We visited J Kumar Infraprojects’ (JKIL) JNPT and Mumbai Metro projects’ work sites to gain insights into the pace of execution. Our observations: work on Mumbai Metro Line 7 project is progressing rapidly; after initial teething issues, execution on the JNPT and Mumbai Metro Line 2 projects is expected to pick up pace; and preparatory work on Mumbai Metro Line 3 project is underway with tunneling work expected to commence by CY18 end.
We are enthused by the progress in projects and believe JKIL’s revenue is set for a sharp uptick in FY18/19. In our view, the company is the best bet in the EPC space on account of its robust revenue visibility (book-to-bill at >6x), healthy balance sheet (net debt:equity at 0.1x) and humungous opportunities (5 additional Metro projects coming in Mumbai itself).
Ergo, we revise up FY19E P/E target from 15x to 18x and our target price to Rs 416 (Rs 343 earlier). Maintain ‘buy’. Work on the JNPT and Mumbai Metro projects constitutes ~77% of JKIL’s order book. Hence, they are critical in determining the company’s execution trajectory. On Metro Line 7, JKIL is the first company (amongst 3 project contractors) to launch girders. While soil testing for Metro Line 3 project is underway, casting work to construct elevated piers has commenced on Line 2. Part of the JNPT project was facing utility shifting issues; these are expected to be resolved over the next couple of months.
The Maharashtra government has approved 5 new Metro projects in Mumbai (overall cost ~Rs 440 billion). In addition, projects like Trans Harbour Link, Mumbai Nagpur Expressway etc., will ensure robust ordering in the urban infra space. JKIL is our top pick in the EPC space owing to its robust balance sheet, burgeoning order book and niche presence in the urban infra space. With all major projects entering execution stage, we estimate healthy revenue growth. We maintain ‘buy’ with revised target price of `416 (18x FY19E EPS).
JKIL has won 3 packages worth ~Rs 10.6 billion. Overall length of the project is ~40km. Land acquisition is pending only on a ~2km stretch, while utility shifting work is an issue on a ~10km stretch (expected to be completed by December 2017). On balance stretches, execution is on in full swing. Majority of the revenue generated till date from the project is for utility shifting work.