An Important Player to Ride on Indian Urban Infrastructure Landscape
We initiate coverage on J Kumar Infraprojects Limited (JKIL) with a BUY recommendation and a Target Price (TP) of Rs 800/share, implying an upside of 25% from the CMP. We believe JKIL, with its substantial order book, formidable market position, experienced management team, and sound financial standing, is poised to capitalize on the long-term structural changes in the infrastructure sector. These changes are being driven by the government’s emphasis on infrastructure development and the emergence of new opportunities in the construction space.
Investment Thesis
Robust order book to drive growth. As of 31st Dec’23, the company’s orderbook stands at Rs 16,774 Cr, reflecting revenue visibility of 2-2.5 years. The order book is diversified, with 34% belonging to Elevated Corridors & Flyovers, 25% to Roads & Road Tunnels, 16% to Elevated Metros, 13% to Underground Metros, 7% to Water projects, and 5% to Civil & other projects. This diversification indicates JKIL’s involvement in various segments of the infrastructure sector, contributing to its resilience and stability. Due to the company’s ongoing efforts and expertise, it has achieved a prominent position among the top 5 EPC companies capable of undertaking underground metro projects. We estimate JKIL to deliver healthy Revenue/EBITDA/PAT growth of 15%/18%/19% CAGR over FY24-FY26E backed by its strong and diversified order book as well as emerging opportunities.
Government’s support to drive infrastructure development
The government has made a commitment to allocate Rs 11 Lc Cr in the Interim union budget 2024-25 for the infrastructure sector, taking into consideration its vital contribution to economic growth. The allocation for Roads & Railways has been raised to Rs 2.78 Lc Cr and 2.55 Lc Cr in the interim budget 2024-25. To increase the ambit of the metro rail system across the country, the government had also earmarked Rs 19,518 Cr for Metro Projects in last year’s budget. This higher allocation demonstrates the government’s commitment to achieving inclusive and sustainable urban development as well as to modernising and improving the efficiency of Indian Railways, which stands as one of the most extensive railway networks in the world. Furthermore, the increased allocation to the Ministry of Road Transport & Highways reflects the government’s emphasis on improving infrastructure, connectivity, and safety on roads. All these initiatives will positively impact the growth profile of incumbents like JKIL.
Established track record of timely project execution
JKIL has a proven track record of successfully undertaking and timely executing large and complex projects, including notable projects such as the Mumbai Metro, Delhi Metro, JNPT, and Dwarka Expressway. The company is recognised for its scale, technical intricacies, and expertise in managing such projects. This combined with its meticulous planning and execution capabilities has allowed it to deliver outstanding results. The company owns and operates a remarkable fleet of eight Tunnel Boring Machines (TBMs), one of the highest in India, enabling it to undertake and execute underground projects more efficiently and with exceptional precision.
Healthy financial position supported by extensive promoter experience
The company has undertaken various steps to improve its operating efficiency to support its margins. These include Individual Profit Centers, Centralised Planning & Monitoring Group, and Appointing KPMG as consultants for revamping SOPs.The company has a robust and seasoned leadership team that drives its success. Its strong industry expertise and extensive experience provide strategic direction and ensure effective decision-making across all levels of the organisation’s projects. With superior order inflows, better execution prowess, and geographical clustering of projects, we expect the company to maintain and improve its margin profile in the range of 14.5% – 15.5% over FY24-26E.
Valuation & Recommendation – Initiate with BUY
JKIL remains one of the most established EPC contractors and will continue to benefit from its healthy order book position, strong execution capabilities, and healthy financial position. We estimate JKIL to report Revenue/EBITDA/APAT CAGR of 15%/18%/19% respectively over FY24- FY26E, supported by its robust and diversified order book, healthy bidding pipeline, encouraging new order inflow, emerging opportunities in the construction space, and execution prowess. Currently, the stock is trading at 13x and 11x of FY25E and FY26E EPS. We initiate coverage with a BUY rating and value the company’s business at 13.5x FY26E EPS to arrive at a target price of Rs 800 /share. The TP implies an upside potential of 25% from the CMP.
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