J Kumar Infraprojects Ltd. share price target

J Kumar Infra projects Ltd. (JKIL) is a Mumbai based infrastructure developer with a successful track record of completing marquee projects spread across the transportation, civil infra, irrigation and piling verticals. It has largely operated in the Northern-Western belt viz. Maharashtra, Delhi, Gujarat, Rajasthan and UP. As of June 2016 end, its order book stood at Rs 8,646 crore, 6.1x FY16 revenues. Of the total order book, the company has Rs 5,368 crore worth of Mumbai Metro orders bagged in July, 2016. We met with the management of JKIL, which recently was in news for its JV being barred by the BMC on account of suspected irregularities in the repair work undertaken by the subcontractor of the JV on a particular stretch of road in the Bandra- Dahisar route. Investors...

J Kumar Q1FY17 performance was broadly in-line with consensus estimates. Revenue increased 11% YoY to Rs 4.03bn led by contribution from JNPT road project. EBITDA margin declined by 164 bps YoY to 16.9% on account of higher construction & employee expenses. Thus, EBITDA increased by 1% YoY to Rs 680mn as the revenue growth was negated by decline in margins. Net profit increased 15.6% YoY to Rs 295 mn led by higher other income. Management states that the company has been de-registered from further bidding in BMC road segment but this wont impact execution of current order-book (which is at ~ 7x FY16 revenues). 

Outlook and Valuation: We expect that FY17-18E would be driven by execution of the large order backlog (~ Rs 100 bn including metro orders; ~7x FY16 revenues). However, we cut our revenue estimate by ~5%/~3% for FY17E/18E on account of delay in execution of the metro order. Our PAT estimates for FY17E/18E are getting revised downwards by 6.7%/5.7%. The stock has corrected by ~48% in the last 6 months after the BMC issue. However, management clearly states that it will not impact its ability to execute current order backlog (as MMDRA/MMRC has awarded Metro orders to JKIL post this issue). Valuation at 9.2x/6.5x on FY17E/18E earnings looks attractive post the recent fall and factors in most of the negative news flow. We reduce our target P/E multiple to 12x (from 13x) to value FY18E earnings (largely due to delay in execution of metro orders and risk of bidding in BMC orders). However, they maintain BUY with revised target price of Rs 300.

J Kumar Infraprojects (JKIL) delivered 1QFY17 RPAT beat, 7.6% above our estimates (incl. Rs25mn dividend from mutual funds). Net revenue growth of 10% YoY (6.2% below estimates) was on account of subpar execution at the JNPT road project (Rs 300mn), expect strong pickup from 3QFY17E. The Balance sheet remains healthy with net debt at Rs 1.8bn & net D/E stood at 0.13x. QIP proceeds have aided deleveraging.

JKIL has finally received the LOA for the Mumbai Metro line 3 project with bid value of Rs 52bn. The dark clouds on fate of Metro project has cleared now and worst of BMC headwinds may be receding. Whilst litigation on BMC road projects continues, JKIL has been de-registered from further bidding in BMC road segment. Other State Government department, JKIL continues to eligible for bidding. Maintain BUY with TP to Rs 321/sh (15x Mar-18E EPS).

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.

Topline was marginally below our expectations (inline with consensus), on lower execution due to delay in commencement of execution at JNPT orders. EBITDA margins at 15.7% - declined 120bps yoy below our and street estimates....

(having worked on Delhi Metro and Ahmedabad Metro projects) and huge pipeline in the MRTS segment is likely to lead to a strong topline growth over the next three years. Its strongbalancesheetandsuperiormarginprofileshouldleadtorobustearningsgrowth....

J Kumar Infraprojects (JKIL) delivered disappointing 3QFY16 revenue/EBITDA, which were 16.2/19.9% below our estimates. EBIDTA margins contracted 131bps on YoY basis, driven by higher employee costs (81bps expansion YoY) and other expenses (168bps expansion YoY), which offset the 119bps expansion in gross margins.

J Kumar Infraprojects (JKIL) delivered a muted 2QFY16, with revenue/EBITDA 1.6/5.2% below our estimates. EBIDTA margins contracted 246bps on YoY basis mostly because of increase in raw material costs (514bps expansion YoY).

The order book was Rs 40.3bn (including L1 of Rs 3.5bn), a handsome 2.9x bookto sales. However, if we include the two MumbaiMetroPhase3 (MM3) packages (Rs 52.3bn)theorderbookstandsatRs92.6bn(whopping6.6xbooktosales)...

J Kumar Q2FY16 performance was in-line with our estimates. Standalone net sales grew by 10.2% YoY to Rs3.3 bn (vs. our estimate of Rs 3.4 bn). EBITDA margin declined 246bps to 18.3% (largely in-line with our expectation of 18.4%).