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Research
J Kumar Infraprojects - Margin improvement surprises positively - Edelweiss
Posted On : 2013-08-21 11:10:35( TIMEZONE : IST )
J Kumar Infraprojects (JKIL) reported in-line PAT at INR160mn in Q1FY14 with strong margins compensating for lower than expected execution. Revenues at INR2.2bn were below our INR2.8bn estimate; however, a 160bps YoY improvement in EBITDA margins led to PAT growing at 5% YoY. JKIL's order book remains strong at INR43bn (including L1 orders of INR7.5bn) providing robust revenue visibility (order book/TTM revenue at 4.3x). Expected improvement in execution and a strong balance sheet underpins our bullish stance on JKIL. Maintain 'BUY' with a target price of INR310/share.
Margin performance remains buoyant
JKIL posted revenues of INR2.2bn in Q1FY14, which were up 6% YoY. EBITDA margins at 17.4% improved 160bps YoY and 90bps on a sequential basis. The ongoing capex has led to increase in debt levels; as a result, interest costs at INR97mn were up 46% YoY despite a sluggish top line growth. Despite this, the expansion in margins enabled the company to post a 5% YoY increase in PAT.
Order book remains strong; execution to pick up going ahead
The company won ~INR1.4bn worth of orders during the quarter. It ended Q1FY14 with an order book of ~INR43bn. This includes L1 orders of INR7.5bn. We expect revenue booking to accelerate in the Delhi Metro and Rajasthan projects (which form ~45% of the order book).
Outlook and valuations: Well-placed; maintain 'BUY'
The strong margin trajectory of JKIL along with its ability to keep working capital cycle in check (~120 days) is likely to keep earnings growth strong. We anticipate 32% earnings CAGR over FY13-15E. This has also made it possible to undertake incremental capex without worrying about the debt burden in the balance sheet. This will not only enable JKIL to strengthen its execution capabilities but also maintain high return ratios (RoEs at ~20% in FY15E) which is a commendable feat considering the tough environment. Maintain 'BUY' with a target price of INR310/share (6.5x P/E to FY15E earnings).
