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Infrastructure

A tale of two states INDIA | INFRASTRUCTURE | Sector Update

12 January 2016

Read this report for: • Details of potential order awards in Uttar Pradesh (UP) and Maharashtra • Companies that provide a direct play on the infrastructure activity in these regions As the market grapples with global uncertainties (USD‐INR, crude, China), we find solace back home with strong momentum continuing in core infrastructure order awards and execution activity. While NHAI seems to be well on track for awarding 5,500km of projects in FY16 (additional 2,500km by MoRTH also seem to be on track), it has also unveiled a series of reforms to revive stuck projects. However, what is more heartening is escalated infrastructure activity by state governments – especially UP and Maharashtra. Uttar Pradesh (UP) – the state is buzzing with activity With state assembly elections almost round the corner in 2017, the UP state government has upped the ante. Large number of projects are being executed, deadlines for many have been preponed to before the elections, and a slew of projects are expected to be announced in the next six‐eight months (before aachar sanhita (model code of conduct) kicks in). While UP State Highway Authority and UP Expressway Industrial Development Authority are expediting upgradation and construction of state highways and expressways across the state, Lucknow Metro Rail Corporation is making rapid progress in Lucknow metro and four other metro projects in the state (Kanpur, Varanasi, Agra, Meerut). We expect over Rs 800bn of road and metro projects to be awarded in UP (by state and central government bodies) – a mammoth opportunity for local players such as PNC Infratech. Maharashtra – stepping it up, finally The impetus provided to infrastructure activity by the general assembly elections (May 2014) and the subsequent state assembly elections (Oct‐2014) gave rise to sustainable momentum, which the new state government has taken forward well. While the MMRDA recently awarded the much‐awaited Mumbai Metro 3 EPC packages, significant progress has happened on Mumbai coastal road, Trans‐Harbour Link, and other metro projects (Mumbai, Nagpur, Pune). We expect projects worth Rs 1trn in Mahrashtra (Rs 900bn in Mumbai alone) to be awarded over the next three years, culminating into a huge opportunity for local players such as JKumar Infraprojects. Telagana and/or Andhra Pradesh (AP) – in a nascent stage Telangana and AP present a huge infrastructure opportunity in terms of irrigation and road projects in Telangana and building of a new state capital in AP. However, most of the projects are still on the drawing board and will take at least 12‐18 months, in our opinion, to crystallise into concrete orders. Comparable valuations Almost all of our preferred picks in the EPC space (NCC, JKIL, KNR, PNC) are trading at comparable valuations, which perhaps reflects that the market realises their similar stature and upside potential. In this scenario, we recommend that investors choose stocks that provide them exposure to certain segments (roads, metros, ports) or geographies (UP, Maharashtra, pan‐India). In line with this thinking, we recommend PNC Infratech as a pure play on the opportunity in UP, and JKumar Infraprojects as a direct beneficiary of the opportunity in Maharashtra. NCC and KNR, with their pan‐India presence, would also benefit from order award activity in both these regions.

Companies PNC Infratech CMP, Rs Rs 534 Reco BUY Target Price, Rs Rs 610 Upside 14% J Kumar Infraprojects CMP, Rs Rs 374 Reco BUY Target Price, Rs Rs 450 Upside 20% EPC companies – Relative Positioning

Source: Phillip Capital India Research Vibhor Singhal (+ 9122 6667 9949) [email protected] Deepak Agarwal (+ 9122 6667 9944) [email protected]

NCC

J Kumar

KNR

ITDC

PNC

MBL

8.0

10.0

12.0

14.0

16.0

18.0

0.0 0.3 0.5 0.8 1.0 1.3 1.5

P/E (FY17E)

Debt:Equity (FY17E)

mailto:[email protected]�


INFRASTRUCTURE SECTOR UPDATE

Pockets of infrastructure opportunities Looking at the pipeline of infrastructure projects across the country (announced and considered by the centre and state governments), we believe UP and Maharashtra are likely to see maximum action. Uttar Pradesh (UP) – the state of buzzing activity With state assembly elections almost round the corner in 2017, the state government has upped the ante. Large number of projects are being executed, deadlines for many have been preponed to before the elections, and a slew of projects are expected to be announced in the next six months (before aachar sanhita (model code of conduct) kicks in). While UP State Highway Authority (UPSHA) and UP Expressway Industrial Development Authority (UPEIDA) are expediting upgradation and construction of state highways and expressways across the state, Lucknow Metro Rail Corporation (LMRC) is making rapid progress in Lucknow metro and four other metro projects in the state (Kanpur, Varanasi, Agra, Meerut). A large share of projects that the NHAI is likely to award are in UP and Bihar. It has already awarded major road projects in Rajasthan, Gujarat, Maharashtra and Karnataka over the last five years. We expect over Rs 800bn of road and metro projects in UP (awarded by state and central govt bodies), which should present a mammoth opportunity for local players (PNC Infratech) and players with pan‐India presence (L&T, NCC, KNR). Maharashtra – stepping it up, finally Driven by years of neglect by various state governments, infrastructure in Maharashtra, especially Mumbai, is in shambles. While central bodies (NHAI, AAI, IPA) have done their bit, state government projects have seen tepid process over the last decade. However, the impetus provided to the infrastructure activity by general assembly elections (May 2014) and subsequent state assembly elections (Oct‐2014), has given rise to a sustainable momentum, which the new state government has taken forward well. MMRDA recently awarded the much‐awaited Mumbai Metro 3 EPC packages. Significant progress has also been made on Mumbai coastal road, trans‐harbour link and other metro projects (Mumbai, Nagpur, Pune). We expect projects worth Rs 1trn in Mahrashtra (Rs 900bn in Mumbai alone) to be awarded over the next three years, culminating into huge opportunity for local players (JKumar) and players with pan‐India presence (L&T, NCC, KNR). Telagana and/or Andhra Pradesh (AP) – in nascent stage Telangana and AP also present a huge infrastructure opportunity in terms of irrigation and road projects in Telangana and building of a new state capital in AP. While the opportunity promises to be mammoth, most of it is still on the drawing board and will take at least 12‐18 months, in our opinion, to convert into concrete orders. Hence, benefits from these states are likely to be more back‐ended, with little details about segments and size. Likely beneficiaries in these states will be NCC, KNR Construction, and L&T. With clarity yet to emerge on the size and break‐up of the potential opportunity in AP/Telangana, we see the two states of UP and Maharashtra offering the largest potential in terms of order award opportunity. We recommend investors position themselves accordingly and invest in stocks that provide exposure to these states. We recommend PNC Infratech as a pure play on the opportunity in UP – and JKumar as a direct beneficiary of the opportunity in Maharashtra. NCC and KNR, with their pan‐India presence will also benefit from order activity in both these regions.

Huge opportunity already on the anvil

Opportunity still on the drawing board



Uttar Pradesh – the state of buzzing activity Uttar Pradesh seems to be poised for mammoth infrastructure spending over the next two years. With the next state assembly elections (March 2017) in UP, the state government (headed by Chief Minister Akhilesh Yadav of the Samajwadi Party) has expedited its efforts in showcasing its ‘development’ efforts. Demonstrative or not, a lot of activity is already happening on the ground.

