Jk Infra Mar 2010 from kspcg.research

PRIVATE CLIENT RESEARCH
INITIATING COVERAGE
MARCH 17, 2010

Teena Virmani
teena.virmani@kotak.com
J Kumar Infraprojects Ltd
+91 22 6621 6302
PRICE : RS.199 RECOMMENDATION : BUY
TARGET PRICE : RS.260 FY11E PE: 6.2X

Stock details J Kumar Infraprojects is one of the leading players in the construction
industry with nearly three decades of experience. Company's core
BSE code : 532940 expertise lies in transportation and piling related projects. It has also
NSE code : JKIL
diversified into civil and irrigation segments. With its dominant position
Market cap (Rs mn) : 5,532
in Maharashtra region, we believe that company is well set to benefit
Free float (%) : 45.48
from upcoming projects in urban infrastructure related to flyovers,
52 wk Hi/Lo (Rs) : 222/38
skywalks, bridges etc as well as in irrigation segment. With a current
Avg daily volume : 109375
Shares (o/s) (mn) : 27.80
order book of Rs.13 bn and enhanced net worth post recent fund raising,
we expect company to benefit from large sized order inflows in various
Summary table
segments and maintain a high growth trajectory.

(Rs mn) FY09 FY10E FY11E J Kumar Infraprojects also has excellent operating margins due to large
equipment bank and no subcontracting. This results in positive
Sales 4,065 7,113 11,025 operational cash flows for the company. With strong order book and
Growth (%) 75 55 excellent margins, we expect company's revenues and net profits to
EBITDA 604 1,209 1,654
grow at a CAGR of 65% between FY09-FY11. At current price of Rs 199,
EBITDA margin (%) 14.9 17.0 15.0
stock is trading at very attractive valuations of 8.3x and 6.2x P/E
Net profit 329.1 664.5 897.1
multiples on FY10 and FY11 respectively. We recommend a BUY on the
Debt 485 685 885
stock with a price target of Rs.260 on FY11 estimates, providing an upside
EPS (Rs) 15.9 23.9 32.3
DPS (Rs) 2.0 2.0 2.0 of 31% from the current levels.
ROE (%) 24.1 30.1 27.0
ROCE (%) 31.6 39.9 36.5 Key Investment Rationale
EV/Sales (x) 1.1 0.7 0.5
EV/EBITDA (x) 7.2 4.2 3.0 q Experienced player in urban infrastructure especially transportation. J
P/E (x) 12.5 8.3 6.2 Kumar Infraprojects has developed expertise over past three decades in
P/BV (x) 2.7 1.9 1.5 construction of flyovers, skywalks, roads, bridges, airport runways,
Q4FY09 Q1FY10 Q2FY10 Q3FY10 commercial and residential buildings, railway buildings, sports complexes, and
Sales 1497 1527 1414 2018
irrigation projects. It is likely to benefit from the upcoming projects in urban
EPS (Rs) 5.8 6.0 8.0 6.0
infrastructure through JNUURM as well as from Maharashtra government and
Source: Company & Kotak Securities - Private
Client Research
grow its order book rapidly going forward.
q Geographical concentration to enable high strike rate. The company is
Shareholding pattern focussed on Maharashtra region. However, with an experience of more than
Others three decades, company has achieved an excellent rating profile with its key
18% clients. Company has been able to execute projects across 20 different
locations in Mumbai itself and has remained the preferred player in the urban
Corporate
10%
areas. This enables the company to maintain a high strike rate in bagging the
Promoter projects. We expect these high ratings of the company to enable higher order
Banks
55% inflow going forward also.
0%
MF/UTI
q Strong order book to maintain high growth trajectory for the
11% company. Company has a current order book of Rs.13 bn that provides a
FII
revenue visibility for next 1.5 years. It is diversified across transportation
6%
(78%), civil (13%), irrigation (8%) and piling (1%). Company is targeting to
Source: Capitaline increase average ticket size of projects to Rs.700-800 mn from current Rs.350
mn since it helps in achieving economies of scale as well as provides higher
One-year performance (Rel to sensex) revenue visibility. With a robust order book, we expect revenues to grow at a
CAGR of 65% and net profits to grow at a CAGR of 65% between FY09-
FY11.
J Kumar Infra
q Excellent operating margins. Company has been able to maintain
operating margins above 15% in past few years which are better than
industry average. Going forward also, margins are expected to be around
BSE Sensex 15% led by selective bidding by the company, fleet of owned equipment, no
subcontracting as well as geographical concentration. Most of the contracts
in J Kumar's order book are star rated contracts where there is no risk of
Source: Capitaline increase in commodity prices.

Registered Office: Kotak Securities Limited, Bakhtawar, 1st floor, 229 Nariman Point, Mumbai 400021 India.

