JMC Projects (India) Ltd Q3FY18 Result Update By Edelweiss

Gaining momentum..

JMC Projects (JMC) is a formidable constructor in South India with three decades of experience in civil construction underscored by well acknowledged expertise in building construction and structural works alongside a wide presence in government infrastructure projects. Post a long period of muted performance, JMC sprung back into the growth mode and reported industry leading growth in the recent three quarters. We believe, JMC will report 17% topline CAGR over FY17-20E and EBITDA margin to likely improve to 11% in FY20E from 10% now. With topline growth, margin improvement and limited investment in BOT projects, we believe RoCE to improve by 500 bps over FY17- 20E to 15.5%. Wemaintain our ‘BUY’ rating with an SOTP based target price of INR 705.

Order book reported at INR 7,500 cr at highest ever level; Order-inflow continued to remain strong

JMC reported a total orderbook of INR 7,500 cr, a 7% growth YoY, but much higher sequentially, as the company had a high order inflow in Q3FY18. The total order inflow for the year stands at INR 2700 cr and current L1 at INR 1400 cr which is substantially above the initial management target of INR 3200 cr of order inflow. It has 62% of the orderbook is from the F&B-private sector and geographically, 93% is from India. We expect the company to have INR 4,000 cr of orderinflow in FY18E.

Superior execution push the revenue growth high; EBITDA Margin to remain stable at 10%

JMC reported an industry leading standalone topline growth of 29% YoY to INR 707 cr in Q3FY18 as projects across all segments started showing traction. EBITDA margin came at 9.9%, 110 bps higher YoY mainly due growth and operating leverage. This is the third quarter of double-digit EBITDA margin for the company and we believe, it will continue to be in an upward trajectory in the medium-long term and likely to reach 11% by FY20E.

Limited BOT Investment with low capex requirement to increase RoCE

JMC’s investment in subsidiaries has catapulted to INR 650 cr over the past four years. Investment in subsidiaries now constitutes 43% of the standalone capital employed of INR 1,500 cr, resulting in a low RoCE. However, management has guided for a limited equity requirement of INR ~15 cr in FY19E accounting to higher cash flow generation due to high traffic growth of ~10% and lower interest costs. Consequently pressure on the balance sheet will likely reduce. We expect standalone RoCE to improve to 15.5% in FY20E as incremental investment required to fund BOT assets will be funded through internal accruals.

Valuation: Maintain BUY with a TP of INR 705

We maintain our bullish outlook on the stock. At CMP of INR 570, the stock is trading at 14x of FY19E EPS. We maintain ‘BUY’ with a target price of INR 705/share.