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Tuesday, May 22, 2012

Simplex Realty Ltd:Buy/sell/growth prospects and recommendation,news and results,target and analysis,view and outlook,multibagger

Scripscan:Simplex Realty Ltd

Investing-reflections:Simplex Realty is engaged in the business of real estate construction and similar activities.The company appears to have one residential/commercial project running currently in Mumbai on a revenue-sharing basis with the land owner. The plans for the project appear to be approved and the commercial certificate is pending.The company reported negative reserves and net worth in 2006 and 2007 and restored it in subsequent years with apparently large net profits, which weren’t backed by cash flows – although over 40cr of loans were wiped out as a result. The performance has been highly erratic and there are currently no revenues (see above) until the project is completed.Management appear optimistic about the medium to long-term outlook of real estate activities primarily due to the demand/supply gap primarily as a result of government thrust on infrastructure development including housing and retail as well as commercial demand from the IT and Financial Services industries.The business is primarily exposed to high competition particularly in the major cities where small construction companies supply the majority of residential construction output in a highly fragmented market.The business is at least equally, if not more, impacted by the interest rate cycle, which dampens demand and crimps profitability in high interest environments. Moreover, it is affected by RBI policies on real estate lending and other regulations such as clamping down on ‘teaser’ rates, which perversely benefits this industry.This business, like most businesses in the country, is exposed to input cost inflation at every level. It is also exposed to myriad execution risks from the grant of government permits and levy of taxes to the availability of labour/materials and suitability of weather conditions.The company’s equity is largely constituted by loans and advances including advances for property development of 44cr (see project description above) and inter-corporate deposits of 38cr (recoverability unknown). Management has also made an investment in a renewable energy business – presumably to assist in constructing ‘green’ buildings. The economic viability of this investment is also not ascertainable based on the information provided.

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