INITIATING COVERAGE March 17, 2010

q Reputed client base. Company has always worked with cash rich clients,
most of which include government, semi government and select private clients.
Out of the total order book of Rs.13 bn, transportation projects constitute
around Rs.10.2 bn and these contracts are primarily from government agencies
such as MMRDA, MCGM, Mumbai Rail Vikas Corporation, Maharashtra State
Road Development Corporation Ltd etc. With these clients, company doesn't
face delay in payments and maintains efficient working capital cycle.
q Successful joint ventures with larger players to bag large sized projects.
J Kumar Infraprojects is capable of executing complex projects but in order to
bid for large sized projects, company had entered into joint ventures with other
players to meet experience and networth criteria. In most of the contracts,
company is the lead partner. We expect company to continue to enter into
joint ventures going forward also to bag large sized projects.
q Recent fund raising to fund working capital requirements. J Kumar
Infraprojects had raised funds to the tune of Rs 555 mn from a QIP issue to
meet its working capital as well as capex requirements. Along with this,
through conversion of warrants, company has also raised Rs 240 mn. Thus, we
expect overall networth to get enhanced to Rs.2902 mn in FY10 as against
Rs.1508 mn in FY09. This is likely to help company fund its future working
capital and capex requirements and would also enable company to bid for
large sized projects going forward.
q Better leverage, excellent ROE, ROCE and lower working capital cycle
sets it apart from peers. J Kumar Infraprojects has a very comfortable
average debt: equity ratio of 0.3x currently. This enables the company to raise
further funds quite easily and fund future working capital and capex
requirements. Along with this, company's RoE and RoCE are also much better
than the industry peers. J Kumar's working capital cycle is also much lower
than the industry. It has been able to maintain its working capital on the lower
side due to timely execution of projects as well as excellent client base which
includes primarily government and semi government departments.
We initiate coverage on q Attractive valuations. At current price of Rs 199, stock is trading at 8.3x and
J Kumar Infraprojects with BUY 6.2x P/E and 4.2x and 3.0x EV/EBITDA multiples for FY10 and FY11
recommendation with a price respectively. Stock is trading at very attractive valuations and doesn't factor in
target of Rs.260 high growth in revenues and profits expected for the company going forward.
We value the company at 8x FY11 estimated earnings and arrive at a target
price of Rs 260 on FY11 estimates. Our target valuations are based on 47%
discount to the larger and diversified players to factor in smaller size and
geographical concentration of J Kumar Infraprojects. We thus recommend BUY
on the stock.

Key concerns
q Slowdown in order inflows - Any kind of slowdown in order inflows is likely
to impact order book growth as well as revenue growth for the company going
forward.
q Delays in execution - Execution delays related to land acquisition as well as
environmental clearance may impact project completion schedule and thereby
impact revenue growth.
q Client concentration - Company has 93% of contracts from government cli-
ents. Any reduction in state budgetary allocation for infrastructure sector is
likely to impact the company adversely.

Kotak Securities - Private Client Research Please see the disclaimer on the last page For Private Circulation 2


ABOUT THE COMPANY
J Kumar Infraprojects, promoted by Mr. Jagdish Kumar Gupta, has been in the
construction industry from last three decades. Company initially started with doing
maintenance works of PWD buildings and scaled up to get registered as Class I-A
civil contractor with PWD, Govt of Maharashtra. It has developed expertise in
construction of flyovers, skywalks, roads, bridges, airport runways and has also
diversified into commercial and residential buildings, railway buildings, sports
complexes, and irrigation projects. Company also undertakes piling works for
major real estate and infrastructure companies and is most active in Maharashtra
region for infrastructure projects. It has executed projects with various
government, semi-government or private companies.
With its dominant position in Maharashtra region, we believe that company is well
set to benefit from upcoming projects in urban infrastructure related to flyovers,
skywalks, bridges etc as well as in irrigation segment. With a current order book of
Rs 13 bn and enhanced networth post recent fund raising, we expect company to
benefit from large sized order inflows in various segments and maintain a high
growth trajectory.

BUSINESS OVERVIEW

J Kumar Infraproject's business can be classified into following business verticals:

Business verticals

Business Verticals

Transportation Civil Piling
Irrigation
Engineering Construction

Roads Terminus / Stations Earthen dams
Flyovers Buildings Minor irrigation tanks
Bridges Sports Complexes Spillways
Storm Water Swimming Pools Canals
Drainage Aqueducts
Grade Separator
Pedestrian Subways
ROBs / RUBs
Skywalks
Airport Runways

Source: Company

Transportation engineering
Order book in J Kumar Infraprojects has achieved core competency in transportation engineering
transportation segment segment with construction of flyovers, skywalks, pavement roads, subways,
stands at Rs.10.2 bn bridges, rail over bridges (ROB), rail under bridges (RUB), airport runaways as well
as grade separators. Company's current order book in transportation segment
stands at Rs 10.2 bn. Company has developed expertise in executing flyover
projects in urban areas with its latest techniques such as box pushing as well as
RCC box jacking. It is also carrying out a large number of skywalk projects in and
around Mumbai. Most of the projects executed under this segment are from
government authorities such as MMRDA, PWD, MSRDC and MCGM. Key projects
in the transportation segment are listed below -



n Construction of eastern freeway section from Panjarapol to Chembur
Mankhurd link road by MMRDA worth Rs.1680 mn
n Construction of ROB at Jogeshwari by MCGM worth Rs.1325 mn
n Design and construction of 4 flyovers at Dr Babasaheb Ambedkar Marg by
MMRDA worth Rs. 1519 mn
n Development of pedestrian Sky Walk Bridge (phase 2) for Parel and
Chinchpokali by MSRDC worth Rs.835 mn
n Development of pedestrian Sky Walk Bridge (phase 2) for Naigaon and Grant
Road by MSRDC worth Rs.746 mn
n Development of pedestrian Sky Walk Bridge (phase 2) for Wadala road, Sewri,
Reay road and Sandhurst road by MSRDC worth Rs.626 mn

