JKUMAR INFRAPROJECTS -- JKIL

JKUMAR INFRAPROJECTS (JKIL)

AS THE NAME SUGGESTS IT IS AN INFRA PLAY AND ITS EXPERTISE IS IN TRANSPORTATION AND PILING RELATED PROJECTS.

COMPANY HAS A DOMINANT POSITION IN  MAHARASHTRA AND WITH UPCOMING PROJECTS LIKE SKYWALKS, FLYOVERS, BRIDGES AS WELL AS IRRIGATION PROJECTS,  THE COMPANY HAS GOOD POTENTIAL TO GROW.

JKIL has bid for projects outside Maharashtra in various states like Gujarat, Delhi, Uttar Pradesh, Punjab, Haryana, Rajasthan and has bid for BOT projects via the JV route.

FINANCIALS:

MARKET CAP AT CMP OF AROUND 195 IS AROUND 550 CRORES.

EQUITY IS 2.78 CRORE SHARES OF RS 10 EACH.

PROMOTERS HOLDING IS AROUND 54% AND PROMOTERS HAVE PLEDGED 14%(OF TOTAL EQUITY)

COMPANY RECENTLY RAISED AROUND 90 CRORES THROUGH QIP AND PREF ALLOTMENT AT A PRICE OF 180 PER SHARE IN FY 10.

In the annual report, the management indicates at a  capex of around 80 crores in next three years which will be met through fund raised through recent QIP and internal accruals.

Year	06	07	08	09	10	Q1FY11	FY 11e	FY12e
Sales	23	113	214	406	770	200	1152	1463
NP	0.7	8	20	33	70	15.9	94.5	121
ROCE	6	30	22	29	41		38	38
DEBT	11	26	38	48	56
EPS	0.6	6.41	9.41	15.9	25	5.72	34	43
EQUITY	12.5	12.5	20.72	20.72	27.8
BV	11	17	56	70	110
OPM	10	15	19	17	18
NPM	3	7	9	8	9	8

Projections for FY 11 and 12 are based on Kotak report. I have conservative estimates of EPS of 30 for FY 11 and 36 for FY 12.

POSITIVES:

EXPERIENCED (THREE DECADES OF EXPERIENCE) URBAN INFRA PLAYER

LOW DEBT AS COMPARED TO OTHER INFRA PLAYERS

HIGH RETURN RATIOS, AS COMPARED TO OTHER INFRA PLAYERS AND HIGH OPERATING MARGINS OF ABOVE 15%

GOOD ORDER BOOK GIVING VISIBILITY TO 1.5 YEARS REVENUES, ORDER BOOK OF AROUND 1500 CRORES AS END OF FY 10

KEY STRENGTHS:  Large fleet of owned machinery and equipment which provides flexibility and efficiency to execute projects with ease.  Local expertise and reduced lead time for mobilization of manpower and equipment, Use of innovative technology to complete complex structures, Covering the length and breadth of Mumbai.

ATTRACTIVE VALUATIONS ( AT 7.7XFY10 AND 6.5X FY11E EPS OF 25 AND 30)

REPUTED CLIENT BASE, ALMOST 80-90% ORDERS ARE FROM GOVT AND SEMI GOVT AGENCIES LIKE MMRDA, MUMBAI RAIL VIKAS CORP, MSRDC ETC WHICH ENSURE TIMELY PAYMENT, AND EFFICIENT WORKING CAPITAL CYCLE

NEGATIVES:

ANY SLOWDOWN IN ORDER INFLOW COULD IMPACT GROWTH

EXECUTION DELAYS MIGHT IMPACT REVENUE RECOGNITION

CLIENT CONCENTRATION—SINCE MAJORITY OF ORDERS ARE FROM GOVT AGENCIES 

ANY CUT IN GOVT ALLOCATION FOR INFRA SPENDING COULD POSE PROBLEMS FOR COMPANY.

TECHNICAL ANALYSIS:

THE STOCK IS CURRENTLY IN A CONSOLIDATION PHASE BETWEEN AROUND 180 TO 210. 

Deccan Chronicle Holdings Ltd.

DCHL CMP 123-124,

Deccan Chronicle Holdings owns 

1. Deccan Chronicle newspaper  -- It is one of the largest selling English daily newspapers in South India. Main income of the newspaper is from advertisements.  Between FY 03 to FY 08 the ad revenues have grown at a CAGR of 87%.  Going forward, the ad revenues are expected to grow by around 12-15% because earlier growth rates were due to launch of new editions in different cities.

2. Deccan Chargers which owns the IPL franchisee. 

3. Odyssey retail chain which is into selling of books and now venturing into eyewear segment. 

4. Sieger solutions which used to handle the company's internet ventures but which ran into troubled waters and has been currently shelved.

Now coming to total market cap of DCHL, at current market price of around 124, the total market cap is close to 3100 crores. 

DCHL enjoys the highest margins amongst peers in its newspaper business. For fy 10 full year, the sales was at around 890 crores and net profits was around 261 crores. EPS for FY 10 was around 10.7.   

For Q1 FY 11, the company posted sales of 231 crores and net profits of 91 crores which is a significant improvement over Q1 FY 10 -- sales at 217 cr and net profit at 77 cr.

VALUATION EXERCISE

DCHL has cash around 591 crores and debt of around 341 cr.

IPL franchisee valuation is a very subjective exercise. Kochi franchisee paid around 1700 crores recently. If one were to consider around 1000 crores for the IPL valuation, then effective market cap comes to (3100-1000) 2100 crores. This includes the newspaper business and the odyssey retail chain which has around 84 stores now and is profitable at the net level since last quarter. 

