Buy stocks of J Kumar Infra; target of Rs 219

J Kumar Infra:-

"J Kumar Infra has registered a subdued revenue growth of 2.9% yoy to Rs. 2,110 mn during Q1FY13 primarily due to slower execution of projects. Execution is expected to pick up in the 3rd & the 4th quarter of FY3. Management has guided a topline of Rs. 12bn for FY13.  During the quarter EBIDTA margins went up by 100 bps yoy to 15.8% primarily due to reduction in raw material cost as a percentage to sales by 249 bps yoy to 77.5%. JKIL has backward integration model which has helped them to maintain higher margins. Management has guided a EBIDTA margin of >15% during FY13.  PAT margins for the quarter remained flat at 7.3% yoy mainly due to rise in interest cost as a percentage to sales by 44 bps yoy to 3.1%. Management has guided a PAT margin of >7% during FY13. Average cost of borrowings for the company during the quarter stands at 12-13%.”
“Order book of the company as on 30th June 2012 stands at Rs. 48.4 bn (including L1 order of Rs 8bn) which translates into 5.2x FY12 sales. The order book comprises of transportation engineering - 85%, irrigation - 2%, civil construction - 13% & piling work - 1% as on Q1FY13. Geographical break up of order book stands at Maharashtra - 53%, Delhi - 33%, Rajasthan 11% & Gujarat 3%. Order book from the govertment clients stands at 69% while that from the private clients stands at 31%. Recently the company secured a prestigious award from DMRC for Delhi MRTS project phase III worth ~Rs. 14 bn for design and construction of tunnel by shield TBM, tunnels, stations and ramp by cut & cover method. The order has been secured in JV with China Railway Third Group having 26% stake while the balance 74% stake is held by the company. For this project the company is expecting a EBIDTA margin of ~15% and a PAT margin of ~8-10%. The projects are expected to get completed in ~36-42 months.”

“We expect the company to register a CAGR of ~30% from FY12 to FY14E on the back of healthy order book and strong execution track record. At the CMP of Rs.185, the stock is trading at a P/E of 5.9x & P/Bv of 1.0x to its FY13E EPS of Rs. 31.2 & BV of Rs. 189.5 respectively. We recommend buy and assign a P/E multiple of 7x (20% discount to peers’ average) to its FY13E EPS of Rs. 31.2 and arrive at a target price of Rs. 219 which provides potential upside of ~18%,” says BP Equities research report.