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J Kumar Infraprojects
Order inflow traction to improve; maintain Buy
We revisit our growth projections based on our analysis of the
current fundamental situation. We lower our FY11e/FY12e
earnings by 16% each to factor in slow order inflow during FY11.
J Kumar’s scrip has dipped ~27% in the past month due to
correction across mid-caps, negative newsflow and slowdown in
order inflows. We maintain Buy, given steep stock correction
and the imminent triggers of receipt of orders and strong
revenue booking during 2HFY11.
Order book. J Kumar's order backlog stands at `14.3bn (2x FY10
sales). Order inflow has been slow in the past two quarters due to
drying up of road cash contracts, political turbulence in
Maharashtra (historical dependence) and intense competition in
other states. The situation is likely to improve given the status of
`3.7bn orders at the L1 stage, bids in place for orders of `30bn
and pre-qualification for BOT road projects worth `15bn.
Working capital to reduce. Working capital, which increased
during 1HFY11 due to advances for buying a corporate office, will
reduce in FY13 once the company gets possession of the premises
that will then reflect in ‘fixed assets’. With net leverage of 0.2x, the
balance sheet offers ample room for business growth.
Valuation and risks. We lower our target price to `218 based on
PE of 6.5x FY12e (from `300 based on 7.5x FY12e), implying
~45% discount to our target PE of mid-cap construction
companies. At our target price, the stock trades at FY12e
EV/EBITDA of 3.5x. Risks: Delay in project execution, lower
order-flows and geographical concentration.
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