CD Equisearch Pvt Ltd - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · K/East ward; Rs 45 crs for reconstruction of hancock bridges at Shivdas

CD Equisearch Pvt Ltd June 7, 2016

Equities Derivatives Commodities Distribution of Mutual Funds Distribution of Life Insurance

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*on weighted average equity

J. Kumar Infraprojects Ltd (JKIL)

No. of shares (m) 75.66

Mkt cap (Rs crs/$m) 1816/271.1

Current price (Rs/$) 240/3.6

Price target (Rs/$)

345/5.2

52 W H/L (Rs.) 450/213

Book Value (Rs/$) 170/2.5

Beta 0.9

Daily volume (avg. monthly) 63150

P/BV (FY17e/18e) 1.3/1.2

EV/EBITDA (FY17e/18e) 6.4/5.3

P/E (FY17e/18e) 14.7/11.8

EPS growth (F17e/18e) 9.2/24.7

OPM (FY16/17e/18e) 17.6/16.8/17.0

ROE (FY16/17e/18e) 10.0/9.2/10.6

ROCE(FY16e/17e/18e) 9.8/9.7/10.9

D/E ratio (FY16e/17e/18e) 0.3/0.3/0.3

BSE Code 532940

NSE Code JKIL

Bloomberg JKIL IN

Reuters JKIP.BO

Shareholding pattern %

Promoters 43.5

MFs / Banks / FIs 22.2

FIIs 23.6

Govt. Holding 0.0

Public & Others 10.7

Total 100.0

As on Mar 31, 2016

Recommendation

BUY

Analyst

KISHAN GUPTA, CFA, FRM

Phone: + 91 (33) 4488 0043

E- mail: [email protected]

(Figures in Rs crs)

FY14

FY15

FY16

FY17e

FY18e

Income from operations 1186.78 1343.19 1408.63 1631.77 1910.60

Other Income 10.81 13.05 17.65 30.88 46.03

EBITDA (other income included) 216.63 263.61 266.04 304.20 370.83

Profit after EO 84.05 94.39 103.16 123.26 153.67

EPS*(Rs) 15.12 15.35 14.92 16.29 20.31

EPS growth (%) 11.0 1.5 -2.8 9.2 24.7

Quarterly Highlights � JKIL order execution hit the skids last fiscal for its income from operations

grew at the slowest pace in four years. Despite having a splendid order

book / sales ratio, it failed to prime the pump - revenue growth nosedived

to a measly 0.2% last quarter. All that partially showed up on weak

operating margins - shrunk 110 bps to 17.6% last fiscal. Earnings after tax

grew by a depressing 9.3% to Rs 103.16 crs compared to Rs 94.39 crs in the

year ago period, prompting a flurry of earning downgrades.

� Despite its endeavor to broaden the revenue base, palatable outcomes are

hard to come by. Transportation sector still accounts for nearly 72% of the

revenue base - down just four percentage points in last two years - followed

by civil at 23%. Alarmingly, over nine-tenths of current order book (Rs 4030

crs) has transportation sector tag, thus further clustering the revenues.

� Yet order accretion speeded last fiscal: announced bagging orders worth Rs

1556 crs (at least a two year high) as against Rs 1224 crs a year ago; not to

count Mumbai L3 orders (still L1as per media sources) valued over Rs 5000

crs. Some of the recently bagged orders include MMRDA's Metro L7 orders

- design and construction of elevated viaduct and six elevated stations in

Andheri (East) to Dahisar (East) corridor- worth Rs 360 crs, and civil

construction of Dr Ram Manohar Lohia Prashasan Evem Prabandhan

Academy in Lucknow valued Rs 260 crs.

� Others include work order from Municipal Corporation of Greater Mumbai

(MCGM) worth Rs 195 crs for three projects - Rs 101 crs order for

construction of grade separator at N.S.Phadake Marg and Telli Galli in

K/East ward; Rs 45 crs for reconstruction of hancock bridges at Shivdas

Chopsi Marg; Rs 49 crs for construction of vehicular bridge at Yari road and

Lokhandwala back road. JKIL also secured LOA from MMRDA for

construction of a six lane bridge across Ulhas creek on Motagaon- Mankoli

Road in JV with Supreme worth Rs 223 crs – JKIL’s share: Rs 134 crs.

