Awaiting asset monetization
We maintain BUY on JMC, with a TP of Rs 175/sh (vs Rs 176/sh earlier). During 2QFY20 JMC delivered Rev/EBIDTA/APAT beat of 6/5/20% vs our estimates. We value EPC business at 15x Mar-21 EPS (vs 16x earlier). We have increased our EPS estimates for FY20E/21E by 13.6/17.5% respectively.
HIGHLIGHTS OF THE QUARTER
* During 2QFY20 JMC reported Rs 9.4bn of Revenue (6% beat, 28.4% YoY growth). EBIDTA margins expanded 22bps YoY to 10.8%, resulting in an APAT of Rs 391mn (20% beat). Higher depreciation impact was negated by lower interest expense and higher other income YoY.
* With Rs 27.5bn of new order inflows YTDFY20, the order book now stands at Rs 97bn ex L1 of Rs 8bn. JMC has guided for ~Rs 60bn inflows during FY20E.
* BOT assets reported a marginal 2% YoY revenue growth in 2QFY20 (excluding overloading). Average toll collection stood at Rs 4.8mn/day in 2QFY20 (-4% YoY). JMC invested Rs 420mn towards loss funding and debt repayment during 1HFY20 in BOT assets. Total equity exposure now stands at Rs 7.8bn. Continued loss funding will be a key monitorable.
* The BOT assets would entail equity investment of ~Rs 800mn over FY20E towards loss funding and debt servicing. The company is exploring refinancing/ asset monetization/ restructuring opportunities for its BOT portfolio and the same is expected to be finalized by 4QFY20.
* MP irrigation order continues to function smoothly. JMC recorded revenue of Rs 1.3bn during 1HFY20. With monsoon quarter ending, higher revenue booking in this project is expected during 2HFY20.
JMC delivered robust standalone 2QFY20 performance driven by 85% YoY Infra segment revenue growth. However, Rs 420mn BOT loss funding and debt servicing and further anticipated (Rs 380mn) loss funding during 2HFY20 is a dampener. Order book accretion of Rs 27.5bn YTDFY20E is strong, largely driven by B&F segment. We expect JMC to clock 16.9% revenue CAGR over FY19-21E. High tax rate and interest cost to result in 13.4% muted EPS CAGR. The stock currently trades at 8.8/7.9x FY20/21E Core EPC earnings. We will closely monitor the progress on BOT assets monetization and performance in 2HFY20. Key risks (1) BOT Loss funding and progress on asset monetization (2) Leverage.
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HDFC Securities Limited (HSL) is a SEBI Registered Research Analyst having registration no. INH000002475
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