Healthy Performance despite Margin Contraction; Maintain BUY · EBITDA margin in 4Q: Commencement of new projects viz. Metro Line 6 and Dwarka Expressway projects (which yielded low

J. Kumar InfraprojectsCMP (Rs) 164

Upside/ (Downside) (%) 59

Bloomberg Ticker JKIL IN

Market Cap. (Rs bn) 12

Free Float (%) 56

Shares O/S (mn) 76

Construction | India

Institutional Equity Research

4QFY19 Result Update | June 03, 2019

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BUYTarget Price: Rs260

Healthy Performance despite Margin Contraction; Maintain BUY

J. Kumar Infraprojects (JKIL) has reported a better-than-estimated performance in 4QFY19 mainly led by sustained execution in its key projects and robust order book. Revenue grew by ~25% YoY to Rs9.7bnabove our estimate. EBITDA grew by 14% YoY (+20% QoQ) to Rs1.34bn, while EBITDA margin declined by 129bps YoY and 238bps QoQ to 13.8% due to low margin from newly commenced projects. However, EBITDA margin stood at 15.7% (flat YoY) in FY19. Further, JKIL witnessed a significant jump in interest expenditures (+46% YoY and +49% QoQ) to Rs308mn in 4QFY19 due to higher BG-related charges. Hence, net profit grew by a mere 5% YoY (+30% QoQ) to Rs573mn. However, net profit grew by strong 30% YoY in FY19 to Rs1.77bn. JKIL secured order worth Rs4.45bn from DMRC for 3 elevated stations in Mumbai, thereby taking its total order backlog to Rs104bn as of FY19-end (3.7x of FY19 revenue). Further, JKIL targets for order inflow of Rs50bn in FY20 (Rs35bn already L1). The SEBI’s allegation on JKIL has not impacted its ability to bag new orders, as the Company has been consistently adding orders. Hence, we believe allegation is overdone. At CMP, the stock trades at attractive valuation of 6.1x and 5.1x EPS of FY20E and FY21E, respectively. Marginally tweaking our earnings estimates for forward, we maintain our BUY recommendation on the stock with an unrevised Target Price of Rs260.

Higher Revenue on Sustained Execution Led by sustained acceleration in project execution especially in Metro projects, JKIL’s revenue grew by a stellar 25% YoY (+41% QoQ) to Rs9.7bn. Mumbai Metro Line-3, Metro Line-2&7 and Line-6 contributed Rs2.8bn, Rs900mn and Rs400mn, respectively to its total quarterly revenue. Further, JKIL looks forward to book Rs10bn from Metro Line-3, Rs5bn from Line 2 & 7 in FY20E and expects to book ~Rs20bn from all Metro projects out of total Rs31-32bn guided revenue in FY20E. The Management has increased its revenue guidance to Rs32bn (from Rs30bn) for FY20E and Rs35bn is guided for FY21.

Healthy Order Inflow Boosts Order BookJKIL has witnessed strong order inflow in FY19 to Rs49.7bn including Rs4.5bn in 4QFY19. Further, it is at L1 for 2 projects aggregating to ~Rs35bn, which will further boost its order book. Order backlog stood at Rs104bn as of FY19-end (3.7x of FY19 revenue), which offers healthy business visibility. Further, the Company targets to add projects worth Rs50bn in FY20 (including L1 of Rs35bn). It expects closing order book to at Rs150bn in FY20.

Outlook & ValuationWe continue to maintain our positive view on JKIL owing to robust order book, sound execution credentials, consistent focus on high-margin projects in limited geographies, asset light business model and superior management bandwidth. However, concerns over the SEBI allegation seem to have subsided considering the recent rally in the stock. Any positive development on that front will propel the stock for further. We maintain BUY recommendation on the stock with an unrevised Target Price of Rs260 (10x of FY20 EPS).

Share price (%) 1 mth 3 mth 12 mth

Absolute performance 35.8 13.3 (39.5)

Relative to Nifty 34.3 2.8 (50.6)

Shareholding Pattern (%) Mar-19 Dec-18

Promoter 44.4 44.1

Public 55.9 55.9

Key Financials(Rs mn) FY19 FY20E FY21E

Sales 27,871 30,380 34,626

EBITDA 4,363 4,807 5,374

APAT 1,771 2,020 2,425

P/E (x) 7.0 6.1 5.1

P/B (x) 0.7 0.7 0.6

EV/EBITDA (x) 3.3 3.1 2.5

RoE (%) 11.1 11.5 12.4

Change of Estimates(% change) FY20E FY21E

Sales 0.8 (0.3) EBIDTA 1.1 (0.1) PAT (1.8) (3.4) EPS (1.8) (3.4)

1 Year Stock Price Performance

Note: * CMP as on June 03, 2019

Research Analyst: Binod Modi

Contact: 022 3303 4626

Email: [email protected]

Quarterly Performance (Rs mn) 4QFY19 4QFY18 % yoy 3QFY19 % qoq

Sales 9,680 7,759 24.8 6,860 41.1

Other Expenses 1,387 1,192 16.4 1,027 35.0

Total Expenditures 8,339 6,584 26.7 5,747 45.1

EBITDA 1,341 1,175 14.1 1,113 20.4

Other Income 96 96 (0.1) 30 215.6 PBT 875 842 4.0 673 30.0 Tax 302 294 2.7 233 29.8