� The stock currently trades at 14.7x FY17e EPS of Rs 16.29 and 11.8x FY18e

EPS of Rs 20.31. Stymied by woeful revenue recognition, JKIL earnings

advance by a mere 9.3% last fiscal. Its improving prospects rely much on

timely execution of some frontline projects, namely Mumbai Metro L3,

JNPT road projects, DMRC (Delhi Metro). Widening of order book holds

key. Safety originates from high past earnings (current EPS only 6% high

than six year average) and modest leverage. Weighing odds, we maintain

our ‘buy’ rating on the stock with revised target of Rs 345 (previous target:

Rs 437) based on 17x FY18e earnings (peg ratio: 1) over a period of 9-12

months.

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CD Equisearch Pvt Ltd


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Outlook & Recommendation

Financials & Valuation

With an eye on Brihan Mumbai Municipal Corporation (BMC) elections slated for Feb 2017, the Maharashtra Government has

drawn out plans to launch infrastructure projects worth Rs 1 lakh crore ($15 bn) this year. Projects to be unveiled include

Mumbai coastal road, Mumbai Trans Harbour Link, Mumbai metro expansion port and jetty construction, solid waste

management et al. The work orders on one of the most ambitious projects the Rs 17500 crs ($2.6 bn) Mumbai Trans Harbour

Link (MTHL) - 80% funded by Japan International Cooperation Agency (JICA) -would be awarded by October for completion

by 2019. For Rs 13000 crs coastal roads, the RFQs (request for qualification) were recently issued. What's most heartening is

that MMRDA's budget for 2016-17 is the highest ever - Rs 6647 crs vs Rs 3830 crs a year ago. Its allocations include Rs 2152 crs

for three new Metro lines - Rs 500 each for the elevated Andheri East-Dahisar East Metro and the Dahisar-DN Nagar Metro,

and Rs 1,000 crore for the underground Colaba-Bandra-Seepz Metro and Rs 1000 crs for MTHL.

Animated by such forthcoming opportunities to recast Mumbai's landscape, JKIL has drawn up plans to bid for three

packages of MTHL (out of which two packages in JV) and relevant orders for coastal roads as and when they come up for

tendering. Other projects prominently considered include the Ahmedabad Metro and Mumbai Metro (JKIL L1 for L2 from

Andheri (W) to Dahisar (W) as per media sources). Yet JKIL's poor execution and regulatory hurdles continue to dog. Its JNPT

road projects valued some Rs 1065 crs have been delayed by four-six months. Other projects which were extended (also read:

delayed) or likely to be extended include DMRC (CC-24), Jogeswari ROB, Ambadi- Washind road project, Western suburbs

roads, Pune flyover (College of Engineering Pune to Patil Estate), Navi Mumbai Arc Bridges and Mith river training project.

Suppressed by dismal order execution, JKIL's revenue recognition grew by an abysmal 3.8% last fiscal (see chart) - the lowest

rate in four years, precipitating 15.5% cut in current fiscal's revenue estimate. Absolute revenue accretion plummeted too:

added less than a third of previous year's gain of Rs 150 crs. Order execution speeding now largely rests on the

commencement of Mumbai Metro L3 (award already delayed by six months) and JNPT road projects; the former estimated to

add nearly 15% to total tally in FY18. Thanks to its large fleet of equipments and aversion to sub-contracting, JKIL’s operating

margins have consistently held in high teens in last three years.

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Despite peppy margins return on capital has all but risen (see chart) - ROE came off over 550 bps to 10% (five year median:

15.6%) in last two years, intensified by rising working capital. Working capital days, for instance, zoomed to 186 days last

fiscal from 115 days three years back (see chart below); it could further surge all thanks to jaw dropping Mumbai Metro L3

orders worth over Rs 5000 crs. Ballooning order book would make free cash flows generation more daunting not least for

rising capex and growing need for FDRs. For other EPC players like Pratibha Industries and NBCC (EPC only) revenue

recognition last fiscal was anything but torpid. Pratibha Industries grew by an astonishing 38.5%, while NBCC's EPC

business recorded 48.6% growth (though on a small base) in EPC business (32.1% overall).

