expect the stock to resolve higher and head towards | 452 over the medium term being theprice parity with the previous up move from | 184 to | 362 (362-184= 178 points) as projected from the recent troughof | 274 (274+ 178=452)Source: Bloomberg, BSE, ICICIdirect.com Research

12

Simplex Infrastructures (SIMINF): Weekly Bar Chart

Breakout from a bullish inverse head & shoulder pattern signals areversal of trend and offers fresh entry opportunity

498

Price parity with previousrally @ 452

Neckline of the Head & Shoulder pattern @ 362

y @

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184200 Weeks EMAThe base of the right shoulder isplaced at the 200 weeks EMAindicating a positive price structure

Left Shoulder Right Shoulder

Head

262274

indicating a positive price structure

Breakout from the bullish pattern is accompanied by strongvolume indicates larger participation at the breakout level

Weekly MACD generated a buy signal and is seen sustaining inpositive territory thus supports the positive bias in price


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Stock Data

Simplex Infrastructure: Fundamental view

Fundamental ViewStock Data Fundamental ViewFocused EPC player in infrastructure player…Simplex Infrastructure (SIL) is a focused EPC player in infrastructure space with a presence in several verticals likeroads, railways, buildings & housing, power & piling, etc. The company has very little exposure towards BOT projectportfolio. The company has a robust orderbook of | 13824 crore, 2.5x order book to bill ratio, providing strongrevenue visibility over the next couple of years. In terms of segments, buildings & housing constituted mainly with~43% share and power constituted ~17% of the orderbook. With presence in various verticals, the company isexpected to benefit from government’s renewed focus on infrastructure development

Particular AmountMarket Capitalization (| Crore) 1,915.7Total Debt (| Crore) 3,372.0Cash and Investments (| Crore) 25.0EV (| Crore) 5,262.752 week H/L 393 / 243 expected to benefit from government s renewed focus on infrastructure development.

Strong order inflows boosts orderbook to | 13824 crore…SIL witnessed robust order inflows worth ~| 5641 crore in 9MFY17, taking its order book to ~| 13824 crore.Additionally, the company is L-1 bidder for orders worth | 1818 crore. Some major projects in the orderbookinclude a thermal power project in South India from Bhel and Ahmedabad metro project worth ~| 725 crore.Overall, the management has guided for an order inflow guidance of ~| 7000-8000 crore in FY18E keeping in mind

Key Metrics

5 ee / 393 / 3Equity capital (| Crore) 9.9Face value (|) 2.0

( ) FY15 FY16 FY17E FY18E its strong bidding pipeline. Even, the execution is expected to improve in FY18E and the management has guidedfor a topline growth of ~10-12%. Consequently, with an improvement in order inflows and execution, we expectthe topline to grow moderately at 6.4% CAGR to | 6580.4 crore over FY16-18E.

Debt reduction on cards…SIL’s gross debt (including current maturities) stands at | 3372 crore as on Q3FY17 due to stretched working capital(WC) cycle The management continues to focus on working capital improvement and has guided for recoveries to

(x) FY15 FY16 FY17E FY18EP/E 30.7 28.9 19.3 12.4 EV / EBITDA 8.1 8.2 7.2 6.8 P/BV 1.3 1.2 1.2 1.1 RoNW (%) 4.3 4.3 6.0 8.6 RoCE (%) 9.8 10.6 12.0 12.7

(WC) cycle. The management continues to focus on working capital improvement and has guided for recoveries tothe tune of ~| 300-400 crore from old debtors in FY17E. Furthermore, the company has claims worth ~| 225-230crore from the government in its favour, which it expects to receive under the new arbitration law. Hence, withrecoveries from old debtors coupled with claims from arbitration, the company is planning to reduce its debt by~| 100-200 crore by FY17E end. We believe that an improvement in working capital position & consequent debtreduction would act as key catalyst for SIL’s bottomline growth, going forward. We expect SIL’s bottomline to growat 52.9% CAGR to | 154.9 crore in FY16-18E.


(| Crore) FY15 FY16 FY17E FY18ENet Sales 5,581.6 5,811.6 5,890.2 6,580.4 EBITDA 628.5 631.5 688.8 756.3 Adj. Net Profit 62.4 66.3 99.3 154.9

Strong order book & plethora opportunities; debt reduction plans to derive bottom-lineAt the current CMP, the stock is trading at 12.4x FY18 EPS and 6.8x FY18 EV/EBITDA. We like Simplex given itsfocused approach towards EPC business, healthy order book & strong execution capabilities. In our view, SIL wouldbe a key beneficiary of the government’s renewed focus on infrastructure development. On the financial front, weexpect SIL’s revenues to grow at a CAGR of 6.4% to | 6580.4 crore while bottomline is expected to grow robustlyby 52.6% to | 154.9 crore over FY16-18E on the back of reduction in debt & consequent interest expenses saving.


jEPS (|) 12.6 13.4 20.1 31.3

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Strategy Follow up

Open Recommendations:

Date Scrip Name Rec Price Target Stoploss CMPReturn till date

Date Scrip Name Rec Price Target Stoploss CMP(%)

17-Mar-17 Dabur 273 318 248 288 5.5%20-Mar-17 IDBI 75 98 66 76 1.3%23-Mar-17 GMDC 121 154 102 125 3.3%28-Mar-17 Sun TV Network 780 920 715 790 1.3%30-Mar-17 KSB Pump 671 784 595 730 8.8%31-Mar-17 FM Goetze 550 680 480 586 6.5%6-Apr-17 Mcleod russel 172 207 153 184 7.0%7-Apr-17 Timken 667 830 590 708 6.1%

Summary Performance - Recommendations till date Open Recommendations 8

Total Recommendations 138 Yield on Positive recommendations 20.0%Closed Recommendations 130 Yield on Negative recommendations -8.0%Positive Recommendations 95Strike Rate 73%

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Notes…

• It is recommended to enter in a staggered manner within the prescribed range provided in the report

• Once the recommendation is executed, it is advisable to keep strict stop loss as provided in the report on closing basis.

