Maintain BUY on J. Kumar Infraprojects - Execution recovery leads to beat - HDFC Securities

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

J Kumar (JKIL) reported revenue/EBITDA/PAT at Rs 8.1/1.2/0.45bn, beating our estimate by 21/7/12% on better-than-expected execution recovery. However, the company disappointed on margin (14.2% vs 16% est.). YTD order inflow stood at Rs 21bn. While the order backlog is robust at 3.7x FY20 revenue, near-term execution challenges have alleviated now to a large extent. At 5.6x FY23E EPS, valuations are compelling. We maintain BUY on JKIL with an increased target price of Rs 220/sh (7x Dec-22E EPS) and revise FY21/FY22/FY23 EPS est. by 5.5x/5%/7% to account for execution recovery. Key risk: Delay in order conversion within estimated timeline.

Strong momentum in execution: JKIL registered revenue at Rs 8.1bn, above the pre-COVID level and 21% ahead of our estimates as execution ramped up significantly. However, lower-than-expected margins, narrowed the EBITDA beat to 7%. Consequently, higher other income and lower taxes led to APAT of Rs 450mn (-19%/6.3x YoY/QoQ), beat of 12% on estimate. JKIL has increased revenue guidance to Rs 24bn for FY21E and retained Rs 35bn for FY22. EBITDA margin guidance remained unchanged at 13-14%/15%+ for FY21/FY22 respectively. All the projects are expected to start contributing to revenue from 1QFY22, aiding execution ramp-up.

Order book healthy; Rs 40bn inflow targeted for FY21/FY22: Total order book as on 3QFY21 stood at Rs 109.2bn (3.7x FY20 revenue). While metro projects contribute ~51%, flyover, bridges & roads projects contribute ~48% to the order book. YTD order inflows stood at Rs 21bn. With an L1 position in Rs 14bn Mumbai Metro order, JKIL is confident of achieving Rs 40bn guidance for FY21.

Stable leverage and NWC: Gross debt remained stable at Rs 5.7bn (Rs 5.9/6.7bn at the end of 2QFY21/4QFY20), with gross D/E at 0.31x. JKIL has incurred Capex of Rs 600mn in 9MFY21 and further Rs 200-400mn outlay is envisaged for 4QFY21. With ramp-up in execution, debt may increase, going forward. JKIL expects NWC to be at 120days for FY21 vs 144days in FY20.

Shares of J.KUMAR INFRAPROJECTS LTD. was last trading in BSE at Rs.188.8 as compared to the previous close of Rs. 185.8. The total number of shares traded during the day was 22849 in over 414 trades.

The stock hit an intraday high of Rs. 192.25 and intraday low of 186.45. The net turnover during the day was Rs. 4333248.

Source : Equity Bulls

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