The stock currently trades at 14.7x FY17e EPS of Rs 16.29 and 11.8x FY18e EPS of Rs 20.31. The stock's relegation in last few

months stemmed from JKIL’s miserable order execution and unexpected delay in award of Mumbai L3 orders. Though

order execution is expected to trump over the next two years, but risks (particularly external) cannot be undone. Yet

Maharashtra's grand infrastructure plans cannot be gainsaid either. JKIL stands out for its ability to execute complex

projects and forge JVs, hastening influx of awe-inspiring Mumbai Metro orders. On balance, we maintain our 'buy' rating on

the stock with revised target of Rs 345 (previous target: Rs 437) based on 17x FY18e earnings (peg ratio: 1) over a period of 9-

12 months. (For more info refer to our November report).

Risks

Notwithstanding JKIL's mammoth efforts to diversify its order book - by bagging DMRC's metro rail orders, civil

construction order in U.P and Ahmedabad metro rail orders - the share of orders from State of Maharashtra has awfully

surged. Maharashtra currently accounts for nearly 80% of the pie from less than half two years back. With projects of DMRC

now nearing end, the share of Delhi has plunged to 10% from 43% in FY14. No less salient to mention is that with the award

of Mumbai Metro L3 orders, its order book would become ever more concentrated, rightfully earning a 'Maharashtra

Company' tag.

Its allegiance to government orders is no less disquieting. Currently the private sector accounts for less than 5% of the order

book, making it susceptible to changing state budgetary allocation to the infrastructure sector.

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[

Cross Sectional Analysis

Company Equity* CMP

Market

cap*

Income

from

ops* Profit*

OPM

(%)

NPM

(%)

Int.

Cov.

ROE

(%) DER

Mkt

cap /

sales P/BV P/E

JKIL 38 240 1816 1409 103 17.6 7.3 3.5 10.0 0.3 1.3 1.4 16.1

NBCC 120 191 11454 5838 311 6.0 5.3 13.0 21.9 0.0 2.0 7.6 36.8

Pratibha Ind 20 30 304 4385 30 11.1 0.7 1.2 4.3 2.4 0.1 0.4 10.1

Simplex Infra 10 262 1294 5899 68 9.8 1.2 1.2 4.5 2.0 0.2 0.8 18.9

*figures in crores; calculations on ttm basis

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Financials

Quarterly Results Figures in Rs crs

Q4FY16 Q4FY15 % chg. FY16 FY15 % chg.

