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Published on 14/06/2018 2:30:18 PM | Source: Reliance Securities Ltd

Buy J Kumar Infraprojects Ltd For Target Rs.375.00 - Reliance Sec

Robust Performance on Improved Execution

J. Kumar Infraprojects (JKIL) has reported a robust performance in 4QFY18 mainly led by stronger-than-expected ramp-up in project execution. Its reported revenue surged by 73% YoY (+97% QoQ) to Rs9.0bn, while EBITDA grew by 89% YoY to Rs1.2bn and EBITDA margin expanded by 115bps YoY (-374bps QoQ) to 13.2%. Net profit zoomed by 95% YoY (+66% QoQ) to Rs548mn. Its order backlog stood at Rs74.8bn as of FY18-end. Further, JKIL secured orders worth Rs10bn in FY19 YTD taking total order book to Rs85bn (4.1x of FY18 revenue), which continues to offer healthy business visibility. Currently, JKIL is bidding for projects worth Rs45bn and is L1 in one project (Rs1.8bn). Expecting order inflow to the tune of Rs20-25bn in FY19E, the Management has maintained its FY19E revenue guidance at Rs23bn. As execution of all metro lines is on the full swing, we expect JKIL’s earnings to clock 21% CAGR over FY18- FY20E despite trimming down our earnings estimates by 5% and 15% for FY19E and FY20E, respectively to factor in muted order inflow witnessed in FY18 and higher tax. We reiterate our BUY recommendation on the stock with a downwardly revised Target Price of Rs375 (from Rs440 earlier).

Execution Ramp-up Aided Revenue Growth

Led by decent acceleration in projects execution, JKIL’s revenue grew by a stellar 73% YoY (+97% QoQ) to Rs9.0bn. Mumbai Metro Line-3, Metro Line-2&7 and JNPT contributed Rs2.6bn, Rs1.3bn and Rs1.7bn, respectively to its total quarterly revenue, while Rs1.2bn revenue was booked from Delhi Metro project. Further, JKIL looks forward to book Rs8bn from Metro Line3, Rs4.5bn from JNPT and Rs6.4bn from Metro Line-2&7 in FY19E. The Management has maintained its revenue guidance of Rs23bn and Rs26bn for FY19E and FY20E, respectively.

Order Book Remains Strong

Whilst JKIL did not secure any meaningful order inflow in FY18, its current order backlog (orders worth Rs10bn secured in FY19 YTD) stand at Rs85bn (4.1x of FY18 revenue), which offers healthy growth visibility. JKIL expects to add orders worth Rs20-25bn in FY19E including Rs10bn already received in FY19 YTD. We believe that as the works of all its key metro projects are on full swing, JKIL is likely to add quality orders with a view to sustaining growth momentum, going ahead.

Outlook & Valuation

We continue to maintain our positive view on JKIL owing to robust order book, sound execution credentials, consistent focus on high-margin projects in limited geographies, asset light business model and superior management bandwidth. However, we cut our earnings estimates by 5% and 15% for FY19E and FY20E, respectively mainly to factor in muted inflow in FY18 and higher tax outgo. As the current valuations at 12.4x and 10.2x of FY19E and FY20E earnings, respectively, continue to look attractive, we maintain our BUY recommendation on the stock with a revised Target Price of Rs375 (14x FY20 EPS).

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