J. Kumar Infraprojects
Urban infra play, lean balance sheet to support growth; Buy
A management meet with J. Kumar indicates a positive outlook on its
growth strategy. Its planned focus on urban infra, on geographical
diversification and a lean balance sheet are key positives. Of its bid
pipeline of over `60bn, most have been placed outside its core area of
Maharashtra. It has recently bid for metro works in Delhi and Gujarat
and the Mumbai water transport project. Of these, it hopes to bag some
orders. Its current orderbook stands at `25bn. We maintain a Buy with
a target of `239.
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Strong bid pipeline. J. Kumar has a bid pipeline of over `60bn. Most of
the fresh bids have been outside its core area (Maharashtra). These are
bids for cash contracts in urban infra such as the Mumbai water transport
project, and metro works in Delhi and Gujarat. Of these, it hopes to bag
some. Its present orderbook stands at `25bn (2.8x FY12 revenue), led by
`21.5bn inflows in FY12. Its focus on cash contracts in urban infra is
likely to raise inflows in FY13-14.
Improved revenue visibility. On the back of strong order inflows in
FY12 and a sturdy bid pipeline, management is targeting top-line growth
of over 30% in FY13. With enhanced revenue visibility, we estimate a
27%CAGR over FY12-14. J Kumar’s strong OPM of ~15% (sector
range: 8-15%) resulting from its large fleet of machinery and contracts
covered under an escalation clause, is likely to continue in FY13-14.
Low gearing, high RoE. J Kumar’s gearing of 0.2x should support strong
revenue growth. Lower interest charges would lead to a better-than-peers
net profit margin of over 7%. Its EBITDA margin, at 15.8% in FY12, has
been the highest in four years, and is likely to come at over 15% in the next
two years. This would push up the RoE and RoCE during FY12-14.
Valuation. Our target of `239 is based on a PE of 7x FY13e and an EV/
EBITDA of 4x. Risks: Fewer order-flows, project execution delays.
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