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Execution recovery leads to beat

J Kumar (JKIL) reported revenue/EBITDA/PAT at Rs 8.1/1.2/0.45bn, beating our estimate by 21/7/12% on better-than-expected execution recovery. However, the company disappointed on margin (14.2% vs 16% est.). YTD order inflow stood at Rs 21bn. While the order backlog is robust at 3.7x FY20 revenue, near-term execution challenges have alleviated now to a large extent. At 5.6x FY23E EPS, valuations are compelling. We maintain BUY on JKIL with an increased target price of Rs 220/sh (7x Dec-22E EPS) and revise FY21/FY22/FY23 EPS est. by 5.5x/5%/7% to account for execution recovery. Key risk: Delay in order conversion within estimated timeline.

* Strong momentum in execution: JKIL registered revenue at Rs 8.1bn, above the pre-COVID level and 21% ahead of our estimates as execution ramped up significantly. However, lower-than-expected margins, narrowed the EBITDA beat to 7%. Consequently, higher other income and lower taxes led to APAT of Rs 450mn (-19%/6.3x YoY/QoQ), beat of 12% on estimate. JKIL has increased revenue guidance to Rs 24bn for FY21E and retained Rs 35bn for FY22. EBITDA margin guidance remained unchanged at 13-14%/15%+ for FY21/FY22 respectively. All the projects are expected to start contributing to revenue from 1QFY22, aiding execution ramp-up.

* Order book healthy; Rs 40bn inflow targeted for FY21/FY22: Total order book as on 3QFY21 stood at Rs 109.2bn (3.7x FY20 revenue). While metro projects contribute ~51%, flyover, bridges & roads projects contribute ~48% to the order book. YTD order inflows stood at Rs 21bn. With an L1 position in Rs 14bn Mumbai Metro order, JKIL is confident of achieving Rs 40bn guidance for FY21.

* Stable leverage and NWC: Gross debt remained stable at Rs 5.7bn (Rs 5.9/6.7bn at the end of 2QFY21/4QFY20), with gross D/E at 0.31x. JKIL has incurred Capex of Rs 600mn in 9MFY21 and further Rs 200-400mn outlay is envisaged for 4QFY21. With ramp-up in execution, debt may increase, going forward. JKIL expects NWC to be at 120days for FY21 vs 144days in FY20.

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