On 26th April, 2016, media sources reported that an investigating committee formed by Bombay Municipal Commission (BMC) had recommended black-listing six companies for executing ‘shoddy work’ on the 35 road projects that they had inspected. The list included five private players (Mahavir Road Infra, Relcon Infra Projects, KR Infra Projects, RPS Infra Projects and RK Madani) – JKIL was the only listed player.
Outlook and Valuation: Over the last six months, JKumar’s stock has corrected by over 50%, bearing the brunt of the BMC black-listing and its potential impact on current and future orderbook. While on one hand, the current orderbook (at 6.3x book-to-sales) provides high revenue visibility, we see no clarity emerging in the next six months (till BMC elections in February 2017), on the “executable orderbook”. Chances of the imprisonment of the promoter/management of the company can also not be ruled out, at the current juncture. In view of the lack of clarity on order cancellations and its potential impact on the orderbook and earnings, we suspend our rating on the stock and put the stock “Under Review”. We will maintain passive coverage, keeping a keen eye on the developments and resume our coverage as soon as clarity emerges on the aforementioned issues.