IGI Logo

Project inflows and pace of execution key monitorable

* KPTL’s standalone (SA) sales fell 14% yoy, below our and consensus estimates. Management has lowered FY22 sales growth guidance to 5-10% from 10-15% on continued project execution challenges and pricing environment. EBITDAM fell ~130bps due to commodity inflation. YTDFY22 order Inflows fell ~40% yoy to ~Rs7.5bn. The order book stood at ~Rs124bn (ex ~L1 of Rs18bn).

* JMC Projects (SA) delivered strong sales momentum (up ~65% yoy/18% qoq), though rising input costs affected EBITDAM (250bps yoy). Management has guided for 20-25%/ 15-20% sales growth for FY22/23E. Order inflows were healthy at ~Rs80bn, resulting in peak order backlog of ~Rs187bn.

* We maintain Buy with a revised TP of Rs555 (Rs565 earlier) based on SoTP. We cut our FY23/FY24 EPS estimates by 8%/3% and roll forward our valuation to Dec’22E.

Guidance lowered for order inflows and sales: KPTL (SA) reported a ~43% yoy drop in adjusted PAT, due to a 14% decline in sales (inclusive of ~US$20mn impact on lower project delivery) and a ~210bps impact on gross margin. Management has now guided for 5-10% sales growth for FY22 (vs. 10-15% earlier). Similarly, it sees potential inflows of Rs70-80bn in FY22 (vs. Rs90bn earlier). Management expects the domestic T&D market to grow by a modest 4-5% rate in the medium term, while the international market is expected to see higher levels of growth, driven by the end of the World Bank embargo (on 6th Oct’21) and increasing non-T&D orders. Segment-wise yoy sales growth approx.: Railways +10%, T&D: (10%), O&G (50%). Net debt stood at Rs11.5bn, down ~Rs730mn qoq, and may decline by Dec’21 from proceeds from the sale of the Kohima Transmission BOT/Indore project. The promoter pledge is also guided to come down to 40% by Dec’21 from current ~46% (of promoter holding). The promoter has been consistently reducing the pledge over the past few quarters.

B&F and Infra projects drive strong growth in order inflow for JMC; backlog at peak: Consistent execution and a large order backlog (~Rs187bn) resulted in a high 64% revenue growth rate in Q2 and H1FY22 EBITDAM at 7.9%. Management expects FY22 margin at ~9- 10% and aims for double-digit margin in coming years. KPTL has guided for 20-25% sales growth in FY22 and 15-20% in the medium term. B&F and Water projects are the key drivers. Additionally, it has entered into tunneling-related projects, which involves limited competition. Maintain Buy: Our SoTP-based TP of Rs555 comprises ~Rs500/share for KPP (SA) based on 13.5x Dec’23E core EPS and Rs55/share for the stake in JMC projects (valued at a 30% discount to the current value). Key risks to our call: sustained commodity inflation, poor inflows and execution challenges.

To Read Complete Report & Disclaimer Click Here

For More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer