Published on 6/12/2019 12:59:06 PM | Source: Reliance Securities Ltd

Buy J. Kumar Infraprojects Ltd For The Target Rs.265 - Reliance Securities

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Healthy Performance; Maintain BUY

J. Kumar Infraprojects (JKIL) has posted a better-than-estimated performance in 2QFY20. While its revenue grew by 23% YoY to Rs6.32bn (marginally ahead of our estimate of Rs6.2bn), EBITDA grew by 18% YoY to Rs1.1bn (vs. our estimate of Rs1bn). EBITDA margin also came in higher-than-estimate at 17% (-64bps YoY and +36bps QoQ). Better operating performance and lower-than-estimated tax expenditure resulted in sharp 58% YoY and 37% QoQ increase in net profit to Rs559mn. Notably, for 1HFY20 it posted 28% YoY growth in earnings to Rs968mn. Order inflow for 1HFY20 stood at Rs42.9bn and thereby order backlog as on 30th Sept’19 stood at Rs133.4bn, which is 4.5x of TTM revenue providing a decent visibility. JKIL continues to maintain its revenue guidance for FY21E at Rs32bn and expects margin to remain healthy considering higher proportion of transportation order especially in Metro. Further, its working capital remained broadly stable during the quarter with moderate improvement in inventory days. Recent, clean chit given by the SEBI pertaining to case of shell company status bodes well for JKIL, easing a key overhang for the Company. Upgrading our earnings estimate by 17%/12% for FY20E/FY21E mainly to factor in better margin and migration to new tax regime, we maintain our BUY recommendation on the stock with a revised Target Price of Rs265 (from Rs220 earlier).


Healthy Performance despite Seasonal Challenges

JKIL has posted a healthy 23% YoY growth in revenue to Rs6.32bn ahead of estimate mainly led by meaningful pick-up in execution in select projects led by improved labour availability. Further, EBITDA margin remained strong at 17%. Notably, JKIL booked 79% revenue from Metro projects during 1HFY20. Looking ahead, we expect JKIL’s revenue and earnings to clock 15% and 24% CAGR over FY19-FY21E.


Order Book Improves Further; Huge Opportunity ahead in Metro Space

With order inflow of Rs42.9bn during 1HFY20, JKIL’s order backlog as on 30th Sept’19 increased to Rs133.4bn (4.5x of TTM revenue). JKIL is currently bidding for projects worth Rs10bn including Worli-Sewri linking project. While it has secured sufficient order for FY20E, it cited that it will continue to bid for only quality order in its core geographies. It further cited that opportunity worth >Rs450bn is likely to come in Mumbai and Delhi Metro projects alone in the next six months.


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. Further, concerns of shell company allegation has gone away now with recent notification by the SEBI, which might warrant further re-rating for the stock. As the current valuations at 5.1x and 4.1x earnings of FY20E and FY21E appear to be attractive, we maintain our BUY recommendation on the stock with a revised Target Price of Rs265 (8x of 12-Months EPS).


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