J Kumar Infraproject : Next Mumbai metro super star?

My blog: https://www.smallcapvaluefind.com/2020/06/j-kumar-infraproject.html

Hi All - I have recently joined VP and glad to be part of this family. I have been in the stock market for the last 10yrs and love to analyze companies fundamentally and specialize in value investing.

I am here to share my analysis and hopefully hoping to get guidance from experienced members to have healthy discussions and debate on stocks.

My USP is my analysis is I have my own models to value stocks and I have shown details of those in the " Valuation as per different methods:" in the blog. This is not available in any research reports and I have used my last 10yrs experience to modify these formulas and models to come up with a quantitative way of showing upside. I usually only make an investment when I see a decent upside so I would love you to get your feedback.

After spending time analyzing the market and selling my recent holding on GHCL at a decent profit, I have recently made an investment in the J Kumar Infra project. I want to share mine below analysis.

History

1980: Started Business
2008: Listed on NSE and BSE
2012: Awarded with DMRC Project worth Rs. 14,072 MN & UPRNNL Project of Rs. 5,190 MN
2015: Awarded with Ahmedabad Metro Project worth Rs. 2,781 MN and Fund raised through QIP of Rs. 4,093 MN
2016: Awarded With Mumbai Metro Projects worth Rs. 67,174 MN

Segments:

• Transportation Engineering i.e Metro rail, flyover, Airport runways, etc.
• Civil Construction: Hospital cum Medical college, Railway terminal and Stations, Sports complex, etc
• Irrigations: Dams, Canals, etc
• Piling: Insitute cast, Precast Piling, etc.

Promoter Holding

• Promoter holding has been at 45.32% in March-20

• Promoter has kept increasing their holding over the last two quarters. Sep-19 Quater was 44.13% while Dec-19 was 44.66% before they increased to 45.32% as of March-20

• Promoters’ latest purchase was on 25th March when the price was ~75 where they purchased 0.4% of the shareholding from the open market.

• The promoter holding is 23% pledged which is a slight concern but when comparing other companies in this sector this has been a normal trend like incase of Dilip Buildcon and IRB Infrastructure which was a similar pledged percentage.

Order Book

• It has an order book close to 11,500cr vs its annual revenue of 3000cr thus almost ~4 times its annual revenue

• The Company has already won orders worth Rs 430Cr with ordering activity to pick up largely 1QFY21 onwards.

Please note that Maharashtra accounts for over 70% of JKIL’s order book which exposes it political risks while the Transportation segment accounts for 90% of the order book.

Financials

• Financial performance has been quite good. It has increased it sales every yeat at a decent rate and its expected to overall report 10% higher sales as compared to 2019

• Net profit like Prior years is expected to be up. The company will have COVID impact to take care of however I believe it should be fine given the strong sales and operating performance of the company.

• The company has been able to generate decent cash flow from operation every year and also using this to pay dividends.

(Refer to the blog for the Financials summary)

• The company has been a consistent dividend payer and has paid a dividend of Rs 17 in the last 10yrs. Given the Price of stock at 87, it’s trading at an attractive dividend yield of 2.6%
  (Refer to the blog for picture)

iquidity

With COVID lockdowns esp on impacted sectors like real estates, airlines, etc, its important to invest in a company where D/E is low while also an entity that has demonstrated good ability to internally generate cash profit to service its obligations.

Among all the peers it has the lowest D/E and yet one of the lowest P/E and good historical growth

In terms of the [Cash conversion cycle]( Given the link of this in case someone wants to learn of this matrix), Cash flow from the operation, the low debt it does stand out, and points enough liquidity in hand. CCC has improved massively from 216 days in FY17 to just 131days in FY 20E.

Valuation as per different methods: : Refer to the blog

You might argue that why not IRB Infra . Well as mentioned earlier that in this industry where Project periods are quite long and esp during COVID times, it’s important for a company to have low D/E than ever before

This has the lowest D/E in the sector and trading at 0.36 P/B times just.

Risk:

1. Last year SEBI probed JK Infrastructure that it might have fabricated the financials but after detailed problem management and the company was cleared. Although they were cleared, such news always pose risk when it comes to corporate governance.

2. The high concentration of order book in Maharashtra and Construction sectors make it’s vulnerable to the political and sector-specific risk

3. High gestation of the construction segment always make things tricky esp due to COVID-19 when it comes to cost control and project execution on time to avoid cancellation and penalty.

4. The company has got high Capex planned which can impact its “free” cash flow although I believe in spite of COVID, its “operating” cash flow will be positive.

Overall its a company with good historical growth, the strong order book of 3.5 times its current Annual sales, Lowest D/E in the Industry, trading at all-time low P/E, and good dividend payment history.

I have invested in this at the current market price of 86 for long term purposes given the above.

Disclosure:

1. I have an investment in this stock so my views might be biased. I request you to take your own judgment call before you make any investment in this name.

2. I am not a SEBI registered analysis so don’t have any recommendation service/Paid service. It’s an educational website that is just meant to share the analysis I do before I invest.

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