HDFC Securities has the following review of SPML Infra Ltd,
SPML Infra Ltd (SPML), formerly Subhash Projects And Marketing Ltd., is a leading infrastructure development company with more than three decades of multi-disciplinary experience in Water, Power, Environment, Infrastructure, Manufacturing and Technology. Promoted by the Sethi family, SPML was incorporated as a public limited company in August 1983. The company is ISO - 9001: 2008 certified and has executed more than 400 projects across India and has established its leadership in the contracting business.
While SPML’s consolidated sales growth is expected to be 13% in FY11 on the back of strong order backlog & better execution, operating & net profit growth (conso) are likely to be much higher at 30.8% & 44% respectively. We expect the OPM to improve significantly due to execution of high margin projects likely this fiscal. This coupled with marginal increase expected in the interest cost is likely to improve the PAT margins. By FY12, the management expects the revenues contribution from water management business to increase to ~80%, which could improve the margins.
At CMP of Rs. 243.1, SPML trades at 13.4xFY11E EPS, which is at a discount to some of its peers like IVRCL, Simplex, Madhucon Projects & Nagarjuna Construction. This discount in valuations could be due to its inconsistent past track record and lack of broker coverage of the stock. However, we expect a turnaround in the business over the next two years. With expertise in the water management & power projects, increasing net worth, good presence in the BOOT projects and robust infrastructure story, SPML deserves to trade at better valuations.
HDFC says SPML could trade at 16xFY11E EPS, which gives a price target of Rs. 290.
