| J. Kumar Infraprojects Ltd (JKIL) focuses mainly on the transport engineering sector, with 85% of the order book accounted for by the transport segment. The company's current order book stands at ~Rs13.6bn with average execution period of 18-24 months. We estimate JKIL would post revenues and PAT CAGR of 33% and 21% respectively during FY10-FY12. The stock trades at FY11 and FY12 P/E of 8.0x and 6.5x respectively. We initiate coverage on the stock with a 'BUY' rating and a target price of Rs277. Key highlights Strong order pipeline boosts confidence: JKIL's bid pipeline currently stands at ~Rs30bn and the company is already L1 (lowest bidder) in projects worth ~Rs4bn. We expect it to see order inflows of ~Rs14bn in FY11 and ~Rs20bn in FY12. Dependence on Mumbai region to reduce: JKIL is aggressively scouting for projects outside the Mumbai region. Most of the new projects would come from other states like Gujarat, Madhya Pradesh, Delhi, Rajasthan, etc. Healthy revenue growth over FY10-FY12: We estimate JKIL would report revenues of Rs10.4bn and Rs13.5bn in FY11 and FY12 respectively, indicating a CAGR of 33%. Given the current order book, we believe most of the revenues would accrue only from the transport engineering segment. High profit margins lead to better return ratios vs peers: The company's profitability and return ratios compare favourably with its peers. Though the increase in geographical diversification would impact its profitability, we estimate JKIL would continue to report a high RoE of ~24% in FY11 and FY12. Strong balance sheet with D/E at 0.2x: The company sustained its debtto-equity ratio at ~0.2-0.3x, despite posting a CAGR of 89% over FY07-FY10. We do not expect any equity dilution (at least in the coming two years), even if JKIL forays into the BOT segment. Valuation: The stock trades at FY11 and FY12 P/E of 8.0x and 6.5x respectively. In our view, the current valuations are attractive and the new order inflows would be the key trigger for the stock's performance. We value the stock at a target P/E of 7.5x FY12 earnings, arriving at a target price of Rs277/share. Thus we initiate coverage on the stock with a 'BUY' rating. |
JKIL Infra: Transporting Ahead
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