• The recommendations are valid for six months and in case we intend to carry forward the position, it will be communicated through separate mail.

Trading portfolio allocationTrading portfolio allocation

• It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products

• Please a oid allocati g the e ti e t adi g co p s to a si gle stock o a si gle p od ct • Please avoid allocating the entire trading corpus to a single stock or a single product segment

• Within each product segment it is advisable to allocate equal amount to each recommendationF l Th ‘D il C ll ’ d i 3 i d d i I i • For example: The ‘Daily Calls’ product carries 3 to 4 intraday recommendations. It is advisable to allocate equal amount to each recommendation

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Recommended product wise trading portfolio allocation

Duration

Daily Calls 8% 2-3% 3-4 Stocks 0.5-1% 2-3% Intraday

Number of CallsReturn Objective

Frontline Stocks Mid Cap StocksProduct Product wise

allocation

AllocationsMax allocation in

1 Stock

Stocks on the Move 6% 3-5% 7-10 Per Months 7-10% 10-15% 3 Months

Weekly Calls 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week

Weekly Technicals 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week

Monthly Call 15% 5% 2-3 Stocks 7-10% 10-15% 1 Month

Monthly Technical 15% 2-4% 5-8 Stocks 7-10% 10-15% 1 Month

Techno Funda 15% 5-10% 1-2 Stocks 10% and above 15% and above 6 Months

Gladiator Stocks 15% 5 10% 1 2 Stocks 15% and above 20% and above 6 MonthsGladiator Stocks 15% 5-10% 1-2 Stocks 15% and above 20% and above 6 Months

Cash 10% -100%

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Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,ICICI Securities Limited,1st Floor Akruti Trade Centre1st Floor, Akruti Trade Centre,Road No 7, MIDCAndheri (East)Mumbai – 400 [email protected]

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DisclaimerANALYST CERTIFICATION

We /I Dharmesh Shah Dipesh Dagha Nitin Kunte Pabitro Mukherjee Vinayak Parmar Research Analysts authors and the names subscribed toWe /I, Dharmesh Shah, Dipesh Dagha, Nitin Kunte, Pabitro Mukherjee, Vinayak Parmar Research Analysts, authors and the names subscribed tothis report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) orsecurities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) orview(s) in this report.Terms & conditions and other disclosures:ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stockbrokering and distribution of financial products. ICICI Securities Limited is a SEBI registered Research Analyst with SEBI Registration Number –g p g y gINH000000990.ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has its varioussubsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management,etc. (“associates”), the details in respect of which are available on www.icicibank.comICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India.We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by ourInvestment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from

i i i fi i l i i h i i d i i f i h h lmaintaining a financial interest in the securities or derivatives of any companies that the analysts cover.The information and opinions in this section have been prepared by ICICI Securities and are subject to change without any notice. The report andinformation contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to,copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICISecurities. While we would endeavour to update the information herein on reasonable basis, ICICI Securities is under no obligation to update orkeep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicablerated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicableregulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or incertain other circumstances.The research recommendations are based on information obtained from public sources and sources believed to be reliable, but no independentverification has been made nor is its accuracy or completeness guaranteed. These research recommendations and information herein is solely forinformational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities orother financial instruments. ICICI Securities will not treat recipients as customers by virtue of their receiving these recommendations. Nothing inthis section constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriateto your specific circumstances. The securities discussed and opinions expressed herein may not be suitable for all investors, who must maketheir own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not betaken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks.The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securitiesaccepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of these recommendations. Past performance is notnecessarily a guide to future performance Investors are advised to see Risk Disclosure Document to understand the risks associated before

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necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated beforeinvesting in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are notpredictions and may be subject to change without notice.

DisclaimerICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have beenmandated by the subject company for any other assignment in the past twelve months.ICICI Sec ities o its associates ight ha e ecei ed a co pe satio f o the co pa ies e tio ed he ei d i g the pe iod p ecedi gICICI Securities or its associates might have received any compensation from the companies mentioned herein during the period precedingtwelve months from the date of these recommendations for services in respect of managing or co-managing public offerings, corporate finance,investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchantbanking or brokerage services from the companies mentioned herein in the past twelve months.ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICISecurities or its associates or its Analysts did not receive any compensation or other benefits from the companies mentioned in the report or thirdSecurities or its associates or its Analysts did not receive any compensation or other benefits from the companies mentioned in the report or thirdparty in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts and their relatives haveany material conflict of interest at the time of publication of this reports.It is confirmed that Dharmesh Shah, Dipesh Dagha, Nitin Kunte, Pabitro Mukherjee and Vinayak Parmar, Research Analysts giving theserecommendations have not received any compensation from the companies mentioned herein in the preceding twelve months.Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactionsICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the

/ i i d h i f h l d f h h di h bli i f h h d icompany/companies mentioned herein as of the last day of the month preceding the publication of these research recommendations.Since Associates (ICICI group companies) of ICICI Securities are engaged in various financial service businesses, they might have financialinterests or beneficial ownership in various companies including the subject company/companies mentioned herein.It is confirmed that Research Analysts do not serve as an officer, director or employee or advisory board member of the companies mentionedherein.ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented herein.Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned hereinNeither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned herein.We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysisactivities.This report or recommendations are not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of orlocated in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law,regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securitiesdescribed herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession thisdocument may come are required to inform themselves of and to observe such restriction.

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