J. Kumar Infraprojects Execution pace to pick up; Buy :: Anand Rathi

J. Kumar Infraprojects
Execution pace to pick up; Buy
Key takeaways
Clear revenue visibility. Consequent on the strong order inflows in FY13,
we expect execution to pick up in the following 2-3 quarters in some of J.
Kumar Infraprojects’ major projects (Sion-Panvel and DMRC). Moreover, the
Delhi Metro Rail Corp. (DMRC) project picked up speed during the quarter.
For 3QFY14, we expect the company to post 19% yoy revenue growth
(29.3% qoq).
Strong operating margins. Its present order book factors in healthy margins
of over 16% in all projects. For the quarter, we expect a 17.5% EBITDA
margin, vs 16.9% in the Dec’12 quarter and 18.2% in Sep’13 quarter. In the
next 3-4 quarters, the margin is likely to be healthy because of the larger
contribution from the DMRC project. As debt on the company’s books is
low (net-debt-to-equity: 0.2x), we expect a 7.3% net profit margin.
Smart pickup in order book. In 1HFY14, the company bagged orders of
`1.7bn, taking its order book to `34bn (3.3x TTM revenue). Further, at the
L1 stage, it has orders of ~`9bn in the Mumbai Water Transport project. A
bid pipeline of over `60bn and the company’s focus on cash contracts in
urban infra are likely to increase inflows in FY14-15.
Our take. We expect J. Kumar’s 3QFY14 revenue to grow 19% yoy (29%
qoq), following strong execution in its Sion-Panvel and DMRC projects. We
expect a 17.5% EBITDA margin and a 7.3% net profit margin. Key
monitorables are the company’s orderbook and the status of its L1 projects.
Our price target of `295 is based on a PE of 8x FY15e and an EV/ EBITDA
of 4.5x. Risk. Delay in project execution.

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