Civil construction
Civil construction segment for the company includes construction of corporate
Order book in civil segment offices, buildings and transport terminals for airport and railways as well as
stands at Rs.1.7 bn residential projects. Some of the prominent projects undertaken by company in
this segment include construction of new terminus building at Bandra for Western
Railways, office building of Maharashtra State Police Housing and Welfare
Corporation Limited, health club building, game hall and olympic size swimming
pool work for Goregaon Sports Club, commercial building for Goldline Business
Centre at Malad, Mumbai, swimming pool complex and other miscellaneous work
at H.R Johnson Tile Company in Thane as well as construction of residential
quarters for Airport Authority of India Ltd. Key projects under execution in civil
construction segment include -
n Construction of residential buildings under SRA scheme at Goregaon West,
Mumbai for Reddy Builders and Developers worth Rs.707 mn
n Improvement to approach road at village Gundvali, Andheri (E) by Financial
Technologies worth Rs.260 mn.

Irrigation
Order book in irrigation In the irrigation segment, company's focus area has been construction of earthern
segment stands at Rs.1.04 bn dams, tanks, spillways, canals, and aqueducts. It has successfully completed
projects in and around Vidharbha region of Maharashtra as well as for Chilwadi
Branch Canal and Yavatmal. Key projects under execution in irrigation segment
include -
n Construction of barrage with gate erection and other works on Wardha River
by Pimpri Irrigation Division worth Rs.926 mn
n Construction of earth work and structures of Bembla Main Canal by Bembla
Canal Division, Yavatmal worth Rs.79 mn
n Construction of earth work and structures of Bembla Main Canal by Bembla
Canal Division, Yavatmal worth Rs.65 mn
n Construction of earth work of dam, excavation of approach and tail channel
and other works by Vidharbha Irrigation Development Corporation worth Rs.77
mn



Piling
Company has become of the key players in the piling segment and has executed
Order book in piling segment piling projects for major real estate and infrastructure projects on turnkey basis. It
stands at Rs.130 mn has also executed piling works for private players such as Gammon India, Indiabulls
real estate, HDIL, Punj Lloyd, Sheth developers, L&T, SMC Infrastructure etc
Though the project size in piling segment is quite small, company enjoys excellent
margins in this segment. J Kumar Infraprojects also owns specialized piling rigs
such as hydraulic piling rig and can also rent these rigs to other players for specific
projects. Company is executing a large number of projects in the piling segment.
Key projects are listed below-
n Rotary piling work for Richa Realtors worth Rs.45 mn
n Boring cost in situ bored poles of 1000 mn dia by L&T worth Rs.31 mn
n Boring cost in situ bored poles of 1200 mn dia by M. Venkat Rao Infra Projects
Pvt Ltd worth Rs.39 mn
n Boring of pile by IDEB Projects Ltd worth Rs.55 mn



INDUSTRY SCENARIO
Government of India has an ambitious target of investing US$450-500 bn for
Infrastructure sector investment
XIth plan infrastructure sector during XIth Five Year Plan. Keeping in view the delays
Sector (Rs bn)
witnessed in past few years, policy makers are aggressively pushing for higher
infrastructure growth to achieve a higher GDP growth. A large amount of funds
Electricity 6,665
are also likely to be invested through public-private partnerships with specific focus
Roads 3,142
on roads, ports, power and urban infrastructure.
Telecom 2,584
Railways 2,618 J Kumar Infraprojects has a significant presence across the Maharashtra region and
Irrigation 2,533 is likely to benefit from state government's plans for infrastructure spending
Water supply and sanitation 1,437 primarily in transportation and civil infrastructure. During budget 2009-10,
Ports 880 Maharashtra government has made a provision of Rs.75.8 bn for irrigation
Airports 309 projects, Rs.24.5 bn for roads and bridges, Rs.2.5 bn for central road fund and
Storage 223 Rs.4.75 bn for NABARD assisted road development. This is likely to be increased
Gas 168 for fiscal 2011. Along with this, Municipal Corporation of Greater Mumbai
Total 20,559 (MCGM) has budgeted Rs.80.9 bn for year 2010-11 for strengthening of civic
Total (US $ bn) (Rs/$ 45) 457 infrastructure which includes water supply, roads, bridges and slum development
projects. MCGM had earlier budgeted a higher amount of Rs.80.9 bn for 2009-10
Source: XIth Five-Year plan documents
but due to delays as well as election schedule, revised estimates now stand at
Rs.73.7 bn for 2009-10.