Lucknow Lucknow is the core of infrastructure activity in UP. While many roads have been upgraded, it was still a shock to see an extensive network of cycling lanes across the city. Some of the key projects currently being executed in the city are:

Lucknow Metro The development plan of Lucknow metro consists of two phases: Metro plan Phase Length Stations Route Cost (Rs mn) Target CODPhase IA 8 8 Transport Nagar ‐ Charbagh

68,800Dec‐16

Phase IB 15 13 Charbagh ‐ Munshipuia NAPhase II 12 12 Charbagh ‐ Vasant Kunj 48,900 NA

Source: LMRC, PhillipCapital India Research Work on Phase 1‐A is already in full swing and is expected to be complete before December 2016 (well in time for the state assembly elections). Tenders for Phase 1‐B are expected to be awarded by March 2016 and execution is scheduled to start by June 2016. Lucknow Metro Map – Also another image of construction activity

Metro order awards Phase EPC Transmission Rakes & SignallingPhase IA L&T L&T Alstom IndiaPhase IB TBA L&T Alstom IndiaPhase II TBA TBA TBA

Source: LMRC, PhillipCapital India Research



The funding for Phase‐1 (A & B) has all been tied up – 52% has been arranged from Euro Bank, and the remaining as equity from the Government of India and the Government of Uttar Pradesh. The state government expects healthy passenger traffic from the beginning and significant decongestion in road traffic after metro is commissioned. Funding plan Source Rs mnGoI Equity 10,030Gol Subordinate Debt 2,970

Gol Total 13,000GoUP Equity 10,030GoUP Subordinate Debt 4,490Grant from Local Bodies 2,450

GoUP Total 16,970Bilateral/Multilateral Loan 35,020Total 64,990GoUP Sub Debt for land 3,810Additional PTA for IDC 480Grand Total 69,280


Gomti River Waterfront The Lucknow Development Authority (LDA) is developing a 12km riverfront on the river Gomti. The Rs 30bn project, for which Gammon India has secured the civil contract, is in full swing. The riverbed is being cleansed and construction activity is ongoing on the banks on either side. The project is expected to be complete by March 2017. Activity on riverfront

State highways / Expressways in UP The UP State Highway Authority (UPSHA) and UP Expressway Industrial Development Authority (UPEIDA) are implementing multiple projects to build greenfield expressways and upgrade the existing state highways. Key projects under execution / to be awarded are: 1) Agra‐Lucknow expressway: The 302km expressway, to be built at a cost of ~Rs

105bn, was awarded to five EPC players (PNC Infratech, AFCONS Infra ‐ two packages, NCC and L&T) last year. While 70% of the earthing work on the project is already done, execution is expected to be over by December 2016. The expressway will reduce the travel time from Agra to Lucknow to 3.5 hours from current +6 hours. It will also provide seamless travel between Lucknow and NCR via the already functional Delhi‐Agra‐Yamuna Expressway.



2) Lucknow‐Balia Expressway: UPEIDA is in late stages of calling bids for the 350km

Lucknow‐Balia Expressway. Balia is very close to the Bihar border (200km from Patna). Once complete, this will provide a contiguous expressway from Delhi to the Bihar border, right across the entire state of UP.

Lucknow to Ballia expressway Package Stretch ‐ City (District) Length (km)Pckg 1 Bakkas (Lucknow) to Sarai Chaubey (Baabanki) 43.1 Pckg 2 Sarai Chaubey (Baabanki) to Baradand (Amethi) 42.9 Pckg 3 Baradand (Amethi) to Gaura (Sultanpur) 44.0 Pckg 4 Gaura (Sultanpur) to Ratanpur (Sultanpur) 43.5 Pckg 5 Ratanpur (Sultanpur) to Ohani (Azamgarh) 44.4 Pckg 6 Ohani (Azamgarh) to Basti (Mau) 43.5 Pckg 7 Basti (Mau) to Parsupur (Ghazipur) 43.1 Pckg 8 Parsupur (Ghazipur) to Bharauli (Ballia) 43.6 Total Lucknow to Ballia expressway 348.1

Source: UPEIDA, PhillipCapital India Research

3) Seven more expressway projects: UPEIDA is planning to develop seven more expressways to decongest the traffic on state and national highways in the state and provide for faster movement of goods. The authority estimates an expenditure of ~Rs 500bn on these projects, spread over the next 4‐5 years.

4) Upgradation of state highways: UPSHA is planning to award upgradation contracts for 15 state highways across the state over the next 8‐12 months. Expenditure on these projects is expected to total ~Rs 500bn.

Projects under construction stage Stretch Length (km) Project Cost (Rs mn)Bareilly‐Almora‐Bageshwar (SH‐37) 54 3,550 Delhi‐Saharanpur‐Yamunotri (SH‐57) 217 17,350 Varanasi‐Shaktinagar (SH ‐5A) 115 12,120 Muzaffer Nagar‐Saharanpur (SH‐59) 53 7,529 Total 439 40,548 Project under RFQ/RFP stage Stretch Length (km) Project Cost (Rs mn)Pukhraya ‐Ghatampur‐ Bindki (SH‐46) 84 12,930 Garh‐Meerut (SH‐14) 37 3,700 Meerut‐Bagpat (SH‐14) 164 10,218 Chandausi‐Badun (SH‐43) 39 2,650 Total 323 29,498 Projects under feasibility stage Stretch Length (km)Agra‐Vah‐Kachauraghat (SH‐62) 68.2 Aligarh‐Tappal (SH‐22A) 65.2 Mawana‐Kithoure‐Hapur (MDR‐102W) 48.4 Mathura‐Sadabad (MDR‐102W) 40.3 Bani‐Mohanlalganj‐Gosaiganj (MDR‐89C) 33.5 Lucknow‐Kursi‐Mahmodabad (MDR‐77C) 54.1 Sisaiya‐Dhrahra‐Pooranpur (SH‐101) 119.0 Fatehpur‐Baderu‐Kartal (SH‐0071) 116.6 Banda‐Baberu‐Rajapur (SH‐92) 88.8 Jaloun‐Bhind (SH‐70) 30.7 Mahmodabad‐Madhubhan‐Belthara (SH‐84E) 57.8 Babatpur‐Chaubeypur‐Jamalpur (SH‐98) 40.0 Chandauli‐Sakildiha‐Saidqur (SH‐69) 31.0 Total 793.6

Source: UPSHA, PhillipCapital India Research



Metro projects in other cities in UP Apart from Lucknow, plans are being drawn to bring the metro network to four more cities in UP – Kanpur, Varanasi, Agra, and Merut. Kanpur: Phase‐1 of the metro is being planned to be 26km – from IIT Kanpur to Naubasta (via railway station). The DPR has already been prepared and EPC bids for the project are expected to be called in mid‐2016. Varanasi: Phase 1 is being planned to be 12.5km – from Sarnath to BHU (via Kotwali). Currently, DPR is in late stages of completion. Work on the project has been expedited on request from the PMO (Varanasi being PM’s constituency). Ordering is expected to begin towards 2016 end. Agra: Phase‐1 is planned to be 16km – from Cantt Railways Station to TYC‐Phase‐2. Currently, DPR is being prepared. Merrut: Phase‐1 is planned to be 13.5km – from Partapur to Merrut Cantt (via railways station road). Currently, DPR is being prepared. Metro projects in other cities in UP City Area Population Phases Length Stations UG/EV Cost ___Expected PHPDT___

sq km Lac (2011) Rs mn 2021 2031Kanpur 1,041 34.8 IIT Kanpur ‐ Naubasta 26.0 21 Mix 1,05,000 15,000 24,000 Rawatpur ‐ Jarauli 10.0 8 MixVaranasi 260 15.4 Sarnath ‐ BHU 12.5 11 Mix 75,000 10,000 14,000 BHEL ‐ Godowlia 13.5 11 MixAgra 520 21.0 Agra Cantt ‐ TYC Ph‐II 16.0 12 Elevated 65,000 10,000 15,000 Sikandra ‐ Hotel Trident 14.0 10 MixMeerut 565 18.4 Paratpur ‐ Meerut Cantt 13.5 12 Mix 65,000 10,000 14,000 Rajban Bazar ‐ Gokalpur 11.5 11 Elevated

Source: LMRC, PhillipCapital India Research As per the funding sources for these infrastructure projects, the two government bodies (UPSHA and LMRC) appear to have taken different approaches. LMRC has availed funding for Lucknow Metro (52% of project cost) from European Investment Bank. On the other hand, UPSHA intends to fund the entire construction of highways/expressway through internal sources. Kanpur Metro Map Varanasi Metro Map



