J Kumar Infraprojects Ltd - Rs 60.00

Established in 1980, J Kumar Infraprojects Ltd (JKIL) is a civil engineering and infrastructure development company whose primary focus is on development of roads, flyovers, bridges, railway over bridges, irrigation projects, commercial and residential buildings, railway buildings, sports complexes and airport contracts. For smooth functioning, it has broadly divided its project work into four segments namely transport engineering, civil construction, irrigation projects & pilling work. Among these segments JKIL has developed strong expertise in transport engineering space like undertaking design & construction of roads & flyovers on a turnkey basis, widening of highways etc. It is also among the few construction companies implementing innovative construction techniques such as RCC box jacking, volumetric & panelized construction, insulating concrete framework (ICF), flexible concrete pavement technology etc. However JKIL’s operations are largely confined in the state of Maharashtra and that too especially Mumbai. Notably, it is a class IA contractor with PWD, Government of Maharashtra and has been a preferred government contractor over the past years.

Over the years, the company has earned many accolades for timely & quality execution of its projects. Few of its well known projects include Konkan Bhavan Flyover at Navi Mumbai, Ghatkopar Cheddanagar flyover, Aurangabad flyover, Goregaon sports complex, Residential quarters of AAI staff, Bandra Terminus Bldg etc apart from various projects for road widening, irrigation and pilling. Interestingly, JKIL prefers to execute the whole project independently and also ensures to bag the contract directly from the govt agencies and developers. With substantial order coming from govt dept its main and renowned clientele includes MSRDC, MMRDA, PWD, MCGM, Mumbai Rail Vikas Corporation, Indiabulls Real Estate, SMC Infrastructures & Sarthak Developers. Nevertheless, JKIL has also formed strategic alliances with other private contractors like Era Construction, Indiabulls, Nagarjuna etc. with whom it has entered into project specific JVs & subcontracting relationships for specific purposes. Importantly, to complete the project effectively and on time, company owns a large fleet of modern construction equipments like hydraulic piling rigs, putmiester, mobile boom placer concrete pump and stationery concrete pumps, transit mixers, various capacity cranes, poclains, front end loaders, JCBs and tippers. It also has a ready mix concrete plant for captive use as well as to supply to third parties. Of late company has been putting more thrust to expand the lucrative business of pilling and RMC.

As of now, JKIL boasts of having a huge order in hand position of more than Rs 1200 cr to be executed in coming 24 months or so. This is 3x times its FY09 turnover, thereby ensuring strong revenue visibility for coming years. Last fiscal company bagged huge order from MMRDA & MSRDC to the tune of Rs 560 cr for construction of 16 skywalks in Mumbai. Recently, in last couple of months it won another Rs 130 cr order for construction of nallah & Railway Bridge(Jogeshwari) in Mumbai. Importantly, execution across multiple segments has not only enabled JKIL in de-risking its business model, but has also provided a platform to leverage on opportunities emerging from these segments. With massive investment expected to happen in infrastructure segment and govt making higher budgetary allocation, the future of JKIL looks quite promising.

Fundamentally, JKIL has grown at a scorching pace in the last few years. A company which barely did a business of Rs 5 cr in FY05 is today almost Rs 400 cr company. In the last three years it has recorded an impressive CAGR of 150% for sales and 250% for net profit. JKIL was fortunate enough to raise round about Rs 70 cr during Jan 2008 post which the stock market went for a tail spin. Led under the dynamic leadership of Mr Jagdish Kumar Gupta, JKIL has already become a leading infrastructure company of Mumbai and is now aiming for pan India presence. Meanwhile, last week company declared satisfactory result for the March quarter. Its revenue increased by 55% to Rs 148 cr but PAT grew by only 15% to Rs 12 cr due to fall in operating margin. Despite this, for the entire FY09 JKIL recorded 85% growth in topline to Rs 389 cr and 70% jump in bottomline to Rs 33 cr. This translates into EPS of Rs 16 on equity base of Rs 20.70 cr. In order to funds its working capital requirement, JKIL is contemplating to make preferential allotment of 40 lakh share warrants to promoters and other investors. To finalize this company is having a general meeting on 20th May 2009. Based on the current scenario, JKIL is expected to clock a turnover of Rs 525 cr and PAT of Rs 38~40 cr leading to an EPS of Rs 18 on current equity and EPS of Rs 15 on diluted equity of Rs 24.70 cr. Even at a fair discounting by 7x times against FY10E earnings scrip can easily shoot up to Rs 105~110 Rs within a year. Investors are advised to keep accumulating this scrip at sharp declines.