MCGM Budget estimates
(Rs mn) 2008-09 2009-10 2010-11
Particulars Actuals BE RE BE

Strengthening of civic infrastructure 48,259 80,939 73,700 80,899
Upgradation of social infra and amenities 17,611 33,219 26,518 38,727
Cleanliness of city environment 8,081 14,625 11,263 16,415
City beautification and creation of tourist places 1,776 3,362 2,529 4,050
Disaster management 1,273 3,801 2,379 3,521
Improving civic services 854 2,727 2,416 1,858
Institutional improvement and reforms 349 2,819 941 2,875
Social welfare 2,294 4,279 3,525 3,985
Improvement and management of municipal assets 1,630 3,708 2,220 2,569
Common services and misc activities 32,129 48,256 52,104 49,273
Total 114,256 197,735 177,595 204,172

Source: MCGM Budget documents; BE: Budgeted estimates, RE: Revised estimates

Break up of investments in civic infrastructure as per MCGM budget estimates

Strengthening of civic infrastructure
(Rs mn) 2008-09 2009-10 2010-11 Projects involved
Particulars Actuals BE RE BE

Water drains 9,089 15,318 12,394 12,825 Mithi river development, Brimstowad project
Roads 13,269 15,410 15,254 15,502 Cement concrete roads, Asphalt roads
Bridges 377 2,350 870 2,105 Sky walks, Contribution to MSRDC for flyovers
Water supply 17,690 33,679 34,155 37,594 Middle Vaitarna, Construction of tunnels,
pipelines, water distribution, Tansa main
project, water meters
Sewage disposal 5,854 10,973 7,888 10,943 MSDP (Stage-II)
Upgradation of under developed areas 1,979 3,209 3,139 1,931 Development of slums, Koliwada,
Adiwasi Pada, Gaothans
Total 48,258 80,939 73,700 80,900

Source: MCGM Budget documents



MMRDA has also unveiled its budget for 2010-11 and has given top priority to
public transport projects. The Authority allocated Rs 18.33 bn for Metro and Mono
Rail Projects, Rs 4.93 bn for Mumbai Urban Transport Project, a separate
allocation of Rs 1.11 bn for the construction of flyovers, Rs 7.27 bn for the
Mumbai Urban Infrastructure Project, Rs 5 bn for the Skywalks and Rs.1 bn for
Water Transport in the Budget for 2010-2011.

MMRDA budget allocations - 2010-11
Sr. No. Particulars (Rs mn)

1. Mumbai Metro Railway Project 3800
2. Mono Rail Project 14530
3. Rental Housing Project in MMR 500
4. Mumbai Urban Infrastructure Project (MUIP) 5270
5. Extended Mumbai Urban Infrastructure Project 2000
6. MUTP- Mumbai Urban Transport Project 4930
We expect J Kumar 7. Land acquisition for Land Bank and Growth Centers 3500
Infraprojects to benefit from 8. Skywalk Project 5000
the upcoming projects 9. Mithi River Development Project 1500
especially in irrigation, roads 10. Water Resources Development in MMR 1400
and flyovers segment
11. Construction of Flyovers 1110
12. Redevelopment of Nariman Point 1000
13. Theme Park and Mangrove Park 1000
14. Wadala Truck Terminus 1000
15. Water Transport 1000
16. Modern Infrastructure in Bandra Kurla Complex 900
17. Innovation Park 500
18. Nirmal MMR Abhiyan 500
19. MTHL Dispersal Roads 100
20. Loan to Municipal Bodies / Other organizations 5460
21. Expenditure On Misc. projects, and expenditure on other heads 5820
22. Post R&R amenities 220
23. Human Development Programme 50
24. Multi-Modal Corridor 200
25. Solid Waste Management 120
26. Funicular Railway at Matheran 10
27. Power Generation 10
Total (Rs mn) 61430

Source: MMRDA Budget documents

We thus expect J Kumar Infraprojects to benefit from the upcoming projects
especially in irrigation, roads and flyovers segment.



KEY INVESTMENT ARGUMENT

Experienced player in urban infrastructure especially
transportation segment
J Kumar Infraprojects has developed expertise in past three decades in construction
of flyovers, skywalks, roads, bridges, airport runways. It has also diversified into
We expect company to benefit construction of commercial and residential buildings, railway buildings, sports
from upcoming projects from complexes, and irrigation projects. Company has executed complex projects in
JNUURM and Maharashtra urban areas with its latest techniques such as box pushing as well as RCC box
Government jacking. We expect company to benefit from the upcoming projects in urban
infrastructure through JNUURM as well as from Maharashtra government and
grow its order book rapidly going forward.

Geographical concentration to enable high strike rate
The company is focussed in Maharashtra region. However, with an experience of
more than three decades, company has achieved an excellent rating profile with its
key clients. Company is registered as Class I A contractor with Public Works
Geographical concentration to Department "PWD", Government of Maharashtra and Group A, Class I A with
enable company maintain a Vidharbha Irrigation Development Corporation "VIDC", Nagpur. It is also
high strike rate in bagging registered with MCGM under AA or A category for buildings, flyovers, roads,
future projects sewage and water supply related projects. Company has been able to execute
projects across 20 different locations in Mumbai itself and has remained the
preferred player in the urban areas. This enables the company to maintain a high
strike rate in bagging the projects. We expect these high ratings of the company
to enable higher order inflow going forward also.

Strong order book and increasing ticket size
Company has a current order book of Rs 13 bn that provides revenue visibility for
Order book of Rs.13 bn is next 1.5 years. It is diversified across transportation (78%), civil (13%), irrigation
diversifed across transportation (8%) and piling (1%). Company has grown its order book from Rs.4.7 bn in FY07
(78%), civil (13%), irrigation to Rs.13 bn till date in FY10. We expect order book of the company to grow at a
(8%) and piling (1%) CAGR of 17% between FY09-FY11 with transportation segment continue to
contribute a significant proportion going forward also.
Order inflow for the company has also been robust in the current fiscal till date
and stood at Rs.6 bn in 9MFY10. Management expects to close the order book at
Rs.15 bn for FY10. We expect order inflow to increase going forward along with
increase in average ticket size post recent fund raising by the company. Bidding
capacity of company has increased to Rs.6 bn currently as against Rs.2-3 bn last
year. With its enhanced networth, company is targeting to increase average ticket
size to Rs 700-800 mn from current Rs 350 mn since it helps in achieving
economies of scale as well as provides higher revenue visibility.