Meerut Metro map Agra Metro map


Mammoth opportunity from NHAI in UP Over the last five years, most of the projects awarded by NHAI have been in the western belt of Rajasthan, Gujarat, Maharashtra, and Karnataka. Accordingly, the current bidding pipeline for NHAI (to be awarded over next six months) is mainly concentrated in UP, Bihar, Orissa, Jharkhand and Chhattisgarh. We see huge opportunity in the infrastructure space in UP and Bihar. Both states have neglected their infrastructure needs for long and have fallen significantly behind other states in terms of development. However, of late, the focus of governments in UP (led by CM Akhilesh Yadav) and Bihar (led by CM Nitish Kumar) has been on infrastructure development. While Bihar has seen its roads network upgraded significantly over the last five years, UP has recently awarded significant projects such as the Agra‐Lucknow expressway and Lucknow Metro. With a new government set to take charge in Bihar (December 2015) and state assembly elections due in UP (April 2017) – we see the focus on infrastructure development continuing in these states. Large part of NHAI’s order pipeline is from the Northern and Eastern states

State No of

Projects Length (km)

Cost (Rs mn)

% of length % of cost

UP 8 476 81,080 25% 29%

Bihar 4 183 34,199 10% 12%

HP 2 60 7,406 3% 3%

Delhi 1 9 6,636 0% 2%

Odisha 6 500 54,381 27% 20%

Jharkhand 3 265 39,864 14% 14%

Chhattisgarh 3 126 13,700 7% 5%

West Bengal 3 128 19,280 7% 7%

Maharashtra 1 2 1,651 0% 1%

Karnataka 2 108 15,714 6% 6%

Gujarat 1 16 2,994 1% 1%

Total 34 1,874 2,76,906

Source: NHAI, PhillipCapital India Research

Majority of NHAI’s orders to be awarded in this belt

Large no orders in this belt have already been awarded



Maharashtra – stepping it up, finally For long, the state of Maharashtra (especially its Mumbai region) has been dormant in terms of infrastructure activity and order awards. While central government bodies (NHAI, AAI and IPA) have been forthcoming in developing the infrastructure in the state (as it is a centre of economic activity), little has been done by successive state governments.

Mumbai Mumbai has especially borne the brunt of state government apathy, with literally no infrastructure project of significant import commissioned over the FY03‐13. However, whether it was an effort to gain brownie points before the 2014 central/state elections or a happy coincidence, the city saw multiple mega projects (Eastern Freeway, Metro, Monorail, SantaCruz‐Chembur link road, and Integrated International airport terminal T2) commissioned in FY14. The new BJP‐led state government seems determined to continue the momentum and has been making rapid progress on some key projects that have the potential to transform the city’s landscape. Mumbai Infrastructure opportunity over the next three years Opportunity Rs bn Mode of

award Financing Status Timeline

MMRDA MMRDA Roads (Green/Brownfield)

150 EPC State govt Under construction / award FY16‐18

MRTS (Phase II & III) 509 EPC State govt; JICA Phase III awarded Phase II bidding process to start by mid‐CY16

Trans Harbor Link 96 EPC Funds being tied up with JICA

All clearances received; to be awarded as EPC Bidding by Jun‐16; Target CoD 2019

Coastal Road 120 EPC Mostly state govt* EC and CRZ clearance received Bidding by Jun‐16; Target CoD 2019

Navi Mumbai Airport 62 BOT All PAP paid; all clearances in place; Land acquired Bidding by May‐16

Navi Mumbai Metro 41 EPC State govt Under construction CoD by CY16* Total 979

Source: MMRDA, PhillipCapital India Research (* By our estimate) Some of the key city projects, which offer tremendous opportunity over the next three years, are: Mumbai metro network The new government has been quick to realise the importance of a large and spread‐out metro network in the city. Funding for Phase 2 and Phase 4 of the Mumbai metro masterplan has been approved while the EPC contracts for Mumbai Metro Phase 3 (MM3) were awarded in December 2015. Mumbai Metro Masterplan Name of Corridor Length (km) Cost (Rs bn) Status Versova‐Andheri‐Ghatkopar 11.4 24 Commissioned in Aug‐14Dahisar‐Charkop‐Bandra‐Mankhurd 40.0 265 Funding approvedColaba‐Bandra‐SEEPZ 33.5 244 Bids awardedNavi Mumbai Metro 23.4 41 Under constructionWadala‐Ghatkopar‐Thane‐Kasarvadavali 30.7 191 Funding approvedSEEPZ‐Kanjurmarg 10.5 42 Under planning stageAndheri (E) – Dahisar (E) 18.0 108 Under planning stageSewri‐Prabhadevi 3.5 21 Under planning stage Total 171.0 936

Source: MMRDA, PhillipCapital India Research



Mumbai Metro Phase 3 (MM3) The EPC contracts for the much‐awaited MM3 were awarded in December 2015. The 34km completely underground metro project is highly ambitious and intends to decongest city roads. JICA (Japan International Co‐operation Agency) is funding 57% of the total project cost of Rs 231bn, while the central and state governments are funding the rest. The project is expected to be complete by 2020. Winners of the EPC packages of MM3 Package TPC (Rs mn) L1 L2Cuffe Parade ‐ Hutatama Chowk (Fountain) 33,050 L&T PratibhaCST ‐ Grant Road 27,200 HCC ITDMumbai Central ‐ Worli 27,180 Soma ITDSiddhi Vinayak ‐ Mahim 31,250 ITD JKILDharavi ‐ Domestic Airport (Wakola) 29,880 JKIL HCCDomestic ‐ International Airport 23,420 JKIL ITDMarol ‐ SEEPZ 26,040 L&T ‐

Source: MMRDA, PhillipCapital India Research Particulars Route Length 32.5 km Total stations 27 Train /Platform Length 8 car train/185 m Car Shed Aarey Colony – 30 Ha Depth of Tunnel 15‐20 m ( Below Ground) Estimated Ridership 2021 – 13 lakhs per day (PHPDT – 39,000)

2031 – 17 lakhs per day (PHPDT – 42,000) Train carrying capacity 6 car – 1,792 passengers

8 car – 2,406 passengers skjdaksj Funding plan (earlier estimates) Particular Rs mnEquity by Centre 24,030Equity by MMRC and State 24,030Sub debt by Centre 10,250Sub debt by State 16,150Property development and impact fee 10,000Stakeholder contribution (MIAL) 7,770ASIDE funding / MMRDA grant 6,790JICA loan 132,350Total 231,370

Source: MMRDA, PhillipCapital India Research

After the EPC packages were awarded in Dec‐2015, the MMRDA has not yet signed the finals LoAs. The awarding body is re‐evaluating the financing plan of the project, in the wake of the recent INR depreciation and other cost escalation. The order awards are hence, expected to be delayed, and execution is now expected to start on the project, only in FY17. Mumbai Metro Phase 2 (MM2) In October 2015, the PM inaugurated work for two metro projects – which have been merged to form MM2 – Dahisar‐Andheri (16.5km) and Dahisar‐Charkop‐DN Nagar (18.6km). The two form part of the new MM2 package (earlier awarded to Reliance Infra on BOT basis and subsequently scrapped), which will run along Dahisar‐Charkop‐Bandra‐Mankhurd. The total project cost is expected to be Rs 265bn, and the two stretches are targeted to be completed by 2019.



