Maintain BUY on J. Kumar Infraprojects - Moving towards normalcy - HDFC Securities

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

J Kumar Infraprojects (JKIL) reported a profit (at Rs 71 vs Rs 59mn loss expectation) owing to better execution and cost controls. Labour availability has now improved to near pre-COVID levels with execution efficiency at ~80- 90% (30-40% run rate in August). Whilst order backlog is robust at 3.6x FY20 revenue, near-term execution challenges have alleviated now to a large extent with people adjusting to the new normal and getting back to work. At 4.6/3.6x FY22/FY23E EPS, valuations are compelling. We maintain BUY on JKIL with a target price of Rs 160/sh (6x Sep-22E EPS). Key risks: (1) geographic concentration; (2) order conversion within estimated timelines.

Execution picks up in 2QFY21: Revenue in 2QFY21 has ramped up significantly to Rs 4.8bn (-24/+67% YoY/QoQ, 36% beat). 1QFY21 was a washout as urban areas (~91% order book) were worst impacted by COVID-19. EBITDA stood at Rs 632mn (-41/+123% YoY/QoQ, 36% beat). EBITDA margins: 13.2% (-379bps YoY, +331bps QoQ, in-line). Consequently, RPAT came in at Rs 71mn (vs Rs 559/354 YoY/QoQ, vs estimate of Rs -59mn); RPAT beat was driven by better-than-envisaged execution. While the workforce is at the pre-COVID level now, execution efficiency is still at ~80- 90% and will ramp up post the festive season, now that monsoon is over. JKIL has maintained guidance of Rs ~21/35bn revenue for FY21/FY22E, with EBITDA margins at 13-14%/15%+ respectively.

Order book healthy; order inflows targeted at Rs 40-45bn for FY21: Total order book as on 2QFY21 stood at Rs 106.4bn (3.6x FY20 revenue). Metro projects contribute ~57%, while Flyover, Bridges & Roads projects contribute~41%. Order inflows during 2QFY21 stood at Rs 0.9bn. In 3QFY20, MMRDA awarded Rs 10bn trans-harbour connector project to JKIL, in which it has the L1 position. Order inflow guidance for FY21 is maintained at Rs ~40bn, the same as FY20, implying ~25-30bn inflows in 2HFY21. AD for Dwarka Expressway for Pkg-1 has been received. Near-term bid pipeline is strong, including projects like Surat Metro (Rs 25bn), Mumbai Metro Line 2B (Rs 11bn), Delhi-Saharanpur flyover (Rs 28bn), etc.

Stable leverage and NWC: Gross D/E as of 2QFY21 stands at 0.32x vs 0.37x as of 4QFY20. The gross debt for the company is stable at Rs 5.9bn (Rs 5.6/6.7bn at the end of 1QFY21/4QFY20). With no significant Capex planned during the FY21E/FY22E (Rs 0.5bn in FY21), partial release of BGs by government agencies, and utilisation of mobilisation advances, we expect D/E ratio to be maintained in 0.37-0.40x range. However, with the ramp-up in execution from 3QFY21, gross debt levels may increase to Rs 6-6.5bn. JKIL expects NWC to be at 120days for FY21 vs 144days in FY20.

Shares of J.KUMAR INFRAPROJECTS LTD. was last trading in BSE at Rs.107.5 as compared to the previous close of Rs. 108.15. The total number of shares traded during the day was 2717 in over 175 trades.

The stock hit an intraday high of Rs. 108.05 and intraday low of 106.55. The net turnover during the day was Rs. 291808.

Source : Equity Bulls

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