Reiterate BUY on JMC Projects - Execution to be back-ended - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities

JMC Project (JMC) reported revenue/EBITDA/APAT at Rs 8/0.7/0.1bn, missing our estimates by 10/22/73%. While miss in revenue is attributable to lower labour productivity, EBITDA margin was impacted by adverse job mix, leading to 82% YoY decline in APAT. However, with FY21YTD order inflow of Rs 60.3bn, JMC surpassed its annual guidance of Rs 60bn. Order book now stands at Rs 146bn. Despite the slower-than-expected recovery, we remain constructive on JMC, given (1) healthy order book (~4x FY20 revenue), (2) improved labour availability and (3) comfortable balance sheet (net D/E 0.86x). Reiterate BUY with an unchanged target price of Rs 88. Key risks: (1) delay in restructuring/monetisation of BOT assets and (2) increase in leverage.

Execution on path to recovery: JMC reported revenue at Rs 8bn (-15%/+71% YoY/QoQ). Although labour availability has improved to pre-COVID level, execution efficiency was affected by social distancing restrictions. With the ease of restriction, execution has picked up in the B&F segment, contributing 60% of the revenue during the quarter. EBITDA margin came in at 9.1% (- 170bps YoY) and was impacted by the adverse mix of projects. Consequently, APAT declined by 82% YoY to Rs 72mn. JMC expects to achieve positive growth in execution in FY21.

Order inflow above annual guidance mark: JMC has received orders of Rs 60.3bn so far in FY21, driven by orders in commercial B&F and water segment. The company has now revised annual order inflow guidance from Rs 60bn to Rs 80bn for the year. Excluding L1 orders of Rs 4bn, order book stands at Rs 146bn (~4x FY20 revenue). About 55% of the order book is in buildings (private - 47%, government - 8%), while exposure to infrastructure and industrial is at 40% and 4% respectively. With robust order book and improved labour availability, we expect execution to recover in 2HFY21.

BOT asset restructuring progressing well: Basis management commentary, restructuring process of the two BOT assets (Wainganga and Kurukshetra Expressway) are in advance stage. JMC is hopeful of concluding the process by the end of FY21. Resolution of these BOT assets continue to be a key monitorable, as it would reduce annual loss funding from Rs 750mn to Rs 500mn and will pave the way for potential monetisation of the assets.

Debt position remains stable: Standalone net debt remained stable at Rs 8.1bn (Rs 8.2bn on Jun 20-end) with net D/E at 0.86x. Management expects debt to remain at a similar level in FY21. Trade receivables reduced from Rs 9.1bn on Mar 20-end to Rs 8.2bn at the end of 2QFY21. Besides, JMC generated positive operating cash flow of Rs 697mn, which is commendable, given the pandemic situation.

Shares of JMC PROJECTS (INDIA) LTD. was last trading in BSE at Rs.47.85 as compared to the previous close of Rs. 46.6. The total number of shares traded during the day was 15438 in over 300 trades.

The stock hit an intraday high of Rs. 48.95 and intraday low of 47.4. The net turnover during the day was Rs. 739497.

Source : Equity Bulls

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