J Kumar Infraprojects rating: Buy – Performance in quarter better than expected

By: |
August 29, 2020 4:45 AM

Order book remains robust; company is likely to break even in FY21; TP raised to Rs 145; ‘Buy’ maintained

With its payment cycle remaining healthy, JKIL would break even this fiscal in our view.With its payment cycle remaining healthy, JKIL would break even this fiscal in our view.

JKIL’s Q1FY21 top line plunged 57% y-o-y with Covid-19 disrupting execution. Ebitda margin plummeted ~680bps y-o-y to 9.9%; the company thus reported a loss of Rs 208 mn. Order book remains robust at ~Rs 110 bn (~4.2x TTM revenue). Labour availability is 60%-plus and management expects it to normalise by mid-October. With its payment cycle remaining healthy, JKIL would break even this fiscal in our view.

We are raising the earnings multiple from 5x to 6x considering its better-than-expected performance. Maintain Buy with a revised TP of Rs 145 (Rs 125 earlier) while rolling forward the valuation to December 2021e.

Covid-19 affects execution: Top line slid 68% q-o-q in Q1FY21. Ebitda margin fell to 9.9% while depreciation charges rose 21% y-o-y; this led to company reporting a Rs 208-mn loss. Mgmt indicated work has resumed at 90% of sites and labour availability has crossed 60% levels. They expect the situation to normalise in H2FY21. Payments from government departments continue to be on time, which reduced net debt q-o-q to Rs 0.7 bn (Rs 1.8 bn at end-FY20).

Order book healthy: JKIL ended the quarter with an order book of ~Rs 110 bn (book-to-bill of 4.2x). The company has removed the ~Rs 5.5-bn project from NBCC from its order book due to land acquisition issues. Mgmt is targeting upcoming opportunities in the Metro rail space in Mumbai, Ahmadabad, Surat, etc. It has a bid pipeline of Rs 70–100 bn and expects to win Rs 30–40 bn of fresh orders in FY21. Robust opportunities in Metro segment are likely to boost JKIL’s growth prospects.

Outlook: Near term hiccups—JKIL’s healthy order book and low leverage (net debt to equity at 0.04x) are the key positives. Better-than-expected labour availability and cost control make us believe that despite a subdued H1FY21, the company will be able to break even in FY21. We have increased PE from 5x to 6x considering its faster-than-anticipated recovery.

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