Order book trend (Rs bn) Current order book breakup (%)

R
CAG Irrigation
18 17% 16.5 Piling
8% 1%
15 14.0
12.2 Civil
12 13%
9 7.4

6 4.7
Transporta-
3
tion
0 78%
Nov, 2007 2008 2009 2010E 2011E

Source: Company, Kotak Securities - Private Client Research Source: Company



Excellent operating margins
Company has been able to maintain operating margins above 15% in past few
years which is better than industry average. Going forward also, margins are
expected to remain in the range of 15% led by selective bidding by the company,
fleet of owned equipment, no subcontracting as well as geographical
concentration. Most of the contracts in J Kumar's order book are star rated
contracts where there is no risk of increase in commodity prices.
We expect operating margins Company owns a large fleet of equipments which helps in maintaining margins at
for the company to be around higher levels. It has 18 hydraulic rigs, 15 excavators, 40 dumper and tripper, 13
17% and 15% for FY10 and JCB's, 27 transit mixers as well as 20 generators among the large equipment pool.
FY11 respectively Company also has 5 RMC plants with an average production capacity of approx
180 cubic meter/hr for in-house requirements. These plants are strategically
located at Bhiwandi, Goregaon, Wadala and Pune thereby reducing overall cost of
transportation.
Another advantage with the company is related to no subcontracting. Company
doesn't sub contract its work and also doesn't bid for sub contracted work from
larger players. Along with this, geographical concentration enables the company
to reduce the lead time for mobilization of manpower and equipment. This
strategy helps the company in maintaining higher margins as against industry
peers. We expect operating margins for the company to be around 17% and 15%
for FY10 and FY11 respectively.

Reputed client base
Company has always worked with cash rich clients, most of which include
Company has always worked government, semi government and select private clients. Out of the total order
with cash rich clients which book of Rs 13 bn, transportation projects constitute around Rs 10.2 bn and these
helps in maintaining contracts are primarily from government agencies such as MMRDA, MCGM,
efficiency in working capital Mumbai Rail Vikas Corporation, Maharashtra State Road Development
management Corporation Ltd etc. With these clients, company doesn't have to face delay in
payments. Thus, with a reputed client base as well as high rating profile, we
expect company to get repeat orders going forward as well as maintain efficiency
in working capital management.

Client profile table
Segments Key clients for which J Kumar Infraprojects has worked

Transportation MMRDA, MRVCL, MSRDC, MCGM, Pune Municipal Corporation, Thane
Municipal corporation, ONGC
Civil MCX, PWD-Govt of Maharashtra, Western Railways, Thane Municipal
Corporation
Irrigation Vidharbha Irrigation Development Corporation, Pimpri Irrigation Divi
sion - Yavatmal, Bambla Canal Division - Yavatmal
Piling HDIL, Shapoorji Pallonji, Indiabulls Real estate, Rustomjee, Sheth
Developers, Punj Lloyd, L&T, Gammon, Era Infra, ITD Cementation

Source: Company



Successful joint ventures with larger players to bag large sized
projects
J Kumar Infraprojects is capable of executing complex projects but in order to bid
We expect company to for large sized projects, company had entered into joint ventures with other
continue to enter into joint players to meet experience and networth criteria. It has managed to bag 12
ventures going forward also projects worth Rs.9.7 bn in joint venture with other players. But in these JVs
to bag large sized projects bidded jointly, execution is being carried out by J Kumar Infraprojects in 10
projects worth Rs.7.8 bn while in others, company is the lead partner. We expect
company to continue to enter into joint ventures going forward also to bag large
sized projects.

Projects in joint Venture
Joint Ventures Type of arrangement Size (Rs mn)

Ameya Developers and JKIL 50:50 partnership 465
JKIL and Chirag Constructions JKIL lead partner; 55:45 611
NCC and JKIL JKIL lead partner; 50:50 1519
JKIL and Mukesh Brothers JKIL lead partner; 80:20 444
JKIL and RPS Infraprojects JKIL lead partner; 51:49 674
JKIL, Chirag Cons and Babulal Uttamchand Co JKIL lead partner; 51:24:25 556
JKIL, Chirag Cons and API Constructions JKIL lead partner; 51:24:25 663
JKIL, Chirag Cons and Jekin enterprise JKIL lead partner; 51:24:25 754
NCC and JKIL NCC lead partner; 60:40 1314
JKIL and RPS Infraprojects JKIL lead partner; 51:49 1326
JKIL, Chirag cons and Navdeep Constructions JKIL lead partner; 51:24:25 473
Siva Engineering Construction and JKIL JV with 50:50 sharing ratio 926

Source: Company

Recent fund raising to fund working capital requirements
Fund raising through QIP and J Kumar Infraprojects had raised funds to the tune of Rs 555 mn from a QIP issue
warrant issue to enable to meet its working capital as well as capex requirements. This resulted in an issue
company to bid for large sized of 3.07 mn shares at an average price of Rs 180 per share. Along with this,
projects going forward company had also allotted 4 mn warrants to promoters in FY10 at an average
price of Rs 60 per share. These warrants have been converted into shares in
Q2FY10. Thus, we expect overall networth to get enhanced to Rs 2902 mn in
FY10 as against Rs.1508 mn in FY09. This is likely to help company fund its future
working capital and capex requirements and would also enable company to bid for
large sized projects going forward.