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J Kumar Infraprojects Ltd
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STOCK WATCH

For the latest March’09 Genus power (100.00) reported 30% growth in revenue to Rs 246 cr but PAT fell by 20% to Rs 20 cr on the back of higher interest cost. However for the entire FY09 it managed to clock 6% rise in bottomline to Rs 51 cr on 25% higher sales of Rs 586 cr. Thus it posted an annual EPS of Rs 35 on current equity of Rs 14.80 cr. Importantly company is having an impressive order book position of more than Rs 1000 cr which is almost double its FY09 revenue. Moreover it has participated in tenders of more than worth Rs.1683 cr, out of which it is already 'L-1' bidder in tenders worth Rs.262 cr. Company is amongst the leading integrated metering solutions' providers and the pioneer in implementing AMR (Automatic Meter Reader) technology. It has diversified into engineering construction and currently derives more than 50% from EPC power T&D projects where it provides absolute solutions for power transmission & distribution system. As a step forward, company has also launched IT enabled distribution transformer metering system, feeder monitoring and management system, smart street light management system with value added software application for providing end to end solutions for energy management. But at declines.

IMP Power (60.00) has come out with flying colors for the March quarter. Sales increased by 35% to Rs 53 cr and PAT grew by 30% to Rs 4 cr leading to an EPS of Rs almost Rs 6 for the single quarter. Accordingly it recorded 30% and 10% growth in topline as well bottomline to Rs 139 cr and 9.5 respectively for the nine months March’09. Importantly company has an healthy order book position of approx Rs 125 cr to be executed in next 6 months. Company is engaged in manufacturing of entire range of power & distribution transformers, electrical & digital measuring instruments, testing equipments etc. It has vendor approval from almost all the State Electricity Boards, major turnkey EPC contractors and the only transformer company in India to be in zero sales tax zone enjoying 15 year sales tax holiday which shall continue till year 2012. Secondly, it has achieved backward integration through manufacturing of OLTC & RTCC in house thereby emerging as one of the lowest cost manufacturer of transformers. To cater to the rising demand and increase its market share, company has recently doubled its production capacity from 3600 MVA to 7000 MVA. With this company now list among the top 10 EHV and power transformers manufacturing companies in India. Besides last fiscal, company has also upgraded its Kandivali plant to manufacture complete range of analog meters in addition to high end meters like maximum demand indicator, trivector Meter, multifunctional and kWh Meters. For FY09 ending June’09 it may report sales of Rs 200 cr and NP of Rs 13 cr i.e. EPS of Rs 19 on current equity. A screaming buy.

Recently Transformer & Rectifiers (186.00) reported flat nos for the March’09 quarter. Sales grew by 25% to Rs 133 cr but PAT remained flat at Rs 13 cr due to lower operating margin. But for the full year ending March 2009 its sales jumped up 40% to Rs 425 cr whereas PAT shot up 35% to Rs 44 cr. This translates into EPS of Rs 34 on current equity of Rs 12.90 cr. Thus the scrip is trading at a PE ratio of merely 5.5x times. Company has announced 40% dividend against 20% last year. It is one of the few manufacturers in the country manufacturing the entire range of transformers namely power generation, transmission and distribution transformers, industrial transformers such as furnace transformers, and special transformers such as mobile substation, rectifiers, testing transformers etc. Infact, it is among the largest manufacturer of furnace transformers in India. With an installed capacity of 7200 MVA it has the capability to manufacture transformer upto 160 MVA in 245 kV class. To cash on the boom in power sector, company is setting up a Greenfield plant in Moraiya, near Ahmedabad with an installed capacity of 16,000MVA. The new plant, expected to be operational shortly would be capable of manufacturing transformers upto 756kV class. Interestingly, out of Rs 139 raised thru IPO company has utilized only 95 cr till date and balance Rs 44 cr is still lying in the bank. Investors can safely accumulate this scrip as it will start reporting substantial growth from FY10, as new plant will begin operations by then.

Retail investors are simply selling Bartronics (85.00) as company reported 90% fall in NP to Rs 2 cr against 16.50 cr in the corresponding period last year. But actually it has reported good set of nos. On a standalone basis its sales as well as operating profit shot up 60% to Rs 115 cr & 42 cr respectively. But due to higher interest and depreciation cost it reported flat PBT to Rs 23 cr. Now again company made extraordinarily high tax provision in this single quarter which led to sharp decline in NP. For the entire FY09 it registered 100% growth in revenue to Rs 375 cr and 45% increase in PAT to Rs 47.50 i.e. EPS of Rs 16 on standalone basis. But importantly it has performed much better on a consolidated basis as it clocked a turnover of Rs 583 cr and PAT of Rs 75 cr for FY09 leading to an EPS of Rs 26 on current equity of Rs 29 cr. Hence scrip is trading at a PE ratio of around 3x times which is low for a company which enjoys 90% market share in smart card and 95% in RFID segments. It offers all Automatic Identification and Data Capture (AIDC) solutions and is the only company to offer end-to-end AIDC solution. Having over 1600 clients including blue chip companies, its smart card capacity has been booked for the next two years. Worth a punt at current levels.