Revenue from Operations 403.95 402.96 0.2 1408.63 1343.19 4.9

Other Income 8.53 5.49 55.5 17.65 13.05 35.2

Total Income 412.48 408.45 1.0 1426.28 1356.24 5.2

Total Expenditure 340.63 335.04 1.7 1160.24 1092.63 6.2

EBIDTA (other income incl.) 71.85 73.41 -2.1 266.04 263.61 0.9

Interest 13.98 23.05 -39.3 61.06 76.76 -20.5

Depreciation 13.17 12.61 4.5 51.21 47.35 8.1

PBT 44.70 37.76 18.4 153.77 139.49 10.2

Tax 16.09 10.42 54.4 50.61 45.10 12.2

Net Profit 28.61 27.33 4.7 103.16 94.39 9.3

Extraordinary Item 0.00 0.00 - 0.00 0.00 -

Adjusted Net Profit 28.61 27.33 4.7 103.16 94.39 9.3

EPS 3.78 4.24 -10.8 14.92 15.35 -2.8

Income Statement Figures in Rs crs

FY14 FY15 FY16 FY17e FY18e

Revenue from Operations 1186.78 1343.19 1408.63 1631.77 1910.60

Growth (%) 18.6 13.2 4.9 15.8 17.1

Other Income 10.81 13.05 17.65 30.88 46.03

Total Income 1197.59 1356.24 1426.28 1662.65 1956.63

Total Expenditure 980.96 1092.63 1160.24 1358.45 1585.80

EBIDTA (other income incl.) 216.63 263.61 266.04 304.20 370.83

Interest 57.64 76.76 61.06 62.09 73.83

EBDT 158.99 186.85 204.98 242.11 296.99

Depreciation 34.76 47.35 51.21 58.14 66.95

Tax 40.18 45.10 50.61 60.71 76.38

Net Profit 84.05 94.39 103.16 123.26 153.67

Extraordinary Item - - - - -

Adjusted Net Profit 84.05 94.39 103.16 123.26 153.67

EPS* (Rs) 15.12 15.35 14.92 16.29 20.31

Equity capital 27.80 32.23 37.83 37.83 37.83

*on weighted average equity

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Balance Sheet Figures in Rs crs


SOURCES OF FUNDS

Share Capital 27.80 32.23 37.83 37.83 37.83

Reserves 547.49 756.86 1245.48 1348.25 1479.15

Total Shareholders Funds 575.29 789.09 1283.31 1386.08 1516.99

Long term debt 135.00 53.34 28.93 40.00 60.00

Total Liabilities 710.29 842.43 1312.24 1426.08 1576.99

APPLICATION OF FUNDS

Gross Block 452.30 604.04 655.07 822.60 872.60

Less: Accumulated Depreciation 126.77 173.97 225.19 283.33 350.27

Net Block 325.53 430.07 429.88 539.27 522.33

Capital Work in Progress 175.21 63.26 67.53 50.00 70.00

Investments 2.29 1.13 179.74 1.11 1.11

Current Assets, Loans & Advances

Inventory 565.81 543.08 486.10 559.01 642.86

Sundry Debtors 131.98 200.84 295.57 384.24 461.09

Cash and Bank 121.24 154.83 173.60 481.14 506.60

Loans and Advances 189.58 113.44 147.77 151.37 171.14

Total CA & LA 1008.61 1012.19 1103.04 1575.76 1781.69

Current Liabilities 918.47 816.65 609.94 879.62 958.40

Provisions 16.65 18.64 24.67 26.10 29.93

Total Current Liabilities 935.12 835.30 634.61 905.72 988.33

Net Current Assets 73.50 176.90 468.43 670.03 793.36

Net Deferred Tax -7.06 -13.11 -16.92 -21.51 -26.26

Other Assets (Net Of Liabilities) 140.82 184.18 183.59 187.17 216.45

Total Assets 710.29 842.43 1312.24 1426.08 1576.99

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Cash Flow Statement Figures in Rs crs

FY14 FY15 FY16e FY17e FY18e

Net Income (a) 84.05 94.39 103.16 123.26 153.67

Non cash exp. & others (b) 26.95 43.86 39.41 32.64 26.48

Depreciation 34.76 47.35 51.21 58.14 66.95

Deferred tax 1.92 6.20 3.81 4.59 4.76

Interest & Dividend Received -10.60 -12.28 -15.61 -30.08 -45.23

Others 0.87 2.58 - - -

(Increase) / decrease in NWC & others (c) -194.19 -156.45 -137.56 84.87 -184.42

Change in inventory -170.85 22.73 56.99 -72.91 -83.85

Change in trade receivables -17.27 -68.86 -94.73 -88.67 -76.85

Change in loans & advances -82.35 76.15 -34.34 -3.60 -19.77

Trade payables 90.79 -46.25 -21.46 11.40 12.54

Change in Current liabilities 3.65 -95.52 -47.95 243.07 11.23

Change in provisions 4.45 -1.32 3.33 -0.84 1.55

Non current assets / liabilities -22.60 -43.36 0.60 -3.59 -29.28

Operating cash flow (a+b+c) -83.18 -18.20 5.01 240.77 -4.27

Purchase of fixed assets (net of sale) -225.36 -40.53 -55.30 -150.00 -70.00

Purchase of investments -2.19 0.27 -178.61 178.63 0.00

Interest & Dividend Received 10.60 12.28 15.61 30.08 45.23

Fixed deposits -21.21 -25.48 -9.55 -277.38 -6.36

Investing cash flow (d) -238.16 -53.45 -227.85 -218.67 -31.14

Net borrowings 320.82 -43.26 -161.71 26.27 75.00

Equity Share Issuance - 137.17 409.28 - -

Dividends paid (including CDT) -11.31 -14.14 -15.52 -18.21 -20.49

Financing cash flow (e) 309.51 79.76 232.05 8.06 54.51

Net change (a+b+c+d+e) -11.84 8.11 9.22 30.16 19.10

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Key Financial Ratios


Growth Ratios (%)