Mumbai Trans harbour link (MTHL) The much hyped Mumbai Trans Harbour Link, linking Sewri to Nhava‐Sheva, may finally see some action. The project, having already received the nod from the Maharashtra Coastal Zone Management Authority (MCZMA) and the State Wildlife Board, was recently awarded the Coastal Regulatory Zone (CRZ) clearance and forest clearance. The state government and MMRDA are now trying to secure funding from JICA, for which they already have an in‐principle approval. For final clearance, MMRDA has to make a fresh application for tribal rehabilitation in the forest area that will be impacted by the project as per the Forests Rights Act. This is to certify that the project will not impact any tribal life in the forest areas that it will pass. The MMRDA has already communicated to the environment ministry there is no tribal life along the alignment of the project, but will now have to follow due procedure. The Rs 120bn, 32km link, will include a 16.5km‐long sea link and 5.5km‐long viaduct on land. This link – consisting of a 6‐lane (3+3) carriageway – will have interchanges at Sewri in Mumbai and near Chirle village at NH‐4B. Once complete, the MTHL is expected to reduce the current travel time of 90 minutes to less than 30 minutes. The state expects to float tenders by March 2016 and complete the project by 2019. Coastal road Last month, the central government cleared the final hurdle for the Rs 120bn, 34.5km coastal road by allowing the BMC (Brihanmumbai Municipal Corporation) to reclaim seafront and mangroves. The project had already MoEF and CRZ clearance. With the notification being issued, the civic body can now invite tenders for the work and it can also begin work to reclaim land. The project intends to connect Nariman Point to Kandivali via reclaimed land, bridges, and tunnels, on the western coast of Mumbai. Of the 34.5km road, almost 12km will be constructed on reclaimed land over 168 hectares. Over 90 hectares of land needs to be reclaimed from the sea for the project. The Maharashtra government has set an ambitious deadline of 2019 for the project to be completed. Navi Mumbai airport In June 2015, all four consortiums who submitted RFQs for the Navi Mumbai airport, were declared as qualified by CIDCO. The four consortiums are – GMR, GVK, Zurich Airport (with Hiranandani developers), and MIA Infrastructure (with Tata Realty). The bidding process is expected to begin by March 2016 and the deadline for completion of Phase 1 (10mn passengers) has been set at 2019. Airport development plan Phase Operational Year Traffic(MPPA) Project Cost (Rs bn)

1 2019 10 62.152 2020 25 36.993 2025 45 31.624 2030 60 14.98

Total 60 145.74 Project details Airport Area: 1,160 Ha (2,867 acres) Catering: 25,000 sq. mt. Runways: Two (Spacing 1550 m for independent ops) Fuel Farm (Ultimate Phase): 151,000 sq. mt. Terminal Building: 5,23,000 sq. mt. Baggage Claim Area: 13,290 sq. mt. Ultimate Capacity: 60mn passengers per year General Aviation Apron area: 32,000 sq. mt. Cargo Complex: 2, 01,581 sq. mt. Automobile Parking: 5500 + 3500

Source: CIDCO, PhillipCapital India ResearcH



Metro projects in other cities in Maharashtra Nagpur Metro The Nagpur Metro Rail Project is envisaged to be 38.2km long with two corridors – North‐South (19.6km, 17 stations) and East‐West (18.5km, 19 stations). The total project cost of the 100% elevated project is estimated at almost Rs 87bn. More than 80% of the project land is already in possession and construction work has begun for car depots and a 12km rail section. The state government has approached JICA to fund upto 40% of the project. A number of multilateral funding agencies, including KFW of Germany and AFD of France, have also shown interest in funding the project. The Maharashtra state government intends to commission the first phase by CY18 end. Nagpur Metro plan Corridor No Name of Corridor Distance

(km) Completion Cost

(Rs mn)Expected PHPDT

2021Expected PHPDT

2031

I North‐South Corridor 19.7 86,800

10,936 12,934 II East‐West Corridor 18.6 8,460 9,906

Total 38.2 19,396 22,840

Source: Nagpur Metro, PhillipCapital India Research

Funding plan for Nagpur Metro Particulars Amount (Rs mn) % of contribution

Equity by GOI 11,140 12.83%Equity by GOM 11,140 12.83%SD by GOI 4,410 5.08%SD by GOM 13,440 15.48%Nagpur Improvement Trust 4,210 4.85%Nagpur Municipal Corporation 4,210 4.85%JICA Loan @ 1.40% 38,250 44.08%

Total 86,800 100%

Source: Nagpur Metro, PhillipCapital India Research Pune Metro A revised DPR for the Rs118bn phase I of the Pune metro is now being prepared by the Delhi Metro Rail Corporation (DMRC) – which has been the its principal consultant, ever since the project was envisaged. DMRC had submitted the DPR in Aug‐2008, but was approved by the Maharashtra government only in 2012. The Phase I is to consist of two lines: • Line 1 – 16.5km long – from Chinchwad to Swargate – 75% elevated, 25%

underground • Line 2 – 14.9km long – from Vanaz to Ramwadi – completely elevated. Last year, the Centre had also given its approval for the project. However, due to opposition from local residents and political parties, for the line 2 being elevated, the DPR is now being revised to realign the line 2 – which is expected to further delay the project.



Valuations and recommendation Almost all of our preferred picks in the EPC space (NCC, JKIL, KNR, PNC) are trading at comparable valuations – perhaps reflecting that the market realises their similar stature and upside potential. In this scenario, what we recommend is that investors choose stocks that provide them exposure to certain segments (roads, metros, ports) or geographies (UP, Maharashtra, pan‐India).

Different stocks provide exposure to different segments and states Company CMP Mrkt Cap Segment State Investment argument Rs Rs bn

PNC Infratech 503 26 Roads, Airports UP, Bihar, MP Exposure to northern belt ‐ states of maximum action, well funded BOT portfolio

J Kumar 740 24 Urban Infra, MRTS Maharashtra, Gujarat Growth story, exposure to urban infra segment, Maharashtra KNR Construction 581 16 Roads, Irrigation Pan India, AP, Telangana Value story, exposure to roads sector, AP and Telangana NCC 210 9 Roads, Buildings Pan India, AP, Telangana Well diversified pan‐India player, exposure to building and

roads, huge delta from interest reduction

Source: Bloomberg, PhillipCapital India Research

In line, we recommend PNC Infratech as a pure play on the opportunity in UP and JKumar as a direct beneficiary of the opportunity in Maharashtra. NCC and KNR, with their pan‐India presence, will also benefit from order award activity in both regions.

Infrastructure sector – valuation table Company Mkt Cap CMP _____P/E_____ ___EV/EBITDA___ _____ROE_____ _____D/E_____ _____P/BV_____ Rs bn Rs FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17E FY16E FY17ENCC 41.1 74 15.7 11.7 8.3 7.1 7.6 9.2 0.6 0.4 1.2 1.1J Kumar 28.3 374 21.3 14.1 9.4 7.6 10.1 13.5 0.2 0.3 2.2 1.9KNR 15.0 535 17.8 13.4 10.1 8.1 12.4 14.2 0.1 0.1 2.2 1.9ITD Cementation 15.2 98 158.2 15.0 12.4 7.6 2.0 17.2 1.5 1.4 3.1 2.6PNC Infra 27.4 534 21.8 16.7 11.0 9.5 9.9 11.5 0.1 0.1 2.2 1.9MBL Infra 8.8 212 12.5 11.2 6.8 6.7 10.0 10.1 1.1 1.2 1.2 1.1

Our recommendations Per Share (Rs)

Rating CMP

Price Target

% Upside EPC Target Multiple

EPC Valuation

‘Others’ Valuation

NCC BUY 74 110 49% 16 101 8J Kumar BUY 374 450 20% 17 450 ‐KNR BUY 535 690 29% 16 640 49ITD Cementation BUY 98 130 33% 16 130 ‐PNC Infra BUY 534 610 14% 16 511 95MBL Infra NEUTRAL 212 220 4% 9 170 49

Relative positioning of EPC companies

Source: PhillipCapital India Research (*FY16 equivalent to CY15 for ITDC)

NCC

J Kumar

KNR

ITDC

PNC

MBL

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12.0

14.0

16.0

18.0

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P/E (FY17E)

