JMC Project Ltd (JMC) 4QFY20 financial performance was impacted by ECL provisioning of Rs 795mn in the Kurukshetra Expressway BOT toll project. Adjusted for the same the APAT beat stood at 26.8%. Whilst FY20 saw weak order intake of Rs 33.6bn, 1QFY21 has started on strong footing with new order wins of Rs 11.3bn and L1 of Rs 18bn. We expect FY21E to be turnaround year for JMC as (1) Likely restructuring of 3 BOT assets will cut loss funding to Rs 500mn (vs. Rs 800mn for FY20) (2) New orders bookings have been strong for 1QFY21 & (3) International geographies have started contributing to order inflows. We maintain BUY with SOTP of Rs 69/sh.
One-offs impacted 4QFY20 financial performance: During 4QFY20, JMC recorded Expected Credit Loss provision of Rs 795mn on loans given to its JV (49.5% JMC’s share) Kurukshetra Expressway (BOT). JMC has been funding the liabilities servicing for this project through standalone. ECL provision is a step towards BOT restructuring. Adjusted for same Rev/EBIDTA/APAT beat/(miss) stood at (6)/5.5/27%. The 4 BOT Assets contributed Rs 376/1,530mn to the revenues and Rs 204/670mn net loss at a consolidated level in 4QFY20/FY20.
Gradual execution ramp up in place: JMC has Rs 95.5bn of order backlog as of FY20 end (ex of Rs 11.3bn new wins in 1QFY21 and L1 of Rs 18bn). About 42% of the order book in infra (largely water) which has reached 80% utilization level. Balance 58% is Buildings and factories where labour force force has reduced from 18,000 to 10,000 people. JMC expects 80-85% labour availability by 2QFY21 end. Hence, 1QFY21 will be severely impacted with JMC guiding for Rs 5-5.5bn of Revenue (50% of quarter average) and good improvement from 2QFY21.
Road BOT asset restructuring key for re-rating: JMC is in advances stages of restructuring the 3BOT assets (Wainganga, Kurukshetra and Vidyanchal expressway). As a step towards same, JMC has already taken investment write off of Rs 795mn in Kurukshetra project during 4QFY20. We believe that FY21E will be crucial and this may be JMCs best chance to achieve the same. Banks need to take a final call on the same. Total equity exposure now stands at Rs 8.2bn including Rs 760mn loss funding investment for FY20. Resolution in these BOT assets continue to be a key monitorable.
We maintain BUY on JMC as we see FY21E to be turnaround year for the company. Large part of BF order book ~85% is in Southern India which remains better placed for real estate recovery. New opportunities are being explored in Africa from order booking perspective. Net debt has increased by Rs 1bn YoY to Rs 7.8bn and net D/E is 0.8x, which is a cause of concern but manageable. FCFE for FY20 stood at Rs 425mn. Key risks (1) Delay in monetization/resolution of BOT assets (2) Leverage.
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