Maintain BUY on JMC Projects - In-line performance - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities

JMC Project's (JMC) 1QFY21 financial performance has been severely impacted as its order book has a high exposure to the worst-affected urban regions, mainly in the buildings and factories segment (58% of order backlog). With almost a one-month loss due to the lockdown, execution is now gradually ramping up with labour availability improving from 60% to 75% QoQ. Despite weak execution, order intake has been robust at Rs 34.3bn ex-L1 of Rs 17bn (JMC to surpass inflow guidance of Rs 50bn). We expect FY21E to mark new beginnings with (1) likely restructuring of 2 BOT assets (would cut loss funding to Rs 500mn vs. Rs 800mn for FY20) and (2) order accretion from international geographies. We maintain BUY with Rs 69/sh TP.

Execution hit owing to huge presence in worst-affected urban areas: JMC's order book has huge exposure to buildings in Southern urban cities. Lockdown restrictions and labour scarcity impacted 1QFY21 execution, despite a robust order backlog. Work has resumed in most of the sites, and execution ramp-up should lead to normalisation by 3QFY21. Revenue: Rs 4.7bn (-48/-50% YoY/QoQ, 4.4% beat). EBITDA: Rs 279mn (-72/-74% YoY/QoQ, 29% miss). EBITDA margin: 5.9% (-518/-542 bps YoY/QoQ). APAT: a loss of Rs 218mn for the quarter (vs. estimated loss of Rs 160mn).

Order accretion robust, on track to beat annual guidance: JMC has an FYTD21 order backlog of Rs 127.7bn (3.5x FY20 revenue), ex-L1 of Rs 17bn. About 58% of the order book is in buildings (private - 47%, government - 11%), while exposure to infrastructure is at 38% and industrials at 4%. JMC secured FYTD21 new orders worth Rs 34.3bn (1QFY21 - 20.6bn and 2QFY21 - Rs 13.6bn). Including L1 of Rs 17bn, it is well on track to beat Rs 50bn of order inflow guidance. Labour availability has improved to 75% and expected to normalise in 3QFY21.

Positive progress on road BOT asset restructuring: JMC is in the advanced stages of restructuring the 2BOT assets (Wainganga and Kurukshetra expressway). As a step towards same, JMC has already taken investment write off of Rs 795mn in Kurukshetra project during 4QFY20. Banks need to take a final call on the same. Total equity exposure now stands at Rs 8.2bn, including Rs 760mn loss funding investment for FY20. Resolution in these BOT assets continues to be the key monitorable as loss funding may reduce from Rs 750mn to Rs 500mn annually.

We maintain BUY on JMC as we see FY21E to be a turnaround year for the company. A large part of Buildings order book (~85%) is in South India, which is better-placed for real estate recovery. New opportunities are being explored in Africa from an order booking perspective. Order accretion has been robust. Net debt has increased by Rs 830mn QoQ to Rs 8.2bn, and net D/E is 0.8x, which may be a cause of concern, but manageable. Key risks: (1) delay in monetisation/resolution of BOT assets and (2) leverage.

Shares of JMC PROJECTS (INDIA) LTD. was last trading in BSE at Rs.50.15 as compared to the previous close of Rs. 52.35. The total number of shares traded during the day was 32977 in over 510 trades.

The stock hit an intraday high of Rs. 53.2 and intraday low of 49.65. The net turnover during the day was Rs. 1678654.

Source : Equity Bulls

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