Debt:Equity (FY17E)



Compa

nies Sectio

n



PNC Infratech Ltd (PNCL IN) Right place, right time INDIA | Infrastructure | Company Update

12 January 2016

Strong execution track record aided by strong balance sheet and WC PNC has a strong execution track record in roads and airport runway projects across various states (UP, Rajasthan, MP, Haryana, and Punjab). It reported 20% CAGR in topline over the last five years with 12‐14% EBITDA margins – much superior to most of its peers due to timely completion, with minimum time and cost overruns. PNC has also maintained tight control on its balance sheet – FY15 debtor/inventory days were 83/38, which translated into low leverage. In FY15, its gross debt was Rs 3.5bn, a D/E of 0.5x. We expect (1) the company to report robust topline CAGR of 25%, stable margins, and earnings CAGR of 33% over FY14‐17, (2) leverage to come down to 0.1x in FY17, and (3) ROEs and ROCEs to be stable in the range of 12‐15%. Order book focused on roads and UP – the sector and state of maximum action PNC’s current orderbook is Rs 30.3bn – a decent 2.2x book‐to‐sales. We believe this orderbook and huge opportunity in roads (both central state) will lead to robust topline growth. NHAI has plans to award ~Rs 2tn of projects over the next two years, with 70% of them under the EPC mode.

We see huge opportunity in the infrastructure space in UP and Bihar – evident from NHAI’s current bidding pipeline (to be awarded over the next six months). With a new government set to take charge in Bihar in December 2015 and state assembly elections due in UP in early 2017, we see the respective state governments’ focus on infrastructure development to continue. Fully funded and largely operational BOT portfolio PNC has a fully funded BOT portfolio of seven projects – six of which are operational. The equity requirement for the portfolio is also well taken care of. We do not see the portfolio needing any major parent support to fulfil DSCR requirements. Leverage to remain under control Using the QIP proceeds to repay debt, PNC’s gross debt has already come down to Rs 910mn in 1QFY16 from Rs 3.5bn in 4QFY15. Over the next three years, we expect PNC’s leverage to come down to 0.1x D/E from 0.5x in FY15. The company is likely to maintain a tight control on its working capital, as it restricts itself to bidding projects in its catchment area (UP and neighbouring states). Significant rerating potential for non‐leveraged companies in the sector Our analysis of the average and peak multiples of infrastructure stocks in the last cycle (2007‐11) shows that current valuations are at significant discounts to ones in the last cycle. Also, it is evident from the stock returns of last 12‐15 months that the market is only willing to reward companies with lean balance sheets this time. We see PNC being one of the ‘rewardees’ as it actively deleverages its balance sheet. Topline and earnings CAGR of 25% and 33% over FY14‐17; comparable valuations On our numbers, PNC is currently trading at 16.7x FY17 P/E – in line with peers NJCC, KNRC, and JKIL. As with the entire EPC sector, we expect PNC to be rerated on robust topline and earnings growth, driven by the huge order award opportunity in the infrastructure space. We maintain our estimates and continue to value PNC using SoTP – EPC business at 16x FY17 P/E (in line with our multiple for other EPC companies) and BOT at 1.0x P/BV. Our price target of Rs 610 (unchanged) offers 14% upside from current levels. We maintain BUY rating.

BUY (Maintain) CMP RS 534 TARGET RS 610 (+14%) COMPANY DATA O/S SHARES (MN) : 51MARKET CAP (RSBN) : 28MARKET CAP (USDBN) : 0.452 ‐ WK HI/LO (RS) : 538 / 346LIQUIDITY 3M (USDMN) : 0.3PAR VALUE (RS) : 10 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 0.7 2.6 ‐REL TO BSE 1.5 10.9 ‐ PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY15 FY16E FY17ENet Sales 15,610 18,732 22,478EBIDTA 2,166 2,529 3,035Net Profit 1,004 1,259 1,638EPS, Rs 25.2 24.5 31.9PER, x 21.2 21.8 16.7EV/EBIDTA, x 11.3 11.0 9.5P/BV, x 3.0 2.2 1.9ROE, % 14.9 12.7 12.2Debt/Equity (%) 0.5 0.1 0.1

Source: PhillipCapital India Research Est. Vibhor Singhal (+ 9122 6667 9949) [email protected] Deepak Agarwal (+ 9122 6667 9944) [email protected]

70

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PNC Infra BSE Sensex


PNC INFRATECH LTD COMPANY UPDATE

PNC has a robust orderbook ... .. concentrated in roads and northern states

Source: Company, PhillipCapital India Research Robust topline growth expected with stable margins WC cycle to remain stable

Source: Company, PhillipCapital India Research PNC’s BOT portfolio – fully funded and largely operational Project Type Stake Length TPC Debt Grant Equity COD Period Authority

% km (Rs mn) (Rs mn) (Rs mn) (Rs mn) yearsRaibareli Jaunpur Annuity 100.0 166 8,374 6,978 ‐ 1,396 Apr‐16 17 NHAI Bareilly Almora Toll 100.0 54 6,046 4,600 700 746 Oct‐15 25 UPSHA Ghaziabad Aligarh Toll 35.0 125 20,190 15,140 3,110 1,940 June‐15 24 NHAI Kanpur Ayodhya OMT 100.0 217 ‐ ‐ (1,557) ‐ Aug‐13 9 NHAI Kanpur Kabrai Toll 100.0 123 4,590 2,685 1,230 675 May‐15 12 NHAI Gwalior Bhind Toll 100.0 108 3,403 2,350 270 783 Mar‐13 14 MPRDC Narela Ind area Mix 100.0 33 1,750 1,400 ‐ 350 Oct‐13 15 DSIIDC Total 826 44,353 33,153 5,890

Source: Company, PhillipCapital India Research

*(PNC recently sold its 8.5% stake in Jaora‐Nayagaon project for Rs342mn) SoTP valuation Business division FY17 EPS Equity Invested Multiple Valuation Per share Rs Rs mn Rs mn Rs

EPC 32 16.0 26,205 511BOT Road Projects* 4,971 1.0 4,971 97

Total Valuation 31,176 610

Source: Phillip Capital India Research (*includes Rs342mn received for stake sale in Jaora‐Nayagaon project)

32 29

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UP Bihar Others

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PNC INFRATECH LTD COMPANY UPDATE

