J. Kumar Infraprojects - Attaining Sustainable Growth - BP Wealth

Company Description

J. Kumar Infraprojects Ltd. (JKIL) is located at Mumbai promoted by Mr. Jagdishkumar Gupta who started the company as a proprietary concern in the year 1980 with an objective to cater to government agencies. Today the company's core expertise is in the areas of transportation engineering, civil construction, irrigation projects and piling work. The company executes civil contracts for Government, Semi government and other various private organizations relating to Infrastructure and Civil Engineering Construction contracts, comprising mainly of roads, flyovers, skywalk, bridges, irrigation projects, commercial and residential buildings, railway buildings, sports complexes and airport contracts.

Investment Rationale

Strong order book position provides healthy revenue visibility

JKIL has a strong order book position of ~Rs. 25 bn as on 31st March 2012 which translates into ~2.7x FY12 sales providing healthy revenue visibility for next 24-30 months. JKIL has bagged fresh orders worth ~Rs. 19.7 bn during FY12. The company is L1 for orders worth ~Rs. 22 bn as on 30th June 2012 and is bidding for projects worth ~Rs. 42.6 bn in the states of Maharashtra, Delhi, Gujarat, Rajasthan, Haryana etc.

Diversification of order book & venturing new geographical regions to de-risk its business model

The order book comprises of transportation engineering - 71%, irrigation - 4%, civil construction - 24% & piling work - 1% as on FY12. Over FY09 to FY12 the company has been able to reduce its dependence on transportation engineering segment from 93% to 71% thereby, derisking its segmental business risk. Earlier orders form Maharashtra region dominated 85-90% of the total order book however, as of FY12 it has come down to ~70% thereby, derisking the geographical business risk. The geographical break up of order book stood at 70% which comes from Maharashtra, while balance comes from rest of India (4% Delhi, 6% Gujarat & 20% Rajasthan) at the end of FY12.

Large fleet of owned machineries and equipments leads to timely execution of projects

JKIL has a large fleet of owned machinery and equipment providing them with the requisite flexibility and efficiency to execute projects with ease. This model allows the company to drastically reduce their dependence on rented equipment available at higher cost thereby, increasing the company's efficiency combined with cost effectiveness and timely execution of projects. Ownership of equipment, coupled with the advantage of concentrated geographical operations in Maharashtra, enables efficient movement of equipment amongst various construction sites resulting in ease of execution.

Robust EBIDTA margins compared to peers

JKIL has enjoyed higher EBIDTA margins of 15-17% in last three years than its peers which hovered at around 11-14%. Higher margins were primarily due to selective bidding of projects, contracts are covered by escalation clause, strategic geographical location of projects, large fleet of owned equipments and strategically located RMC's.

Outlook & Valuation

The company is well poised to tap the growing opportunities from the urban and rural infrastructure space supported by the government spending. We expect the company to register a CAGR of ~30% from FY12 to FY14E on the back of strong execution track record. At the CMP of Rs. 170, the stock is trading at a P/E of 5.4x & P/Bv of 0.9x to its FY13E EPS of Rs. 31.2 & BV of Rs. 189.5 respectively. We recommend 'BUY' and assign a P/E multiple of 7x (20% discount to peers' average) to its FY13E EPS of Rs. 31.2 and arrive at a target price of Rs. 208 which provides potential upside of ~24%.

Source : Equity Bulls

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