Funds raised in recent past
Warrants
No. of warrants (mn) 4
Price of conversion (Rs) 60
Amount (Rs mn) 240
QIP
No. of shares (mn) 3.076
Price per share (Rs) 180
Amount (Rs mn) 554.6

Source: Company



High growth trajectory for revenues as well as profits
We expect revenues and Company has been on a high growth trajectory since past few years and has
profits to grow at a CAGR of managed to grow revenues by 90% and profits by 69% in FY09 over FY08. With a
65% between FY09-FY11 robust order book and shorter execution cycle, we expect revenues of the
company to grow at a CAGR of 65% between FY09-FY11. Net profits are
expected to grow at a CAGR of 65% between FY09-FY11 primarily led by
excellent revenue growth and healthy operating margins.

Revenue growth trend (Rs mn) Profit growth trend (Rs mn)

12000 1000

GR
CA GR
9000 % 750 CA
65 %
65

6000 500

3000 250

0 0
FY08 FY09 FY10E FY11E FY08 FY09 FY10E FY11E

Source: Company Source: Company

Return ratios (%) Better leverage and excellent ROE, ROCE
J Kumar Infraprojects has a very comfortable average debt equity ratio of 0.3x
ROE (%) ROCE (%) currently. This enables the company to raise further funds quite easily and fund
44 future working capital and capex requirements. Along with this, company's RoE
and RoCE are also much better than the industry peers and stand at 27% and
38 37% respectively for FY11.
32
Lower working capital cycle as against peers
26
J Kumar's working capital cycle is much lower than the industry. Average working
20 capital cycle for FY09 stands at 60 days with average debtors days at 20 and
FY09 FY10E FY11E inventory days at 19. Company has been able to maintain its working capital on
the lower side due to timely execution of projects as well as excellent client base
Source: Company, Kotak Securities - Private which includes primarily government and semi government departments. Along
Client Research with this, excellent operating margins also enable the company to maintain
positive operational cash flow. Due to its continued focus on Maharashtra
Return ratios (%) government backed projects as well as shorter execution cycle, we expect overall
Debt (LHS - Rs mn) working capital cycle to remain on the lower side as against peers.
D/E (RHS)
1000 0.45
Future strategy
J Kumar Infraprojects will continue to focus on increasing the order book across
750 0.38
diverse segments. It would also target larger ticket size projects along with
500 0.30 diversification across other states. Company would continue to expand its fleet size
inline with the order book growth and would also continue to leverage on the
250 0.23 strategic alliances with other players to enhance pre-qualification strengths across
0 0.15 upcoming projects. Thus, we expect company to maintain its high growth
FY09 FY10E FY11E momentum and excellent margins going forward

Source: Company, Kotak Securities - Private
Client Research



Attractive valuations
At current price of Rs 199, stock is trading at 8.3x and 6.2x P/E and 4.2x and 3.0x
EV/EBITDA multiples for FY10 and FY11 respectively. Stock is trading at very
attractive valuations and doesn't factor in high growth in revenues and profits
expected for the company going forward. We value the company at 8x FY11
estimated earnings and arrive at a target price of Rs 260 on FY11 estimates. Our
target valuations are based on 47% discount to the core business valuations of
larger and diversified players to factor in smaller size and geographical
concentration of J Kumar Infraprojects. We thus recommend BUY on the stock.

KEY CONCERNS
n Slowdown in order inflows - Any kind of slowdown in order inflows is likely
to impact order book growth as well as revenue growth for the company going
forward.
Key concerns could be n Delays in execution - Execution delays related to land acquisition as well as
slowdown in order inflows, environmental clearance may impact project completion schedule and thereby
delays in execution and client impact revenue growth.
concentration
n Client concentration - Company has 93% of contracts from government
clients. Any reduction in state budgetary allocation for infrastructure sector is
likely to impact the company adversely.

RELATIVE VALUATIONS
As compared to its peers, J Kumar Infraprojects is currently trading at very
attractive valuations. Stock is currently not factoring in high growth expected in
revenues and profits going forward. Along with this, company also has superior
return on equity as compared to its peers. It is also efficient in terms of working
capital management with low debtor and inventory days.

Peer valuation
Price P/E (x) EV/EBITDA (x) ROE (%)
Companies (Rs) FY10E FY11E FY10E FY11E FY10E FY11E

J Kumar Infraprojects 199 8.3 6.2 4.2 3.0 30.1 27.0
Unity Infraprojects 584 10.0 8.5 6.3 5.8 17.2 16.2
Pratibha industries 362 12.0 8.3 4.3 3.3 20.0 22.0
Era Infra 217 20.5 16.6 10.9 8.6 18.0 17.0

Source: Kotak Securities - Private Client Research



9MFY10 REVIEW
Company's revenues for 9MFY10 registered a growth of 94% vis-à-vis 9MFY09
led by strong order book. Operating margins also remained strong at 18% for
9MFY10 as against 15% for 9MFY09. Though operating margins for Q1FY10 and
The company registered an Q3FY10 remained in the range of 15%, sudden spurt in the margins in Q2FY10 to
excellent performance in 24.5% led to overall higher margins in 9MFY10. In Q2FY10, company had to
9MFY10 with 94% growth in include Rs.146 mn additional income during the course of search carried out by
revenues and 133% growth in Income Tax department which had resulted in jumping up the margins.
net profits over 9MFY09
Depreciation charges increased inline with higher capex this fiscal. Healthy revenue
growth and excellent operating margins led to a 133% growth in the net profits
for 9MFY10.