Financials

Income Statement Y/E Mar, Rs mn FY14 FY15 FY16e FY17eNet sales 11,521 15,610 18,732 22,478Growth, % ‐12 35 20 20Total income 11,521 15,610 18,732 22,478Employee expenses ‐577 ‐737 ‐885 ‐1,062Other Operating expenses ‐5,712 ‐1,352 ‐1,693 ‐2,031EBITDA (Core) 1,419 2,166 2,529 3,035Growth, % (8.9) 52.7 16.7 20.0Margin, % 12.3 13.9 13.5 13.5Depreciation ‐248 ‐364 ‐443 ‐530EBIT 1,171 1,803 2,086 2,505Growth, % (12.0) 54.0 15.7 20.1Margin, % 10.2 11.5 11.1 11.1Interest paid ‐234 ‐462 ‐354 ‐214Other Non‐Operating Income 106 138 148 154Pre‐tax profit 1,042 1,478 1,880 2,444Tax provided ‐341 ‐475 ‐620 ‐807Profit after tax 701 1,004 1,259 1,638Net Profit 701 1,004 1,259 1,638Growth, % (8.3) 43.1 25.5 30.0Net Profit (adjusted) 701 1,004 1,259 1,638Unadj. shares (m) 40 40 51 51Wtd avg shares (m) 40 40 51 51 Balance Sheet Y/E Mar, Rs mn FY14 FY15 FY16e FY17eCash & bank 999 212 1,179 189Debtors 3,436 3,667 4,362 5,543Inventory 1,048 2,225 2,670 3,204Loans & advances 2,212 3,179 3,849 4,619Total current assets 7,745 9,367 12,145 13,638Investments 3,510 4,235 4,885 4,885Gross fixed assets 2,869 3,802 4,633 5,464Less: Depreciation ‐1,341 ‐1,698 ‐2,141 ‐2,671Add: Capital WIP 16 71 71 71Net fixed assets 1,544 2,175 2,563 2,863Total assets 12,800 15,777 19,593 21,387Current liabilities 3,736 5,058 5,209 5,456Total current liabilities 3,736 5,058 5,209 5,456Non‐current liabilities 2,774 3,534 1,683 1,683Total liabilities 6,510 8,592 6,892 7,138Paid‐up capital 398 398 513 513Reserves & surplus 5,892 6,786 12,188 13,736Shareholders’ equity 6,290 7,184 12,701 14,249Total equity & liabilities 12,800 15,777 19,593 21,387 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY14 FY15 FY16e FY17ePre‐tax profit 1,042 1,478 1,880 2,444Depreciation 248 364 443 530Chg in working capital 830 ‐1,086 ‐1,659 ‐2,238Total tax paid ‐315 ‐498 ‐620 ‐807Cash flow from operating activities 1,805 257 43 ‐70Capital expenditure ‐534 ‐994 ‐831 ‐831Chg in investments ‐798 ‐726 ‐650 0Cash flow from investing activities ‐1,332 ‐1,719 ‐1,481 ‐831Free cash flow 473 ‐1,462 ‐1,438 ‐901Equity raised/(repaid) 0 ‐16 4,347 0Debt raised/(repaid) 211 784 ‐1,851 0Dividend (incl. tax) ‐35 ‐70 ‐90 ‐90Cash flow from financing activities 144 674 2,406 ‐90Net chg in cash 617 ‐765 968 ‐991 Valuation Ratios

FY14 FY15 FY16e FY17ePer Share data EPS (INR) 17.6 25.2 24.5 31.9Growth, % (8.3) 43.1 (2.6) 30.0Book NAV/share (INR) 158.0 180.5 247.5 277.7FDEPS (INR) 17.6 25.2 24.5 31.9CEPS (INR) 23.9 34.3 33.2 42.3CFPS (INR) 42.7 3.0 (2.0) (4.4)Return ratios Return on assets (%) 7.1 9.1 8.4 8.7Return on equity (%) 11.7 14.9 12.7 12.2Return on capital employed (%) 9.9 13.1 11.8 11.7Turnover ratios Asset turnover (x) 2.4 2.9 2.6 2.3Sales/Total assets (x) 1.0 1.1 1.1 1.1Sales/Net FA (x) 8.2 8.4 7.9 8.3Working capital/Sales (x) 0.3 0.3 0.3 0.4Receivable days 108.8 85.8 85.0 90.0Inventory days 33.2 52.0 52.0 52.0Payable days 132.0 128.7 110.2 96.4Working capital days 95.4 95.8 112.2 129.8Liquidity ratios Current ratio (x) 2.1 1.9 2.3 2.5Quick ratio (x) 1.8 1.4 1.8 1.9Interest cover (x) 5.0 3.9 5.9 11.7Total debt/Equity (x) 0.4 0.5 0.1 0.1Net debt/Equity (x) 0.3 0.5 0.0 0.1Valuation PER (x) 30.3 21.2 21.8 16.7PEG (x) ‐ y‐o‐y growth (3.7) 0.5 (8.3) 0.6Price/Book (x) 3.4 3.0 2.2 1.9EV/Net sales (x) 2.0 1.6 1.5 1.3EV/EBITDA (x) 16.2 11.3 11.0 9.5EV/EBIT (x) 19.7 13.6 13.4 11.5



JKumar Infra (JKIL IN) A perfect growth story INDIA | INFRASTRUCTURE | Company Update

12 January 2016

JKumar remains our top ‘growth pick’ in the sector. Its expertise in the MRTS segment (having worked on Delhi Metro and Ahmedabad Metro projects) and huge pipeline in the MRTS segment is likely to lead to a strong topline growth over the next three years. It has seen a topline CAGR of 13% over the last four years and we expect this at 27% over FY15‐17.

Strong order book: JKumar is all set to spread its wings. It has a strong order book of Rs 40.2bn (including L1) – a handsome 2.9x book‐to‐sales, which provides high revenue visibility. Including the two contiguous stretches of the Mumbai Metro phase‐3 (MM3) projects that it has been awarded (Rs 52bn of orders), the orderbook would stand at Rs 93bn – an exceptionally strong 6.6x book‐to‐sales.

JKumar should be one of the biggest beneficiaries of the slew of large projects to be awarded in Mumbai (read our detailed report here). Apart from Maharashtra, it has also expanded its geographic presence to Gujarat, Rajasthan, and Delhi.

Entry into MRTS: JKIL has bought four tunnel‐boring machines in anticipation of a surge in orders as more cities are expected to join the MRTS bandwagon. We expect it to benefit from its early entry and preparedness for orders from this relatively new segment. Apart from MM3, the company expects Phase‐2 of Ahmedabad’s metro project to be called for bidding soon. The pre‐bid meeting for Nagpur metro is also expected to take place in February 2016.

Focus on Maharashtra, Delhi and neighbouring states: The management continues to state that it is content to focus on orders from Maharashtra, Gujarat, Rajasthan, and Delhi. It does not intend to bid for MRTS projects in Kochi, Chennai, Bengaluru, Lucknow, and Jaipur. It expects healthy order pipeline from Mumbai itself, where Rs 600bn of metro projects (Phase 2, 3, 4) are expected to be awarded over the next three years.

QIP to be EPS dilutive near term; value accretive long term: Having emerged as L1 in two packages for MM3 project, JKIL raised Rs 4.1bn through a QIP in November 2015 (for capex and WC) for executing its Rs 93bn orderbook. At the issue price of Rs 730 (pre‐split), the QIP translates into 17% dilution for existing shareholders, but would lead to strong topline and earnings growth in the longer term. We see the fund‐raising exercise as a positive for its long‐term growth prospects.

Outlook and valuation: We expect the surge of order awards in urban infrastructure (roads, flyovers, and MRTS) to catapult JKIL into becoming one of the leading EPC players in the next three years. Its strong balance sheet and superior margin profile should translate into robust earnings growth and superior returns for investors.

JKIL currently trades at 14x FY17 earnings, a significant premium to its historical average (7x). However, we see major rerating potential from current levels, as the company is likely to break into the top bracket of infrastructure companies and command a multiple similar to them.

We have revised our estimates for FY16‐17, on QIP proceeds (cash accrual and increase in number of shares) and slight moderation of topline growth in FY16. We also adjust our estimates for the 2:1 stock‐split. While the QIP leads to a 15% ‘optical’ cut in estimates, we maintain that JKIL will benefit in the long‐term. We now value JKIL at 17x FY17 P/E (earlier 16x) – a premium to other EPC companies (16x) due to its strong orderbook that provides high revenue visibility. Our price target of Rs 450 (Rs 480 earlier, adjusted for split) represents 20% upside from current levels. We maintain BUY.