Revenue 18.6 13.2 4.9 15.8 17.1

EBIDTA (other income included) 22.9 21.7 0.9 14.3 21.9

Net Profit 11.0 12.3 9.3 19.5 24.7

EPS 11.0 1.5 -2.8 9.2 24.7

Margins (%)

Operating Profit Margin 17.3 18.7 17.6 16.8 17.0

Gross Profit Margin 13.4 13.9 14.6 14.8 15.5

Net Profit Margin 7.1 7.0 7.3 7.6 8.0

Return (%)

ROCE 13.1 12.0 9.8 9.7 10.9

RONW 15.6 13.8 10.0 9.2 10.6

Valuations

Market Cap / Sales 0.4 1.6 1.5 1.1 1.0

EV/EBIDTA 4.7 10.2 8.3 6.4 5.3

P/E 5.7 22.2 18.4 14.7 11.8

P/BV 0.8 2.8 1.6 1.3 1.2

Other Ratios

Interest Coverage 3.2 2.8 3.5 4.0 4.1

Debt-Equity Ratio 1.0 0.7 0.3 0.3 0.3

Current Ratio 1.1 1.2 2.0 1.7 1.8

Turnover Ratios

Fixed Asset Turnover 4.4 3.6 3.3 3.4 3.6

Total Asset Turnover 1.8 1.7 1.3 1.2 1.3

Debtors Turnover 9.6 8.1 5.7 4.8 4.5

Inventory Turnover 2.0 2.0 2.3 2.6 2.6

Creditors Turnover 7.2 6.9 9.3 11.3 12.0

Working Capital Turnover 2.9 2.4 2.0 1.8 1.7

WC Ratios

Debtor days 37.9 45.2 64.3 76.0 80.7

Inventory days 178.7 185.2 161.9 140.4 138.3

Creditor days 50.7 53.0 39.2 32.2 30.3

Cash conversion cycle 165.9 177.5 187.0 184.3 188.7

Cash Flows

Operating cash flow -83.2 -18.2 5.0 240.8 -4.3

FCFE 1.7 -115.2 -205.9 -130.3 39.6

FCFF -280.5 -20.5 -3.3 -114.9 14.1

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Financial Summary – US dollar denominated million $ FY14 FY15 FY16 FY17e FY18e

Equity capital 4.6 5.1 5.7 5.6 5.6

Shareholders funds 95.7 126.1 193.5 207.0 226.5

Total debt 92.7 82.3 53.3 56.7 67.9

Net fixed assets (incl CWIP) 83.3 78.8 75.0 88.0 88.5

Investments 0.4 0.2 27.1 0.2 0.2

Net current assets 12.2 28.3 70.6 100.1 118.5

Total assets 118.2 134.6 197.8 213.0 235.5

Revenues 196.2 219.7 215.2 243.7 285.3

EBITDA 35.8 43.1 40.6 45.4 55.4

EBDT 26.3 30.6 31.3 36.2 44.4

PBT 20.5 22.8 23.5 27.5 34.4

PAT 13.9 15.4 15.8 18.4 22.9

EPS($) 0.25 0.25 0.23 0.24 0.30

Book value ($) 1.72 1.96 2.56 2.74 2.99

Operating cash flow -13.8 -2.9 0.8 36.0 -0.6

Investing cash flow -39.6 -8.5 -34.3 -32.7 -4.7

Financing cash flow 51.5 12.7 35.0 1.2 8.1

*income statement figures translated at average rates; balance sheet and cash flow at year end rates; projections at current rates

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CD Equisearch Pvt Ltd - Business Standardbsmedia.business-standard.com/_media/bs/data/market-reports/equi… · K/East ward; Rs 45 crs for reconstruction of hancock bridges at Shivdas