Good ordering in railways and L1 pipeline has helped KPTL come in striking distance of achieving the 20% y-o-y growth target for ordering in FY2018E. These non-T&D businesses have driven growth in execution in H1FY18 without diluting overall margins. Current backlog and good growth prospects put KPTL on track to reach RoCE of 20% and a debt-free balance sheet by FY2020. We revise our estimates by 2-8%, raise earnings multiple of JMC Projects to 12X and roll forward to September 2019E TP of Rs 470 (from Rs 415). KPTL reported a reasonable quarter with a 10%/9%/24% y-o-y growth in sales/EBITDA/PAT. The results suggest the levered nature of business (interest cost down 26% y-o-y) and curtailed GST-applied brakes on execution.
YTD backlog (including recent order wins) is >2X trailing 12 months revenues and should support strong rebound in execution. Composition of such backlog suggests limited reliance on PGCIL at 13% (both railways and pipeline businesses have similar share). Non-TD businesses are driving scale-up in ordering (40% share in YTD ordering) and all of the 4% y-o-y growth in H1FY18 execution. They form a reasonable share of execution (~20%) and are helping grow overall EBITDA margin. As in T&D, the company is well-placed in these segments with a 15-20% hit rate and good ordering prospects.
JMC Projects’ Q2FY18 results mirrored Q1FY18 performance with a 24%/27%/110% y-o-y growth in sales/EBITDA/PAT. EBITDA margin has reached double-digit levels. Delay in award/dropping off certain L1 orders has led to subdued ordering in H1FY18 and a still healthy order backlog at >2X FY2018E revenues. The company expects R600-700 million of support in FY2018 to its ailing BOT projects and nothing further in FY2019, has recently completed 5/25 in one stressed project and expects the same for the other stressed project over the next six months.