Buy J Kumar Infra; target of Rs 614: CD Equisearch

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26 Aug, 2025 12:21

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JKIL's profit before tax in Q3FY15 grew at the slowest pace (+13.5%) in four quarters as poor order execution hinder revenue recognition. Sales mirrored trends in PBT (sales up just 11.2%) for long spells of rainfall in Delhi and Rajasthan put brakes on work orders of Delhi Metro project. But thanks to strong execution of orders in the first half, revenues shot up by startling 28.4% in first nine months. Supported by record operating margins, earnings climbed 27.1% in 9MFY15 with net profit margins at 7.1%, nearing past four year average of 7.4%; management normally targets projects with 7% net margins.

Yet order book has not grown vigorously in last few years as manifested by sliding order book/ sales ratio: 2.7 in FY14 from 3.8 a year ago; poised to decline further this fiscal. Notwithstanding incremental order execution of just over Rs 200 crs in the first nine months, outstanding order book (based on work orders) of Rs 3200 crs (L1: Rs 1528 crs) has barely grown since fiscal ended March 2014.

JKIL bagged orders worth Rs 353 crs last quarter, including work order for construction of elevated viaduct from Vastral Gam to Apparel Park worth Rs 278 crs from MEGA, Ahmedabad (read: Ahmedabad Metro Project) and for building pre-cast arch bridges for costal road connectivity in Navi Mumbai from CIDCO (value: Rs 75 crs).

JKIL expects its order inflows to grow manifold next fiscal buoyed by surfeit of metro rail orders, particularly of Mumbai, Ahmedabad and Delhi (Phase IV). Due to its allegiance to the north western part of country, JKIL would abstain from bidding for metro rail projects in Kochi, Chennai and Bangalore as and when they come up for tendering.

The stock currently trades at 15.1x FY16e earnings and 12x FY16e earnings. Given JKIL’s ability to execute complex infrastructure projects and report reasonably strong earnings growth, the stock merits a buy recommendation revised target of Rs 614 (previous target: Rs 462) based on 14xFY17e earnings.

"JKIL's work orders for underground works corridor of Delhi MRTS Project of Phase III on Mukundpur-Yamuna Vihar - design and construction of tunnels, stations and ramp between Lalpat Nagar and Hazrat Nizamuddin stations and at Naraina Vihar, Mayapuri and Delhi Cantonment - amounting to Rs 1387 crs has not gone off to a brisk start.; the project is set to be delayed at least a year from its scheduled completion of 42 months. Indeed, JKIL would recognize revenues of no more than Rs 240 crs this fiscal year, far cry from our previous estimate of Rs 450 crs; laxity in order execution prompted us to cut next year tally to Rs 350 crs from Rs 600 crs. Yet it would conclude couple of elevated station projects - on Jahangir Puri- Badli corridor of Delhi MRTS Ph-II project and Rohni Sector 18 & Badi Corridor of Delhi MRTS Phase III project - by the first quarter of next fiscal, still off-target by at least six months", says CD Equisearch report.

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