Hold J.Kumar Infra With Target Of Rs 181

J. KUMAR INFRAPROJECTS LTD.Order inflow disappoints; downgrade to HOLD:-  J Kumar results are inline with our estimates, topline grew by 24% at Rs2.5bn vs our est. of Rs2.45bn. Ebidta margin declined by 82bps YoY to 14.2% and was lower than our est. of 15%, largely due to increase in labour cost and higher diesel and steel prices.

Profit grew by 8% YoY to Rs180mn vs our est. of Rs186mn. The company disappointed on order inflow front which during the quarter was at ~Rs1.2bn, which is below our estimate. The current order book stands at~Rs13.1bn (1.5x FY11E revenue) and current L1 is aboutRs4.8bn. The stock has been recently de-rated owing to order inflow concerns, current order book does not comfort us future visibility. Hence, we have cut our FY11 estimate by 6.2%, reduced margin by 50bps to 14.7% to factor in the increased cost and reduced PAT by 11.8% to Rs693mn. We would re-look at our FY12 nos post conference call. We value the company at Rs181 which is 6x one year forward earning of Rs30.2 and we downgrade our rating from ‘BUY’ to ‘HOLD’.

Subdued order inflow

Order inflow during the quarter was subdued at ~Rs1.2bn. Order book currently stands at Rs13.1bn (1.5x FY11E revenue), of which skywalk projects consist of ~20%, flyover ~48%, roads ~24% and remaining ~14% from civil, irrigation and piling works. Currently the company has L1 status of projects worth Rs4.8bn.

Sales Mix

Sales mix for the quarter was skewed towards skywalk at Rs1.2bn. Of the total sales, skywalk contributed 49%, followed by roads at 28%, flyover a mere 9% and remaining 14% from piling and others.

VALUATIONS AND RECOMMENDATION

At CMP of Rs145, the stock is trading at PE of 5.8x FY11E earning of Rs24.9 and 4.6x FY12E earning of Rs31.4 resp. Owing to lower than expected order inflow and lower future visibility we have cut our PE to 6x one year forward earning of Rs30.2 and have reduced our target to Rs181 and downgrade our recommendation from ‘BUY’ to ‘HOLD’.