PAT 573 548 4.6 441 30.0

Source: Company, RSec Research

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J. Kumar InfraprojectsConstruction | India


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CMP (Rs) 164




Conference Call – Key Highlights f Order Inflow & Guidance: JKIL’s order inflow stood at Rs4.45bn and Rs49.7bn

in 4QFY119 and FY19, respectively. It targets for an inflow of Rs50bn in FY20 mainly from Metro and Road/flyover projects. It is currently in L1 for 2 projects aggregating to ~Rs35bn including Rs15bn (Delhi NHAI project) and Rs20bn (Mumbai Metro Line 7 & Line 9). The Management sees FY20 closing order book at Rs150bn. Reason for Low EBITDA margin in 4Q: Commencement of new projects viz. Metro Line 6 and Dwarka Expressway projects (which yielded low margin) impacted overall EBITDA margin of JKIL during the quarter. It expects margin to improve in the subsequent quarters.

f Revenue Guidance: JKIL has enhanced its revenue guidance to Rs31-32bn (from Rs30bn) for FY20 and sees FY21 revenue at Rs35-36bn. It expects metro projects to contribute Rs20bn in revenue in FY20 including Line 3- Rs10bn, Line 2 & 7- Rs5bn, Ahmedabad Metro- Rs1bn, Pune Metro Rs1.5bn, Line 6- Rs2bn. While JNPT and Dwarka road projects are expected to contribute Rs2bn each in FY20.

f Progress on Mumbai Metro Projects: Line 3: Overall 35% of work is completed till date and 55% tunnelling work is done. Line 2 & 7: 75% of total project is completed. Projects are moving as per schedule after an initial delay of 8-10 months.

f SEBI Issue: In the absence of any meaningful development in 4QFY19 in this regard, status quo continues. Further, the SEBI has yet not decided about forensic audit. JKIL continues to maintain that as this order has not impacted its business at all, any adverse outcome will have limited impact on its financials (<Rs50mn).

f Mobilisation Advances: Baring Line 6, it has received mobilisation advances to the tune of Rs5.3bn from most projects, which are under execution. It stated that 90% of total advances are interest free and it expects to receive Rs2bn advances from the balance projects.

f Gross Debt, BG Charge & Retention Money: Gross debt stood at Rs6.91bn in FY19 and retention money stood at Rs2.8bn (out of total receivable Rs4.98bn). Further, BG charges in interest cost stood at Rs167mn in FY19. Cost of borrowings currently stands at 11%.

f Fund & Non-Fund Based Limits: Fund-based limits stood at Rs7.05bn (utilised Rs4.6bn) in FY19, while non-fund based limits stood at Rs30bn (utilised Rs25bn).

Key Risks f Overdependence on transport segment and government projects.

f Execution risk.



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CMP (Rs) 164




Exhibit 1: Result Summary 4QFY19 4QFY18 % yoy 3QFY19 % qoq

Sales 9,680 7,759 24.8 6,860 41.1

Expenditures:-

Materials Consumed 5,932 4,948 19.9 4,340 36.7

Change in W-I-P 385 (167) (394) (197.8)

% Sales 65.3 61.6 57.5

Employee Costs 635 611 3.8 774 (18.0)

% Sales 6.6 7.9 11.3

Other Expenses 1,387 1,192 16.4 1,027 35.0

% Sales 14.3 15.4 15.0

Total Expenditures 8,339 6,584 26.7 5,747 45.1

EBITDA 1,341 1,175 14.1 1,113 20.4

EBITDA margins (%) 13.8 15.1 (129.0) 16.2 (238)

Depreciation 254 218 16.4 263 (3.5)

