J KUMAR INFRAPROJECTS – Kotak Securities Research Report

Kotak Securities are bullish on J KUMAR INFRAPROJECTS and have recommended a BUY with the following investment rationale:

J KUMAR INFRAPROJECTS‘s current order book of Rs 13 bn is diversified across transportation (86%), irrigation (7%), civil (5%) and piling (2%). Current order book provides visibility for next 1.5 years.

Though order inflow in the current fiscal till date has been below our expectations, but J KUMAR INFRAPROJECTS expects order inflow to jump sharply in H2FY11. J KUMAR INFRAPROJECTS is already lowest bidder in Rs 4 bn worth of orders, with projects worth Rs 1.5 bn are likely to be announced soon. These orders in the L1 category are from roads and bus rapid transit system. Along with this, J KUMAR INFRAPROJECTS is also bidding for road BOT project in Rajasthan and expects to bag one to two road projects in this segment by Oct-Nov, 2010. With enhanced networth, J KUMAR INFRAPROJECTS is also prequalified for larger sized projects. J KUMAR INFRAPROJECTS has also been able to increase its average ticket size to Rs 1.5-2 bn now as against Rs 300-400mn earlier. Thus we believe that with strong order pipeline as well as timely execution of projects, J KUMAR INFRAPROJECTS should be able to maintain high growth trajectory. We thus maintain our revenue estimates and expect revenues to grow at a CAGR of 38% between FY10-FY12.

Upcoming opportunities for J KUMAR INFRAPROJECTS

J KUMAR INFRAPROJECTS plans to diversify its presence across several states and is actively looking at upcoming projects outside Maharashtra like Ahmedabad, Baroda, Delhi, Agra, Punjab, Haryana and Rajasthan.

Along with this, J KUMAR INFRAPROJECTS is also planning to enter into micro tunneling where opportunity size could be to the tune of Rs 500 mn to Rs 5 bn and very high profit margins. It will be looking to enter into joint venture with some other player to make foray into micro tunneling business.

J KUMAR INFRAPROJECTS is also in talks with several players for forming a JV for road BOT projects where it will participate equally in the equity stake and would also be carrying out EPC of the project. Thus, once J KUMAR INFRAPROJECTS achieves necessary expertise in executing BOT projects, it will be able to bid for larger projects going forward on its own.

J KUMAR INFRAPROJECTS reported excellent performance during Q1FY11 led by strong execution. Revenues reported 31% YoY growth while operating margins stood at 15.4%. Net profits registered a growth of 28% YoY. This was better than our estimates. Order inflow in Q1FY11 was muted and was only through extension of scope of work in existing projects. But J KUMAR INFRAPROJECTS expects to overcome the slow growth in order inflows seen in H1FY11 going forward