BUY (Maintain) CMP Rs 374 TARGET Rs 450 (+20%) COMPANY DATA O/S SHARES (MN) : 76MARKET CAP (RSBN) : 29MARKET CAP (USDBN) : 0.452 ‐ WK HI/LO (RS) : 450 / 232LIQUIDITY 3M (USDMN) : 0.3PAR VALUE (RS) : 10 SHARE HOLDING PATTERN, % Jun 15 Mar 15 Dec 14PROMOTERS : 51.0 51.0 51.0FII / NRI : 21.9 21.2 19.7FI / MF : 10.4 10.3 10.1NON PRO : 1.4 1.5 2.1PUBLIC & OTHERS : 15.5 16.2 17.4 PRICE PERFORMANCE, %

1MTH 3MTH 1YRABS 4.8 ‐1.1 52.9REL TO BSE 5.7 7.2 62.5 PRICE VS. SENSEX

Source: Phillip Capital India Research KEY FINANCIALS Rs mn FY15 FY16E FY17ENet Sales 13,432 16,118 21,760EBIDTA 2,506 2,982 4,026Net Profit 944 1,330 2,000EPS, Rs 14.6 17.6 26.4PER, x 25.7 21.4 14.3EV/EBIDTA, x 11.2 9.5 7.7P/BV, x 3.1 2.2 1.9ROE, % 13.8 12.7 14.3Debt/Equity (x) 0.7 0.2 0.3

Source: PhillipCapital India Research Est. Vibhor Singhal (+ 9122 6667 9949) [email protected] Deepak Agarwal (+ 9122 6667 9944) [email protected]

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JK Infra BSE Sensex

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_GZ_-_1st_June_Issue_low_res_20140602200921.pdf�



JKUMAR INFRA COMPANY UPDATE

JKIL has reported a robust revenue growth and margin profile ... ... and has a strong orderbook to take it forward

Source: Company, PhillipCapital India Research Mumbai Metro Masterplan Name of Corridor Length (km) Cost (Rs bn) Status Versova‐Andheri‐Ghatkopar 11.4 24 Commissioned in Aug‐14Dahisar‐Charkop‐Bandra‐Mankhurd 40.0 265 Funding approvedColaba‐Bandra‐SEEPZ 33.5 244 Bids awardedNavi Mumbai Metro 23.4 41 Under constructionWadala‐Ghatkopar‐Thane‐Kasarvadavali 30.7 191 Funding approvedSEEPZ‐Kanjurmarg 10.5 42 Under planning stageAndheri (E) – Dahisar (E) 18.0 108 Under planning stageSewri‐Prabhadevi 3.5 21 Under planning stage Total 171.0 936

Source: MMRDA, PhillipCapital India Research Key projects executed by the company Project City/State Sector Order Size (Rs mn)Public Water transport platforms for 1) Nariman Point to Bandra 2) Dadar to Nerul Mumbai Transport 6,780Phase II BRTS Corridor Ahmedabad Transport 1,160Design & Construction of Amar Mahal flyover Mumbai Transport 729Design & Construction of viaducts, tunnels and elevated stations for Delhi Metro Rail Corporation Delhi Transport 15,862Widening & Improvement to Sion‐Panvel Highway Mumbai Transport 6,000Construction of barrage ‐ Lower Wardha Mail Canal Maharashtra Irrigation 926Building for UP Rajkiya Nirman Nigam Ltd Rajasthan Buildings 5,773

Source: Company, PhillipCapital India Research Proposed fund raising – QIP impact Date Price Raised O/s Shares New Shares Dilution Rs Rs bn mn mnQIP 2014 Jul‐14 310.0 1.37 4.4 27.8 16%QIP 2015 Oct‐15 730.0 4.09 5.6 32.2 17%

Source: Company, PhillipCapital India Research

________Post QIP________ _______Pre QIP_______ ______Change______ FY16E FY17E FY16E FY17E FY16E FY17E

Revenue 17,058 22,176 16,118 21,760 ‐6% ‐2%EBITDA 3,156 4,103 2,982 4,026 ‐6% ‐2%PAT 1,339 1,928 1,330 2,000 ‐1% 4%EPS 20.8 29.9 17.6 26.4 ‐15% ‐12%

Source: PhillipCapital India Research

8 9 9 10 12 13 16 22

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FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17EEBITDA M

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JKUMAR INFRA COMPANY UPDATE

Financials

Income Statement Y/E Mar, Rs mn FY14 FY15 FY16e FY17eNet sales 11,868 13,432 16,118 21,760Growth, % 19 13 20 35Total income 11,868 13,432 16,118 21,760Employee expenses ‐773 ‐741 ‐889 ‐1,200Other Operating expenses ‐2,216 ‐2,192 ‐3,117 ‐4,208EBITDA (Core) 2,058 2,506 2,982 4,026Growth, % 23.0 21.7 19.0 35.0Margin, % 17.3 18.7 18.5 18.5Depreciation ‐348 ‐474 ‐513 ‐663EBIT 1,711 2,032 2,469 3,362Growth, % 19.7 18.8 21.5 36.2Margin, % 14.4 15.1 15.3 15.5Interest paid ‐576 ‐768 ‐621 ‐520Other Non‐Operating Income 108 130 138 143Pre‐tax profit 1,242 1,395 1,986 2,985Tax provided ‐402 ‐451 ‐655 ‐985Profit after tax 841 944 1,330 2,000Net Profit 841 944 1,330 2,000Growth, % 11.0 12.3 40.9 50.3Net Profit (adjusted) 841 944 1,330 2,000Unadj. shares (m) 56 64 76 76Wtd avg shares (m) 56 64 76 76 Balance Sheet Y/E Mar, Rs mn FY14 FY15 FY16e FY17eCash & bank 1,212 1,548 2,548 2,059Debtors 1,320 2,008 2,429 3,279Inventory 5,658 5,431 6,182 7,452Loans & advances 1,420 797 883 1,192Total current assets 11,500 11,978 14,236 16,176Investments 23 11 11 11Gross fixed assets 4,523 6,040 6,790 9,790Less: Depreciation ‐1,268 ‐1,740 ‐2,253 ‐2,916Add: Capital WIP 1,752 633 633 633Net fixed assets 5,007 4,933 5,170 7,507Total assets 16,531 16,922 19,417 23,694Current liabilities 5,136 3,567 3,838 4,407Total current liabilities 5,136 3,567 3,838 4,407Non‐current liabilities 5,642 5,465 2,465 4,465Total liabilities 10,778 9,031 6,302 8,872Paid‐up capital 278 322 378 378Reserves & surplus 5,475 7,569 12,736 14,444Shareholders’ equity 5,753 7,891 13,115 14,822Total equity & liabilities 16,531 16,922 19,417 23,694 Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY14 FY15 FY16e FY17ePre‐tax profit 1,242 1,395 1,986 2,985Depreciation 348 474 513 663Chg in working capital ‐1,924 ‐1,711 ‐987 ‐1,860Total tax paid ‐383 ‐391 ‐655 ‐985Cash flow from operating activities ‐717 ‐233 856 804Capital expenditure ‐2,254 ‐399 ‐750 ‐3,000Chg in investments ‐22 12 0 0Cash flow from investing activities ‐2,276 ‐388 ‐750 ‐3,000Free cash flow ‐2,992 ‐620 106 ‐2,196Equity raised/(repaid) 84 1,463 4,088 0Debt raised/(repaid) 3,208 ‐238 ‐3,000 2,000Dividend (incl. tax) ‐122 ‐302 ‐195 ‐293Cash flow from financing activities 3,086 924 893 1,707Net chg in cash 94 303 1,000 ‐489 Valuation Ratios

