Buy Jyoti Structure: KJMC

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Buy Jyoti Structure: KJMC

KJMC Capital Market research is bullish on Jyoti Structures and has recommended buy rating on the stock. At CMP the stock trades its FY07 earnings of Rs 6.82 by 27.5x and trailing twelve months earnings of Rs 7.6 by 24.64x.

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KJMC Capital Market research is bullish on Jyoti Structures and has recommended buy rating on the stock. At CMP the stock trades its FY07 earnings of Rs 6.82 by 27.5x and trailing twelve months earnings of Rs 7.6 by 24.64x.  

KJMC Research report on Jyoti Structures

Jyoti Structures Ltd (JSL), incorporated in 1974, is one of the leading turnkey solution provider of high voltage power transmission lines and substations. JSL is among very few companies worldwide, which possess the capabilities to execute total turnkey jobs. It has a strong presence in the domestic market, with a market share of around 15%and has extended its operations to around 33 countries in the world. It currently has an installed capacity of 94,000MTPA. We expect it to be one of the biggest beneficiaries of the huge investment expected in power transmission sector. Government of India's ambitious plan to add 100,000MW capacity by 2012 from the present level of 132,000MW and similar trend of investments in transmission and distribution would drive top line and profitability growth for JSL.

nvestment Rationale JSL has proven capabilities and a track record of 27 years in transmission lines business.

The company has executed more than 15,000 circuit kms of high voltage transmission lines since inception. JSL is one of the largest players in transmission line business and we expect it to be one of the biggest beneficiaries of investment in power transmission lines business. JSL's current order book position of Rs20billion, which is 2.1x of FY07 revenue, gives the visibility of revenue for next 1-2 years and considering the investment plans in transmission lines in near future we expect the order book of JSL to swell further.

New JV in Dubai with Gulf Investment Corporation to boost bottom line further - JSL has formed a 30:70 JV (Gulf Jyoti International LLC, Dubai) with Gulf Investment Corporation and it is likely to become operational from September 2007. Gulf Jyoti is installing the power transmission lines capacity of 33,000MT and it can be extended up to 50,000MT. Apart from the profit sharing, JSL will also get 15% management fees for transferring the technology and other assistance to Gulf Jyoti. Gulf Jyoti would focus mainly on the upcoming potential markets like Middle East and North Africa. According to international studies, Middle East and North African markets may witness investments in power transmission lines to the tune of USD 73 billion and USD 29 billion respectively over the period of 2005-2030. We expect Gulf Jyoti will witness good order inflow due to proven background of JSL in terms of technology and implementation of projects and it would drive its top line and bottom line in coming years.

Risks and Concerns

Any slowdown or delay in investment in power transmission segment could impact the growth of the company. With the rising competition, the strike rate for order inflow may witness a decline and could impact the top line growth.

Outlook & Valuation After the amendment in Electricity Act 2003, the power transmission sector has witnessed impressive growth for last 3-4 years. JSL has reported top line growth at a CAGR of 48% and bottom line growth at a CAGR of 116% over a period of FY04-07. At CMP the stock trades its FY07 earnings of Rs 6.82 by 27.5x and trailing twelve months earnings of Rs 7.6 by 24.64x.