Gayatri Projects Ltd - Rs 70.00

Incorporated in 1989, Gayatri Projects Ltd (GPL) a Hyderabad based infrastructure company is engaged in the execution of major civil works including national highways, irrigation projects, mass excavation, bridges, ports, airports and industrial civil works. It has executed various site preparation and grading, construction of roads, drains, ponds, reservoirs and industrial structures for reputed companies like Nagarjuna Fertilizers, Reliance Petroleum, Jindal Vijzayanagar Steel, Visakhapatnam Steel Plant, HPCL, etc. Moreover, it has done specialized works for Indian Railways, Port Trusts and Airport Authorities. GPL also provides design, engineering, procurement, construction and project management services for various infrastructure projects. Although the company has executed various projects in different sectors of infrastructure, its expertise lies mainly in the road and irrigation sectors. However off late GPL has started to de-risk its business model and is aggressively foraying into new ventures like urban infrastructure, real estate development, water transport, power plant setup, airport runway & industrial construction.

Earlier GPL was more of a smaller regional contractor but in the last couple of years it has not only become a bigger player but also undertook projects in various states including Assam, UP, MP, Karnataka, Gujarat, Maharashtra, Orissa etc. It has formed several subsidiaries to execute various projects and has even entered into JVs with some big players like Simplex Infrastructure, DLF, Ion Exchange, Nagarjuna Construction Company, IDFC, and Maytas Infra to enhance its financial and technical qualification. Moreover it has moved up the value chain and is executing five BOT road projects of which four are annuity based and one is tolled based. The total cost of these BOT projects is Rs 2200 cr and is expected to start generating cash flow from March 2010. GPL is having 51% share in each of the four annuity projects, while its share in the toll road project is 40%. In order to focus on BOT segment and smooth execution of projects, company has set up a subsidiary named Gayatri Infrastructure Venture Ltd and has transferred the 5 BOT projects into it. For future growth this subsidiary is targeting to win Rs 2000~5000 cr of orders in next 5 years. On the other hand, GPL has formed a 50:50 JV with the largest real estate developer i.e. DLF group, to develop roads, highways and bridges across the country. To start with, the joint venture would initially look for BOT road projects in Maharashtra, Orissa and Andhra Pradesh.

Apart from road projects, GPL is also executing few irrigation projects and has recently bagged two huge orders worth Rs 2132 cr from AP Govt for construction of canals. The order is to be completed in 4.5 years and for this GPL has formed an 80:20 JV with Ratna Infrastructure. In the water business, the company has tied up with Ion Exchange which will jointly bid for contracts for water and sewerage treatment plants and desalination plants. Besides GPL is contemplating to develop an integrated township along with DLF and is in midst of acquiring around 1,000 acres, close to the Shamshabad international airport. Moreover it is actively exploring the opportunities to get into setting up of Greenfield power plant and bidding for airport runway tenders in foreseeable future. As on date, GPL boast of having a massive unexecuted order book position of Rs 5000 cr against its FY08 turnover of Rs 750 cr. This ensures the strong revenue visibility for next three years. Notably, the order book is almost equally divided between the irrigation & road projects.

However there are few concerns with respect to execution of projects and raising of finance to fund the projects. Incidentally, company’s three of the five BOT projects are in consortium with Maytas Infra whose fate is in doldrums, which may eventually delay the project execution. Secondly company already has a high debt of more than Rs 450 cr (Rs 750 cr on consolidated basis) including FCCB to the tune of Rs 100 cr making it difficult for the company to raise more debt. And with the current market sentiment, raising money thru equity route is equally hard. Third concern is the management’s adoption of aggressive accounting policy by not providing for the loss in one its JV namely IJM-Gayatri. As per unconfirmed reports GPL’s share of loss till date in JV is nearly Rs 80 cr, which is twice of FY08 standalone profits. It is claiming this loss from NHAI and the final decision by NHAI is yet to be taken.

Sarcastically the share price which hit a high of Rs 700 in Jan 2008 tumbled down to Rs 40 in March 2009 before recovering to Rs 70 currently. Fundamentally, GPL has done well and for the nine months ending Dec 08 on a standalone basis, its topline has increased by 40% to Rs 670 cr and PAT has also risen by 15% to Rs 30.50 cr thereby posting an EPS of Rs 30 till date. Accordingly for entire FY09 it may clock a turnover of Rs 975 cr and PAT of Rs 40 cr leading to an EPS of Rs 40 for the year on the current equity of Rs 10.10 cr. Considering the high conversion price for FCCB, they may come up for redemption in 2012. But there is the risk of equity dilution in future; as GPL may again look to raise capital thru equity route once the market sentiment improves. Having a book value of Rs 177 and order book of Rs 5000 cr, aggressive investors can buy at current market cap of Rs 70 cr for handsome gain in short to medium term.

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Gayatri Projects Ltd
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