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JKIL delivered 8/14/21% 2QFY20 Rev/EBIDTA/APAT beat. We maintain our FY20/21E Rev/EBIDTA estimates. Owing to lower tax rate adoption, we have increased FY20/21E APAT estimates by 1.3/6.7%. We maintain BUY on JKIL with a TP of Rs 276/sh (vs. Rs 258/sh earlier, 8x Mar-21E EPS), increase is largely driven by FY21E EPS upgrade.
HIGHLIGHTS OF THE QUARTER
* Despite extended monsoon JKIL delivered robust execution: JKIL 2QFY20 revenue at Rs 6.3bn was 8% above our estimates with EBIDTA at Rs 1.1bn (14% beat). EBITDA margins contracted 62bps YoY to 17% (83bps beat). Adjusted for Rs 100mn deferred tax liability write back due to adoption of new lower corporate tax rate, APAT came in at Rs 459mn (21% beat). Tax rate change has resulted in 1.3/6.7% increase to our FY20/21E EPS estimates.
* Order inflow robust, may surpass FY20E guidance: The order inflow target of JKIL during FY20E was Rs 45bn and the Company has already won orders worth Rs 43bn. The order backlog is robust at Rs 133.4bn (4.1x FY20E Rev Estimate). JKIL is bidding for more orders and may easily surpass FY20E order inflow guidance.
* Improvement in leverage: The D/E as of 2QFY20 stands at 0.41x vs 0.42x during 1QFY20. The gross debt for the company is Rs 7.2bn, marginally up from Rs 7.1bn at the end of 1QFY20. With no significant capex planned during the FY20E, we expect the D/E ratio to be maintained in 0.4-0.42x range.
* Legacy issues behind, execution lead re-rating to pan out: During Oct-19, SEBI has given clean chit to JKIL pertaining to the PACL case. This was the key overhang on the stock. With most of the legacy issues now having settled including BMC roads, execution led rerating may pan out over medium to long term.
JKIL achieved strong performance during 2QFY20. FY20/21E Rev guidance is maintained at Rs 32/36bn. Old legacy issues are all settled now. Order book is robust at 4.1x FY20E Revenue. With strong execution visibility on current order book, JKIL is well placed for re-rating. At CMP JKIL trades at 4.6x FY21E EPS. We maintain BUY. Key risks (1) Political instability in Maharashtra; (2) Order conversion within estimated timelines.
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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475
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