How J. Kumar lnfraprojects Limited plans to play its infrastructure game

J. Kumar lnfraprojects Limited’s fresh order inflows over the previous few years remained healthy, with orders coming at INR 9,481 crore in last 18 months ending in September 2023.
The company continues to have established track record of operations of more than 4 decades, aided by its strong and experienced management team and demonstrated capabilities while executing relatively complex underground metro projects.

About the company:

J. Kumar lnfraprojects Limited carries out its operations as the civil engineering and infrastructure development company. It has got experience of numerous road works in some of the busiest areas of the city, both in concrete pavement and flexible pavements.

The company has been categorised as one of the few EPC companies which conforms to ISO standards “ISO 9001:2015, ISO 14001:2015 & OHSAS 18001:2007” regarding Quality Management Systems, Occupational Health and Safety Management System and Environmental Management System.

Business model of J. Kumar lnfraprojects Limited

The company carries out its operations as civil engineering and infrastructure development company, which focuses on development of roads, flyovers, bridges, railway buildings, sports complexes, etc. It undertakes foundation work with the help of hydraulic piling for major projects.

It has developed a niche in construction of urban infra projects which includes metros, elevated flyovers, roads & tunnels etc. The company is known for undertaking design and construction projects on turnkey basis which meets its clients’ requirements to effect. It continues to focus on EPC projects and has strong foothold in a range of sectors such as Urban Infrastructure, Transportation Engineering, Piling & Civil Construction etc.

Track record of management

Jagdishkumar M. Gupta

He is the Executive Chairman of the company, who started journey in 1980, with contract of INR 15,000 and who earned INR 2250 of it. Today, he heads an organization employing ~7,500 people and has work orders worth ~INR 14,351.00 Cr.

His hands-on approach and an unshakable faith in his ability to complete project within a particular time frame in most brilliant fashion led the organization to this stupendous rise. The company is now set to create history as and when they initiate works on next leg of DMRC project, that is ~25 meter below ground level and has a length of 13.5 km.

Shri. Kamal J. Gupta

He is the Managing Director of the company who has a background of civil engineering and finance. He has an eye for detail and experience spanning around 2 decades. His expertise is visible in a way he adopts and facilitates new ideas, adopts new technologies and promotes technical innovations.

He initiated segmental construction with Over Head Launcher & PQC (Pavement Quality Concrete) with sensor paver. He is responsible for overlooking projects, handling technical and commercial aspects of this vast empire.

Shri. Nalin J. Gupta

He is also the Managing Director of the company and a commerce graduate who is also a member of Indian Institution of Bridge Engineers. He took charge of the projects in year 1996. He completed several projects such as river bridges, flyovers, segmental bridges, cable-stayed skywalks, etc.  ROBs, structures with box pushing technology, etc.

Financial performance of J. Kumar lnfraprojects Limited

The company has announced its unaudited financial results for quarter and 9 months ended December 31, 2023, with its revenue from operations for 3Q24 growing 15% to INR 1,219 crores in comparison to INR 1,062 crores in 3Q23. EBITDA of the company for 3Q24 went up by 18% to INR 179 crores against INR 152 crores in 3Q23. EBITDA margin for 3Q24 came in at 14.7% in comparison to 14.3% in 3Q23.

PAT for 3Q24 saw an increase of 16% to INR 83 crores against INR 71 crores in 3Q23. PAT margin for 3Q24 came in at 6.8% in comparison to 6.7% in 3Q23. Total order book, as at December 31, 2023, came in at INR 16,744 crores. Order book inter alia consists of metro projects (elevated and underground) making a contribution of ~ 29%, elevated corridors / flyovers contributed ~34%, roads & road tunnels projects made the contribution of ~25% and others contributing ~12%. It has received order worth INR 8,061 crores during 9M24.

It announced strong all-round performance for 3Q24, including revenue growth, improvement in PAT margins to ~6.8% and further strengthening of balance sheet which includes moderation in working capital cycle days to 130 days against 138 days in 2Q24. The company saw largest accretion in order book and saw strong revenue growth during 9M24.

Industry analysis

Infrastructure has been tagged as a cornerstone of any nation’s economic progress and overall well-being of society. Multi-faceted benefits span across economic growth, job growth, connectivity, social development, etc. Strategic investments which will be paid in infrastructure can help in strong growth in country’s GDP.

