Edelweiss Securities : BUY Recommendation on J Kumar Infra ( Target Price Rs. 400 )

Posted by: at 8/26/2016 12:07:00 am

CMP is Rs. 156 and Target Price Rs. 400.

India 26 August 2016: The Mumbai Metro Rail Corporation (MMRC) has signed the contract agreement for Mumbai Metro Line 3 project with various contractors. The corporation has inked agreements with 4 civil contractors, including J Kumar Infra (JKIL), for 6 project packages. This will enable the contractors to claim mobilisation advances and start work post the monsoon season. We envisage significant fillip to JKIL’s execution as the Line 3 project comprises ~50% of the company’s order book. We believe JKIL is the best play on the burgeoning metro rail opportunity in India. The stock trades at an attractive P/E of 11.4x FY16. Maintain ‘BUY’ with target price of INR400.

Event: MMRC had given Letter of Award (LoA) to 5 contractors for 7 packages of the Mumbai Metro Line 3 project worth INR181bn in July 2016. It has now inked agreements with 4 contractors for 6 packages, signaling formal go‐ahead to contractors.  

 Details: MMRC stated that currently preparatory work such as conducting surveys etc., is in progress and it expects work on the project to begin in October 2016 post the monsoon season. With the signing of contractual agreements, contractors will now be able to claim mobilisation advances and commence work on the project.

 Line 3 is the biggest project (INR50bn) for JKIL and forms ~50% of the company’s order book. Commencement of work will boost the company’s execution significantly going ahead. With work on Mumbai Metro Line 7 (INR3.6bn for JKIL) and Line 2 (~ INR13.9bn for JKIL) also expected to pick pace post monsoon, we expect the company’s revenue booking to gain substantial traction going ahead.  

Our view: The agreement signing paves way for commencement of work on the mammoth project. This will be the 6th metro rail contract under execution for JKIL, cementing its position as the premier metro rail player in the country. A strong balance sheet (net debt: equity at 0.1x), robust revenue visibility (book‐to‐bill at ~7x) and niche presence in the urban infra space render JKIL our preferred pick in the EPC space. The stock trades at an attractive P/E of 11.4x FY16. We maintain ‘BUY’ with target price of INR400.
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