Financial performance
(Rs mn) 9MFY10 9MFY09 YoY (%)

Net Sales 4959 2561 93.6
Expenditure 4074 2173 87.4
EBITDA 885 388 128.2
EBITDA margin (%) 17.9 15.1
Depreciation 107 70
EBIT 779 318 144.8
Interest 75 60
PBT (exc other income) 704 258 172.4
Other Income 36 56
PBT 740 315 135.2
Tax 251 105
Tax (%) 34.0 33.5
PAT 488 209 133.4
NPM (%) 9.8 8.2
Equity Capital 278 207
EPS (Rs) 17.6 10.1

Source: Company

FINANCIAL OUTLOOK
n Order book - We expect order book of the company to grow from Rs 12 bn in
FY09 to Rs.14 bn in FY10 and Rs.16.5 bn in FY11 primarily led by order inflows
in the transportation and irrigation segment. Management expects the closing
order book for FY10 to be around Rs.15 bn. We expect order book to remain
skewed towards transportation going forward also.
n Revenues - Revenues of the company are expected to grow at a CAGR of
65% between FY09-FY11 primarily due to lower execution cycle. We expect
transportation revenues to form a major proportion of revenue going forward.
n Operating margins - Operating margins of the company are likely to remain
strong due to no hiring and sub contracting charges. Along with this, company
also has significant proportion of contracts as star rated contracts which
hedges the company against raw material price hikes. We expect operating
margins to be around 17% and 15% for FY10 and FY11 respectively.
n Net profits - With robust order book and strong growth in revenues coupled
with excellent margins, we expect net profits to grow at a CAGR of 65%
between FY09-FY11.



VALUATION AND RECOMMENDATION
n At current price of Rs.199, stock is trading at 8.3x and 6.2x P/E and 4.2x and
3.0x EV/EBITDA multiples for FY10 and FY11 respectively.
n Stock is trading at very attractive valuations and doesn't factor in high growth
in revenues and profits expected for the company going forward.
We recommend BUY on n We value the company at 8x FY11 estimated earnings and arrive at a target
J Kumar Infraprojects with a price of Rs.260 on FY11 estimates. Our target valuations are based on 47%
price target of Rs.260 discount to the larger and diversified players to factor in smaller size and
geographical concentration of J Kumar Infraprojects.
n We thus recommend BUY on the stock.

1 year forward P/E band

280 Share Price 2x 4x 5x 6x 8x

210

140

70

0
Feb-09

Feb-10
Jun-08

Jun-09
Dec-08

Dec-09
Oct-08

Oct-09
Aug-08

Aug-09
Apr-08

Apr-09

Source: Capitaline, Kotak Securities - Private Client Research



FINANCIALS
Profit and Loss Statement (Rs mn) Balance Sheet (Rs mn)
Year end March FY09 FY10E FY11E Year end March FY09 FY10E FY11E

Revenues 4,065 7,113 11,025 Cash and cash equivalents 242 1,197 1,406
% change YoY 90 75 55 Accounts receivable 297 487 755
EBITDA 604 1,209 1,654 Inventories 362 487 755
% change YoY 55 100 37 Others 902 1,224 1,813
Other Income 72 50 25 Current assets 1,803 3,395 4,729
Depreciation 107 147 182 Misc exp. 47 47 47
EBIT 569 1,112 1,497 LT investments 10 10 10
% change YoY 60 96 35 Net fixed assets 1,011 1,114 1,231
Net interest 80 105 137 Total assets 2,870 4,565 6,017
Profit before tax 489 1,007 1,359 Payables 522 546 846
% change YoY 65 106 35 Others - - -
Tax 160 342 462 Current liabilities 522 546 846
as % of PBT 33 34 34 Provisions 331 407 527
Net income 329 664 897 LT debt 485 685 885
% change YoY 69 102 35 Other liabilities 25 25 25
Shares outstanding (m) 20.7 27.8 27.8 Equity 207 278 278
EPS (reported) (Rs) 15.9 23.9 32.3 Reserves 1,301 2,624 3,456
CEPS (Rs) 21.0 29.2 38.8 Total liabilities 2,870 4,565 6,017
DPS (Rs) 2.00 2.00 2.00 BVPS (Rs) 72.8 104.4 134.3

Source: Company, Kotak Securities - Private Client Research Source: Company, Kotak Securities - Private Client Research

Cash Flow Statement (Rs mn) Ratio Analysis
Year end March FY09 FY10E FY11E Year end March FY09 FY10E FY11E