After following this trend, Indian government finally proposed major capital investments in infrastructure sector for consecutive 3^rd year, which should subsequently result in increasing nation's GDP and increased job possibilities. Over past 8 years, ports and airports saw strong improvement, with roads, railways, and waterways seeing extraordinary expansion.

Union budget 2023-24 led to increased capital investment outlay allocation to INR 10 lakh crore from INR 7.28 lakh crore in 2022-23, exhibiting 37.4% rise. In Union Budget for 2023–2024, Indian Railways was given capital outlay allocation of INR 2.4 lakh crore. This segment has never seen such huge allocation, and this year's trend saw continuation with gross budgetary support of INR 1.37 lakh crore in fiscal 2022–23.

Future prospects of J. Kumar lnfraprojects Limited

Higher economic activity and healthy demand environment in India exhibit that India’s growing momentum should result in huge investments. As per RBI, India should see ~6.5% growth in FY24. Optimistic expectations for manufacturing, services, and agriculture sectors is expected to help this rise. Higher consumer and investor confidence along with quickening of credit growth should improve domestic consumption and investment. Indian government's focus on investing in infrastructure and productive capacity should result in higher employment possibilities, which should help in increasing India’s GDP growth. Collectively, all these factors are expected to support J. Kumar lnfraprojects Limited’s growth prospects given its strong order book, huge order wins, healthy balance sheet profile and strong credit metrics.

Its fresh order inflows over previous few years have remained healthy, with orders to tune of INR 9,481 crore in previous 18 months ending in September 2023.

The company compounded its operating income at ~15.43% in previous 5 years ending in FY23, together with strong operating profit margin, helped by ownership of machines, in-house project execution (minimal sub-contracting), etc. Geographical clustering of project and centralised procurement of raw materials are expected to support the company’s growth profile.

Risks

The company is exposed to order book concentration risk, execution risk, heightened competition, input cost spike risks, etc. There seems to be intense competition in domestic civil construction   industry, which is fragmented in nature. It has made sizeable investments in machineries/asset for project execution, which led to relatively modest asset turnover.

It is exposed to higher concentration risk as its current outstanding order book is concentrated on metro, roads and flyover segment. These segments are forming ~89% of unexecuted order book as at September 30, 2023.

Financial Analysis

J. Kumar lnfraprojects Limited has a strong and healthy financial risk profile as a result of prudent fiscal management and deleveraging of balance sheet. Even though it has recently acquired assets of PSL Limited (85% funding through debt) and the company has capital expenditure plans of ~INR350crore in FY24-25, it continues to expect credit metrics to remain comfortable. Its interest coverage is expected to remain above 6x and DSCR of ~3.0x over medium term.

The company has ROE (%) of ~12.4% in FY23 in comparison to ~10.4% in FY22, exhibiting that it has increased returns to its shareholders.

Shareholding pattern of J. Kumar lnfraprojects Limited

Promoters of J. Kumar lnfraprojects Limited are holding the maximum share in the company at ~46.64% at the end of December 2023. From past few quarters (since September 2022), promoters have been consistently holding the same percentage, exhibiting confidence in the company’s growth prospects. Since promoters are holding a significant portion, this means that their growth objectives are aligned with shareholders.

FIIs are holding ~8.70%, while DIIs have increased their shareholding from ~14.79% in September 2023 to ~16.64% as at December 2023. Finally, public shareholders are holding ~28%.

Valuation and investment rationale

Stock of J. Kumar lnfraprojects Limited is trading at ~17.67x of FY23 EPS, while sectoral average stands at ~24.43x. This exhibits that the company’s stock is trading at deep discount, favoring long position in the stock. Stock price of the company is expected to increase as a result of new order wins, urban capex, healthy balance sheet, etc.

Capital structure of the company remained comfortable, with total outside liabilities to tangible net worth (TOL/TNW) coming at ~0.8x as at September 30, 2023 (while in FY 2023 it was 0.9x) as a result of healthy margins, supporting net worth and limited dependence on external borrowings. Coverage indicators are comfortable, with interest coverage standing at 5.9x and DSCR of 3.4x in 1H24. Strategic impact of government projects should reshape the company’s growth trajectory. Return on capital employed exhibits enhanced efficiency, showcasing advancement to ~17.6% in FY23 in comparison to preceding year’s 15.2%.

Given the company’s operational and financial capabilities, efficient operations, project execution capabilities, reduction of turnaround times for projects and healthy project management capabilities, stock price is expected to increase. Thus, investors should consider going long on this stock.

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