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J Kumar Infraprojects: CD Equisearch revise target downwards

CD Equisearch Pvt Ltd | 07 Jun, 2016  | Follow Author | Add to my Favourites 
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Quarterly Highlights

-    JKIL order execution hit the skids last fiscal for its income from operations grew at the slowest pace in four years. Despite having a splendid order book / sales ratio, it failed to prime the pump - revenue growth nosedived to a measly 0.2% last quarter. All that partially showed up on weak operating margins - shrunk 110 bps to 17.6% last fiscal. Earnings after tax grew by a depressing 9.3% to Rs 103.16 crs compared to Rs 94.39 crs in the year ago period, prompting a flurry of earning downgrades.

-    Despite its endeavor to broaden the revenue base, palatable outcomes are hard to come by. Transportation sector still accounts for nearly 72% of the revenue base - down just four percentage points in last two years - followed by civil at 23%. Alarmingly, over nine-tenths of current order book (Rs 4030 crs) has transportation sector tag, thus further clustering the revenues.

-    Yet order accretion speeded last fiscal: announced bagging orders worth Rs 1556 crs (at least a two year high) as against Rs 1224 crs a year ago; not to count Mumbai L3 orders (still L1as per media sources) valued over Rs 5000 crs. Some of the recently bagged orders include MMRDA's Metro L7 orders design and construction of elevated viaduct and six elevated stations in Andheri (East) to Dahisar (East) corridor- worth Rs 360 crs, and civil construction of Dr Ram Manohar Lohia Prashasan Evem Prabandhan Academy in Lucknow valued Rs 260 crs.

-    Others include work order from Municipal Corporation of Greater Mumbai (MCGM) worth Rs 195 crs for three projects - Rs 101 crs order for construction of grade separator at N.S.Phadake Marg and Telli Galli in K/East ward; Rs 45 crs for reconstruction of hancock bridges at Shivdas Chopsi Marg; Rs 49 crs for construction of vehicular bridge at Yari road and Lokhandwala back road. JKIL also secured LOA from MMRDA for construction of a six lane bridge across Ulhas creek on Motagaon- Mankoli Road in JV with Supreme worth Rs 223 crs – JKIL’s share: Rs 134 crs.

-    The stock currently trades at 14.7x FY17e EPS of Rs 16.29 and 11.8x FY18e EPS of Rs 20.31. Stymied by woeful revenue recognition, JKIL earnings advance by a mere 9.3% last fiscal. Its improving prospects rely much on timely execution of some frontline projects, namely Mumbai Metro L3, JNPT road projects, DMRC (Delhi Metro). Widening of order book holds key. Safety originates from high past earnings (current EPS only 6% high than six year average) and modest leverage. Weighing odds, we maintain our ‘buy’ rating on the stock with revised target of Rs 345 (previous target: Rs 437) based on 17x FY18e earnings (peg ratio: 1) over a period of 9-12 months.

Outlook & Recommendation

Financials & Valuation

With an eye on Brihan Mumbai Municipal Corporation (BMC) elections slated for Feb 2017, the Maharashtra Government has drawn out plans to launch infrastructure projects worth Rs 1 lakh crore ($15 bn) this year. Projects to be unveiled include Mumbai coastal road, Mumbai Trans Harbour Link, Mumbai metro expansion port and jetty construction, solid waste management et al. The work orders on one of the most ambitious projects the Rs 17500 crs ($2.6 bn) Mumbai Trans Harbour Link (MTHL) - 80% funded by Japan International Cooperation Agency (JICA) -would be awarded by October for completion by 2019. For Rs 13000 crs coastal roads, the RFQs (request for qualification) were recently issued. What's most heartening is that MMRDA's budget for 2016-17 is the highest ever - Rs 6647 crs vs Rs 3830 crs a year ago. Its allocations include Rs 2152 crs for three new Metro lines - Rs 500 each for the elevated Andheri East-Dahisar East Metro and the Dahisar-DN Nagar Metro, and Rs 1,000 crore for the underground Colaba-Bandra-Seepz Metro and Rs 1000 crs for MTHL.

Animated by such forthcoming opportunities to recast Mumbai's landscape, JKIL has drawn up plans to bid for three packages of MTHL (out of which two packages in JV) and relevant orders for coastal roads as and when they come up for tendering. Other projects prominently considered include the Ahmedabad Metro and Mumbai Metro (JKIL L1 for L2 from Andheri (W) to Dahisar (W) as per media sources). Yet JKIL's poor execution and regulatory hurdles continue to dog. Its JNPT road projects valued some Rs 1065 crs have been delayed by four-six months. Other projects which were extended (also read: delayed) or likely to be extended include DMRC (CC-24), Jogeswari ROB, Ambadi- Washind road project, Western suburbs roads, Pune flyover (College of Engineering Pune to Patil Estate), Navi Mumbai Arc Bridges and Mith river training project.

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About CD Equisearch Pvt Ltd

CD Equisearch Pvt. Ltd. is one of the leading stock broking firms in the country with strong presence in the institutional and HNI broking segment. The company boasts of a strong Equity Research Division, and has offices in the several cities in the country including Mumbai, Kolkata, Delhi, Bangalore, Hyderabad and Chennai. The company serves a huge clientele of over 4,000 retail clients, High Net worth Individuals, Non Resident Indians, large Corporate Groups, and Financial Institutions. For more information, please visit


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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.

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