JKIL delivered 22/(6)/(24)% 4QFY20 Rev/EBIDTA/APAT beat/(miss) as margins collapsed owing to lockdown impact, esp. in urban centers like NCR/MMR (~90% of order book). Labor availability is ~20% and is gradually ramping up, expected to normalize by 3QFY21E. We expect about 35-40% execution for 1QFY21 and 45-50% during 2QFY21 (YoY). Whilst order backlog is robust at 4x FY20 book/bill, near term execution challenges have sprung up as Metro/Tier-1 cities are the worst impacted due to COVID-19 in terms of labor migration. We have revised our FY21/22E Rev estimates by (23)/(0.5)% and APAT by (85)/(3.8)%. At 4.1x FY22E EPS, 1HFY21 losses/execution disappointment is already priced in. We expect re-rating to happen in near term as 3QFY21 will see major turnaround on profitability. We maintain BUY. Key risks (1) Geographic concentration (2) Order conversion within estimated timelines (3) Extended lockdown (4) Prolonged monsoon.
* Execution severely impacted, margins under pressure: JKIL 4QFY20 revenue at Rs 8.8bn was ahead of our estimates with EBIDTA at Rs 0.92bn (6% miss). EBITDA margins contracted 338/440 bps YoY/QoO to 10.5% (313bps miss) due to negative oplev with both fixed/variable expenses rising as % sales. 1HFY21 is expected to be significantly worse. However, EBIDTA margins are expected to normalize at 15-16% range for FY22E as execution ramps up 3QFY21 onwards. APAT for the quarter came in at Rs 310mn (24% miss) due to higher int & dep expense. Execution efficiency/Labor availability is still at 15-20%. Skilled labor migration bigger challenge.
* Healthy order book; order inflows in-line with FY20 guidance: Inflows for FY20 stood at Rs 43bn. The order backlog is robust at Rs 116bn (ex-L1 Rs 10bn, 4x FY20). Order inflow guidance for FY21 is Rs ~40-45bn, same as FY20. Dwarka Expressway Pkg-2 work started, AD for Pkg-1 awaited. Metros/Bridges & Flyovers contribute 54%/33% to the order book. Same is expected to continue going forward.
* Improvement in leverage: The D/E as of 4QFY20 stands at 0.37x vs 0.39x as of 3QFY20. The gross debt for the company is Rs 6.7bn, marginally down from Rs 7/7.2bn at the end of 3Q/2QFY20. With no significant capex planned during the FY21E/FY22E (Rs 0.5bn in FY21), partial release of BGs by govt agencies, & utilization of mobilization advances, we expect D/E ratio to be maintained in 0.37-0.40x range.
* Order book exposed to geographic concentration risk: Maharashtra accounts for over 70% of JKIL’s order book which exposes it to local risks. However, we derive comfort from continuing payments from the new government in charge, diversification efforts and ongoing progress on all projects with no impending cancellations. ~91% book is exposed to urban centers, hence, most vulnerable to labor shortage.
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