FY14 FY15 FY16e FY17ePer Share data EPS (INR) 15.1 14.6 17.6 26.4Growth, % (44.5) (3.1) 20.1 50.3Book NAV/share (INR) 103.5 122.4 173.4 195.9FDEPS (INR) 15.1 14.6 17.6 26.4CEPS (INR) 21.4 22.0 24.4 35.2CFPS (INR) (14.8) (5.6) 9.5 8.7Return ratios Return on assets (%) 8.6 8.6 9.5 10.8Return on equity (%) 15.6 13.8 12.7 14.3Return on capital employed (%) 12.8 11.6 11.9 13.4Turnover ratios Asset turnover (x) 1.4 1.2 1.3 1.4Sales/Total assets (x) 0.8 0.8 0.9 1.0Sales/Net FA (x) 2.9 2.7 3.2 3.4Working capital/Sales (x) 0.4 0.5 0.5 0.4Receivable days 40.6 54.6 55.0 55.0Inventory days 174.0 147.6 140.0 125.0Payable days 184.7 112.5 101.1 86.6Working capital days 158.5 186.5 177.8 162.9Liquidity ratios Current ratio (x) 2.2 3.4 3.7 3.7Quick ratio (x) 1.1 1.8 2.1 2.0Interest cover (x) 3.0 2.6 4.0 6.5Total debt/Equity (x) 1.0 0.7 0.2 0.3Net debt/Equity (x) 0.8 0.5 (0.0) 0.2Valuation PER (x) 24.9 25.7 21.4 14.3PEG (x) ‐ y‐o‐y growth (0.6) (8.2) 1.1 0.3Price/Book (x) 3.6 3.1 2.2 1.9EV/Net sales (x) 2.1 2.1 1.8 1.4EV/EBITDA (x) 12.3 11.2 9.5 7.7EV/EBIT (x) 14.8 13.8 11.5 9.2



Stock Price, Price Target and Rating History (PNC Infratech Ltd)

Stock Price, Price Target and Rating History (J Kumar Infra)

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year. Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL ‐15% > to < +15% Target price is less than +15% but more than ‐15%

SELL <= ‐15% Target price is less than or equal to ‐15%.

B (TP 610)

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Contact Information (Regional Member Companies)

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www.phillip.com.hk

JAPAN Phillip Securities Japan, Ltd

4‐2 Nihonbashi Kabutocho, Chuo‐ku Tokyo 103‐0026

Tel: (81) 3 3666 2101 Fax: (81) 3 3664 0141 www.phillip.co.jp

INDONESIA PT Phillip Securities Indonesia

ANZ Tower Level 23B, Jl Jend Sudirman Kav 33A, Jakarta 10220, Indonesia

Tel (62) 21 5790 0800 Fax: (62) 21 5790 0809 www.phillip.co.id

CHINA Phillip Financial Advisory (Shanghai) Co. Ltd.

No 550 Yan An East Road, Ocean Tower Unit 2318 Shanghai 200 001

Tel (86) 21 5169 9200 Fax: (86) 21 6351 2940 www.phillip.com.cn

THAILAND Phillip Securities (Thailand) Public Co. Ltd.

15th Floor, Vorawat Building, 849 Silom Road, Silom, Bangrak, Bangkok 10500 Thailand

Tel (66) 2 2268 0999 Fax: (66) 2 2268 0921 www.phillip.co.th

FRANCE King & Shaxson Capital Ltd.

3rd Floor, 35 Rue de la Bienfaisance 75008 Paris France

Tel (33) 1 4563 3100 Fax : (33) 1 4563 6017 www.kingandshaxson.com

UNITED KINGDOM King & Shaxson Ltd.

6th Floor, Candlewick House, 120 Cannon Street London, EC4N 6AS

Tel (44) 20 7929 5300 Fax: (44) 20 7283 6835 www.kingandshaxson.com

UNITED STATES Phillip Futures Inc.

141 W Jackson Blvd Ste 3050 The Chicago Board of Trade Building

Chicago, IL 60604 USA Tel (1) 312 356 9000 Fax: (1) 312 356 9005

AUSTRALIA PhillipCapital Australia

Level 37, 530 Collins Street Melbourne, Victoria 3000, Australia

Tel: (61) 3 9629 8380 Fax: (61) 3 9614 8309 www.phillipcapital.com.au

SRI LANKA Asha Phillip Securities Limited

Level 4, Millennium House, 46/58 Navam Mawatha, Colombo 2, Sri Lanka

Tel: (94) 11 2429 100 Fax: (94) 11 2429 199 www.ashaphillip.net/home.htm

INDIA PhillipCapital (India) Private Limited

No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013 Tel: (9122) 2300 2999 Fax: (9122) 6667 9955 www.phillipcapital.in

Management(91 22) 2300 2999

Kinshuk Bharti Tiwari (Head – Institutional Equity) (91 22) 6667 9946(91 22) 6667 9735

Research Engineering, Capital Goods Midcap

Dhawal Doshi (9122) 6667 9769 Jonas Bhutta (9122) 6667 9759 Amol Rao (9122) 6667 9952Nitesh Sharma, CFA (9122) 6667 9965 Hrishikesh Bhagat (9122) 6667 9986

Portfolio StrategyAgri Inputs Infrastructure & IT Services Anindya Bhowmik (9122) 6667 9764Gauri Anand (9122) 6667 9943 Vibhor Singhal (9122) 6667 9949

Deepan Kapadia (9122) 6667 9992 TechnicalsBanking, NBFCs Subodh Gupta, CMT (9122) 6667 9762Manish Agarwalla (9122) 6667 9962 Logistics, Transportation & MidcapPradeep Agrawal (9122) 6667 9953 Vikram Suryavanshi (9122) 6667 9951 Production ManagerParesh Jain (9122) 6667 9948 Ganesh Deorukhkar (9122) 6667 9966

MetalsConsumer, Media, Telecom Dhawal Doshi (9122) 6667 9769 Mid‐Caps & Database ManagerNaveen Kulkarni, CFA, FRM (9122) 6667 9947 Yash Doshi (9122) 6667 9987 Deepak Agarwal (9122) 6667 9944Jubil Jain (9122) 6667 9766Manoj Behera (9122) 6667 9973 Oil & Gas Editor

Sabri Hazarika (9122) 6667 9756 Roshan Sony 98199 72726CementVaibhav Agarwal (9122) 6667 9967 Pharma Sr. Manager – Equities Support

Surya Patra (9122) 6667 9768 Rosie Ferns (9122) 6667 9971Economics Mehul Sheth (9122) 6667 9996Anjali Verma (9122) 6667 9969

Sales & Distribution Ashvin Patil (9122) 6667 9991 Sales Trader Zarine Damania (9122) 6667 9976Shubhangi Agrawal (9122) 6667 9964 Dilesh Doshi (9122) 6667 9747 Kishor Binwal (9122) 6667 9989 Suniil Pandit (9122) 6667 9745Sidharth Agrawal (9122) 6667 9934 ExecutionBhavin Shah (9122) 6667 9974 Mayur Shah (9122) 6667 9945

Corporate Communications

Vineet Bhatnagar (Managing Director)

Jignesh Shah (Head – Equity Derivatives)

Automobiles

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Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd. This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance. This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice. Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request. Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report. Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this

research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for

any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co‐managed in the previous twelve months, a private or public offering of securities for

the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in

connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report: Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report

No

3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No 4 PCIL or its affiliates have managed or co‐managed in the previous twelve months a private or public offering of securities for the

company(ies) covered in the Research report No

5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months

No

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report. Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The



value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results. Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document. Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety. Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. The recipient should carefully consider whether trading/investment is appropriate for the recipient in light of the recipient’s experience, objectives, financial resources and other relevant circumstances. PCIPL and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by the recipient. The recipient is further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek trading/investment advice before investing. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PCIPL and any of its employees, directors, associates, group entities, affiliates are not inducing the recipient for trading/investing in the financial market(s). Trading/Investment decision is the sole responsibility of the recipient. For U.S. persons only: This research report is a product of PhillipCapital (India) Pvt Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S.‐regulated broker‐dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker‐dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances, and trading securities held by a research analyst account. This report is intended for distribution by PhillipCapital (India) Pvt Ltd. only to "Major Institutional Investors" as defined by Rule 15a‐6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by the U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated, and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor. In reliance on the exemption from registration provided by Rule 15a‐6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, PhillipCapital (India) Pvt Ltd. has entered into an agreement with a U.S. registered broker‐dealer, Marco Polo Securities Inc. ("Marco Polo"). Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer PhillipCapital (India) Pvt. Ltd. Registered office: No. 1, 18th Floor, Urmi Estate, 95 Ganpatrao Kadam Marg, Lower Parel West, Mumbai 400013

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