So effectively the newspaper business is available at around 2100 crores which generates net profits of around 260 crores (for fy 11 expected to be around 320 crores)

The newspaper business is fairly predictable and with improving economy, likely to do much better going forward. 

Hence effectively there seems to be some value in investing in DCHL at current price and this could be a good portfolio bet over the longer term.  Value unlocking from IPL venture and/or Odyssey retail could give further upsides.

Disc: I am invested in DCHL.

MODISON METALS

MODISON METALS

THE COMPANY IS OPERATING IN A NICHE SPACE OF MAKING ELECTRICAL CONTACTS USED IN SWITCHGEARS.  IT HAS THE EXPERTISE AND CAPACITY TO MAKE CONTACTS FOR LOW, MEDIUM AND HIGH VOLTAGE SWITCHGEARS USED IN FACTORIES, POWER PLANTS, HOMES, RAILWAYS ETC.

IT HAS THREE MANUFACTURING LOCATIONS AT MUMBAI, VAPI AND SILVASSA. 

IT CATERS TO CLIENTS LIKE AREVA, ALSTOM. CROMPTON GREAVES, LARSEN, SIEMENS, ABB  AND HAS BEEN APPROVED AS THE LONE SUPPLIER OF AREVA’S GAS INSULATED SWITCHGEARS.   NOT SATISFIED WITH QUALITY OF CHINESE PRODUCTS, AREVA’S CHINA ARM ALSO SOURCES ITS NEEDS FROM MODISON METALS.

THE ELECTRICALS CONTACT BUSINESS IS CUSTOMER CENTRIC AND CONTACTS MANUFACTURED FOR ONE CLIENT WILL NOT SUIT OTHER CLIENTS

THE COMPANY’S MAIN STRENGTH LIES IN ITS ABILITY TO PROCESS RAW BILLETS AND SILVER POWDER AND COPPER INTO CONTACT MATERIAL. THIS NEEDS HIGHLY SKILLED AND TRAINED LABOUR, ALONG WITH THE LATEST EQUIPMENT. PLUS THE COMPANY DOES NOT KEEP ANY OF ITS POSITIONS FOR RAW MATERIALS OPEN AND HENCE IT IS IN A WAY HEDGED AGAINST RAW MATERIAL VOLATILITY.

FINANCIALS

CMP 38  MARKET CAP 123 CRORES  BOOK VALUE 18.76, PROMOTER HOLDING 52.46 %, NO PLEDGING, HNI, FI, OTHERS HOLD AROUND 25%, PUBLIC HOLDS AROUND 22.5 %

DEBT AS ON MARCH 2010 IS 9.96 CRORES  AND CASH ON HAND IS 5.78 CRORES.

A LOOK AT THE LAST SIX QUARTERS

QTR	MARCH09	JUN 09	SEP 09	DEC 09	MAR 10	JUN 10
SALES	16.18	18.85	23.68	25.24	35.85	32
NP	1.77	1.92	1.92	3.18	4.79	3.16

LAST SIX YEARS

YEAR	05	06	07	08	09	10
SALES	42.36	59.73	92.77	117.78	85.69	103.63
NP	4.4	7.19	10.07	14.07	7.91	11.79

LOOKING AT THE ABOVE FIGURES GIVES THE IDEA ABOUT THE STRONG RESULTS THE COMPANY IS PUTTING UP AND NOW IT SEEMS ITS GROWTH HAS ENTERED THE HIGHER TRAJECTORY WITH GOOD MARGINS SINCE LAST THREE QUARTERS.

CONSERVATIVE ESTIMATES WOULD PUT THE SALES AT AROUND 120-130 CRORES AND NET PROFITS AROUND 15-18 CRORES GIVING AN EPS IN EXCESS OF 5 FOR FY 11.

POSITIVES:

1.       COMPANY WITH GOOD BALANCE SHEET AND EFFICIENT  PROMOTERS

2.       VALUATIONS LOOK ATTRACTIVE , STOCK AVAILABLE AT A PE OF AROUND 7.6 (BASED ON CMP OF AROUND 38) ON EARNINGS OF AROUND 5 FOR FY 11.

3.       COMPANY OPERATES IN A NICHE SECTOR

4.       COMPANY SEEMS TO HAVE BUILT A GOOD REPUTATION FOR ITS BUSINESS LOOKING AT RECOGNITION IT HAS GAINED FROM INTERNATIONAL AND DOMESTIC  ELECTRICAL COMPANIES.

NEGATIVES:

1.       GROWTH LARGELY DEPENDENT ON SWITCHGEAR INDUSTRY AND HENCE ANY SLOWDOWN IN IT MAY AFFECT THE COMPANY’S GROWTH

2.       DEPENDENCE ON A FEW CLIENTS FOR ITS BUSINESS (ALTHOUGH THE CLIENTS HAVE BEEN AROUND FOR A LONG TIME AND ARE REPUTED COMPANIES)

3.       ALTHOUGH MOST OF RAW MATERIAL PRICE VOLATILITY  IS PASS THROUGH IN NATURE, THERE IS A TIME LAG AND HENCE Q-ON-Q RESULTS MAY SHOW VARYING PROFIT MARGINS.

TECHNICALS.

THE STOCK RECENTLY BROKE OUT FROM A SHORT TERM TRIANGULAR CONSOLIDATION AT AROUND 30 LEVELS AND RALLIED TO POST A HIGH AROUND 42-43 AND IS CURRENTLY CONSOLIDATING AROUND 37-38 LEVELS.

 THE STOCK IS MOVING IN AN UPWARD SLOPING CHANNEL AND IS TRYING TO BREAKOUT FROM THIS CHANNEL. VOLUMES HAVE PICKED UP DURING THE LAST THREE WEEKS.


disc:  I have the stock in my portfolio and have recommended it on theequitydesk at around 30-32 levels.