EBIT 569 1,112 1,497 EBITDA margin (%) 14.9 17.0 15.0
Depreciation 107 147 182 EBIT margin (%) 14.0 15.6 13.6
Change in working capital (506) (613) (825) Net profit margin (%) 8.1 9.3 8.1
Changs in other net current assets 174 76 120
Receivables (days) 20.0 25.0 25.0
Operating cash flow 343 723 973
Inventory (days) 19.0 25.0 25.0
Interest (80) (105) (137)
Sales/assets 4.0 6.4 9.0
Tax (160) (352) (472)
Interest coverage (x) 4.1 6.3 6.5
Cash flow from operations 104 265 364
Capex (539) (250) (300) Debt/equity ratio 0.3 0.3 0.2
(Increase)/decrease in investments 175 - -
Dividends (41.5) (55.6) (55.6) ROE (%) 24.1 30.1 27.0
Cash flow from investments (406) (306) (356) ROCE (%) 31.6 39.9 36.5
Proceeds from issue of equity - 71 -
Increase/(decrease) in debt 102 200 200 EV/ Sales (x) 1.1 0.7 0.5
Proceeds from share premium - 724 - EV/EBITDA (x) 7.2 4.2 3.0
Cash flow from financing 102 995 200 Price to earnings (x) 12.5 8.3 6.2
Opening cash 442 242 1,197 Price to book value (x) 2.7 1.9 1.5
Closing cash 242 1,197 1,406 Price to Cash Earnings (x) 9.2 6.6 5.0
Source: Company, Kotak Securities - Private Client Research Source: Company, Kotak Securities - Private Client Research



Research Team
Dipen Shah Apurva Doshi Saday Sinha Jayesh Kumar
IT, Media Logistics, Textiles, Mid Cap Banking, Economy Economy
dipen.shah@kotak.com doshi.apurva@kotak.com saday.sinha@kotak.com kumar.jayesh@kotak.com
+91 22 6621 6301 +91 22 6621 6308 +91 22 6621 6312 +91 22 6652 9172
Sanjeev Zarbade Saurabh Gurnurkar Sarika Lohra Shrikant Chouhan
Capital Goods, Engineering Media, IT NBFCs Technical analyst
sanjeev.zarbade@kotak.com saurabh.gurnurkar@kotak.com sarika.lohra@kotak.com shrikant.chouhan@kotak.com
+91 22 6621 6305 +91 22 6621 6310 +91 22 6621 6313 +91 22 6621 6360

Teena Virmani Saurabh Agrawal Arun Agarwal K. Kathirvelu
Construction, Cement, Mid Cap Metals, Mining Automobiles Production
teena.virmani@kotak.com agrawal.saurabh@kotak.com arun.agarwal@kotak.com k.kathirvelu@kotak.com
+91 22 6621 6302 +91 22 6621 6309 +91 22 6621 6143 +91 22 6621 6311

Disclaimer
This document is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any
other person. Persons into whose possession this document may come are required to observe these restrictions.
This material is for the personal information of the authorized recipient, and we are not soliciting any action based upon it. This report is not to be con-
strued as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the
general information of clients of Kotak Securities Ltd. It does not constitute a personal recommendation or take into account the particular investment ob-
jectives, financial situations, or needs of individual clients.
We have reviewed the report, and in so far as it includes current or historical information, it is believed to be reliable though its accuracy or completeness
cannot be guaranteed. Neither Kotak Securities Limited, nor any person connected with it, accepts any liability arising from the use of this document. The
recipients of this material should rely on their own investigations and take their own professional advice. Price and value of the investments referred to in
this material may go up or down. Past performance is not a guide for future performance. Certain transactions -including those involving futures, options
and other derivatives as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. Reports based on technical
analysis centers on studying charts of a stock's price movement and trading volume, as opposed to focusing on a company's fundamentals and as such, may
not match with a report on a company's fundamentals.
Opinions expressed are our current opinions as of the date appearing on this material only. While we endeavor to update on a reasonable basis the informa-
tion discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. Prospective investors and others are cau-
tioned that any forward-looking statements are not predictions and may be subject to change without notice. Our proprietary trading and investment busi-
nesses may make investment decisions that are inconsistent with the recommendations expressed herein.
Kotak Securities Limited has two independent equity research groups: Institutional Equities and Private Client Group. This report has been prepared by the
Private Client Group . The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating, target
price of the Institutional Equities Research Group of Kotak Securities Limited.
We and our affiliates, officers, directors, and employees world wide may: (a) from time to time, have long or short positions in, and buy or sell the securities
thereof, of company (ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation
or act as a market maker in the financial instruments of the company (ies) discussed herein or act as advisor or lender / borrower to such company (ies) or
have other potential conflict of interest with respect to any recommendation and related information and opinions.
The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or
companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or
views expressed in this report.
No part of this material may be duplicated in any form and/or redistributed without Kotak Securities' prior written consent.
Analyst holding in stock: Nil

Registered Office: Kotak Securities Limited, Bakhtawar, 1st floor, 229 Nariman Point, Mumbai 400021 India.

Jk Infra Mar 2010 from kspcg.research

Recomendados

Recomendados

Más contenido relacionado

La actualidad más candente

La actualidad más candente (16)

Destacado

Destacado (7)

Similar a Jk Infra Mar 2010 from kspcg.research

Similar a Jk Infra Mar 2010 from kspcg.research (20)

Último

Último (20)

Jk Infra Mar 2010 from kspcg.research