Interest Costs 308 211 45.8 207 48.5

Other Income 96 96 (0.1) 30 215.6

PBT 875 842 4.0 673 30.0

Tax 302 294 2.7 233 29.8

% PBT 34.5 34.9 34.5

PAT 573 548 4.6 441 30.0

Net Margins (%) 5.9 7.1 6.4

Source: Company, RSec Research



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CMP (Rs) 164




Profit & Loss

Y/E Mar (Rs mn) FY18 FY19 FY20E FY21E

Income 20,507 27,871 30,380 34,626

% yoy growth 27.8 35.9 9.0 14.0

Operting Expenses 17,295 23,508 25,573 29,251

EBIDTA 3,212 4,363 4,807 5,374

EBIDTA Margin (%) 15.7 15.7 15.8 15.5

Depreciation & Amortization 727 1,022 1,145 1,213

Finance Costs 703 939 897 797

Other Income 285 281 295 310

PBT before excep items 2,067 2,683 3,060 3,674

PBT 2,067 2,683 3,060 3,674

Tax 701 912 1,040 1,249

% Tax 33.9 34.0 34.0 34.0

Net Profit- Reported 1,366 1,771 2,020 2,425

YoY Growth (%) 27.2 29.7 14.1 20.1

Net Profit- Adjusted 1,366 1,771 2,020 2,425

Net Profit Margin (%) 6.7 6.4 6.6 7.0

Balance Sheet

Y/E Mar (Rs mn) FY18 FY19E FY20E FY21E

Sources of Funds

Share Capital 378 378 378 378

Reserves & Surplus 14,710 16,298 18,113 20,310

Total Shareholder's funds 15,088 16,677 18,491 20,689

LT Borrowings 1,134 1,407 1,500 1,500

Deferred Tax Liabilities (Net) 289 366 366 366

LT Provisions - 4 4 4

Total NC Liabilities 1,423 1,777 1,870 1,870

ST Borrowings 3,651 4,625 4,825 3,000

Trade Payables 3,292 3,029 3,591 4,007

Other Current Liabilities 10,163 8,868 10,374 11,576

Total Current Liabilities 17,105 16,522 18,789 18,584

Total Liabilities 33,616 34,975 39,151 41,142

Application of Funds

Gross Fixed Assets 8,931 10,580 11,280 11,880

Less: Acc. Depreciation 1,770 2,792 3,937 5,150 Net Fixed Assets 7,161 7,788 7,343 6,729

CWIP 1,262 798 798 798

NC Investments 150 316 316 316

Other NC Assets 2,877 3,357 3,990 4,452

Inventories 8,143 9,187 11,171 12,467

Sundry Debtors 5,288 4,986 6,384 7,124

Cash & Bank Balances 5,106 4,714 4,601 4,180

Loans & Advances 644 1,169 1,357 1,514

Other Curent Assets 2,986 2,659 3,192 3,562

Toal Current Assets 22,165 22,716 26,704 28,846

Total Assets 33,616 34,975 39,1501 41,142



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CMP (Rs) 164




Cash Flow Statement

Y/E Mar (Rs mn) FY18 FY19E FY20E FY21E

PBT 2,067 2,683 3,060 3,674

Depreciation 727 1,022 1,145 1,213

Interest and Rent Received (249) - - -

Interest & Finance Charges Paid 703 939 897 797

Others 8 - - -

Operating profit before WC Changes 3,256 4,644 5,102 5,684

Net Change in Working Capital 77 (2,975) (2,667) (1,406)

Tax Paid (685) (835) (1,040) (1,249)

Net Cash from Operating Activities 2,648 834 1,395 3,029

Purchase of FA (2,811) (1,649) (700) (600)

(inc)/Dec. In CWIP (549) 464 - -

Sale / (Purchase) of Investments (150) (165) - -

Others 281 - - -

Net Cash used in Investing Activities (3,229) (1,351) (700) (600)

Inc / (Dec) in Borrowings 1,435 1,247 293 (1,825)

Dividend on Equity Shares paid (Including DDT) (182) (182) (205) (228)

Issue of share capital and security premium - - - -

Interest & Finance Charges Paid (703) (939) (897) (797)

Net Cash used in Financing Activities 550 126 (809) (2,850)

Net Increase/ (Decrease) in Cash (31) (391) (114) (421)

Key Ratio

Y/E Mar FY18 FY19E FY20E FY21E

P/E 9.1 7.0 6.1 5.1

P/CEPS 5.9 4.4 3.9 3.4

P/BV 0.8 0.7 0.7 0.6

EV/EBIDTA 4.1 3.3 3.1 2.5

EV/Sales 0.6 0.5 0.5 0.4

Dividend Payout (%) 11.1 8.5 8.4 7.8

Dividend Yield (%) 1.2 1.2 1.4 1.5

Per Share Data (Rs) EPS (Basic) 18.0 23.4 26.7 32.0

EPS (Diluted) 18.0 23.4 26.7 32.0

CEPS 27.7 36.9 41.8 48.1

DPS 2.0 2.0 2.3 2.5

Book Value 199 220 244 273

Returns (%) RoCE 14.0 16.1 15.9 17.2

RoE 9.4 11.1 11.5 12.4

Turnover ratios (x) Asset Turnover (Gross block) 2.3 2.6 2.7 2.9

Inventory (days) 163 139 140 140

Receivables (days) 106 75 80 80

Payables (days) 66 46 45 45

WCC (days) 203 168 175 175

Solvency ratios (x)

D/E (x) 0.05 0.13 0.13 0.04

Current Ratio (x) 1.3 1.4 1.4 1.6



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CMP (Rs) 164




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Rating GuidesRating Expected absolute returns (%) over 12 monthsBUY >10%

HOLD -5% to 10%

REDUCE >-5%

Date Reco CMP TP

08-Apr-19 BUY 152 260

11-Mar-19 BUY 167 260

13-Feb-18 BUY 121 255

14-Nov-18 BUY 150 260

10-Aug-18 BUY 228 360

1-Jun-18 BUY 269 375

15-Feb-18 BUY 341 440

16-Nov-17 UR 256 -

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Rating History

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Healthy Performance despite Margin Contraction; Maintain BUY · EBITDA margin in 4Q: Commencement of new projects viz. Metro Line 6 and Dwarka Expressway projects (which yielded low