Buy This Small Cap Construction Stock For 72% Upside: HDFC Securities

JMC Projects (India) Ltd is a small-cap construction firm with a market capitalization of Rs 1,555.64 crore. The firm specialises in constructing and incorporating terrains and cityscapes, as well as roads, expressways, bridges, flyovers, townships, tall buildings, hospitals, industrial units, and power plants, among other things. Following the release of the company's Q3FY22 statistics, HDFC Securities issued a buy recommendation on the stock. The stock is now trading at Rs 94.00 as of 3:30 p.m. IST on February 18th, and the brokerage has set a target price of INR 162, representing a 72.34 percent growth over the current market price.

Q3FY22 results

The brokerage has said that the company's "Revenue: INR 13.4bn (+26.5%/+2.1% YoY/QoQ, 1.2% beat). EBITDA: 1.2bn (+27.5%/+50% YoY/QoQ, 5.8% beat). EBITDA margin: 9% (+7/+249 bps YoY/QoQ, vs 8.6% estimate). Exceptional item: Loss of INR 876 mn on account of (1) INR 478mn (vs INR 1.8bn in Q2FY22) of additional provision for expected credit loss on Kurukshetra Expressway. (2) INR 398mn (vs Rs 1.1bn in Q2FY22) of additional shortfall provision on same. Interest cost: INR 319mn (+19%/+15% YoY/QoQ). Reported loss was at INR 193mn vs expectation of INR 370mn profit. APAT: INR 464mn (+81%/-43% YoY/QoQ, 26% beat owing to higher than expected EBITDA margin and other income)."

As per HDFC Securities "JMC received orders of INR 99.8bn during 9MFYTD, taking the OB (ex INR 13bn L1 orders) as on Dec-21 to an all-time high of INR 191.9bn (~5.2x FY21 revenue). JMC has given an order inflow guidance of INR 120bn for FY22 and INR 70bn for FY23. We expect growth momentum to pick up from Q1FY23 once these orders move into execution."

The brokerage has also highlighted that the company's "Standalone net debt decreased to INR 6bn from INR 7bn as of Sep-21. The terms of restructuring of Wainganga expressway is under discussion with lenders and the sale of Vindhyachal assets would be completed by Mar-22. JMC has written off its investment in the KEPL project, invoking the force majeure clause while pursuing claims and termination payments against the NHAI. Total loss funding for FY22/23 is pegged at INR 1.1/0.1bn. JMC will incur INR 0.7bn on major maintenance on the BOT portfolio in FY23 through equity infusion."

Buy for a target price of INR 162 per share

HDFC Securities has claimed that "JMC Projects (JMC) reported a loss of INR 193mn on account of an additional provision of INR 876mn on Kurukshetra Expressway project. The company has received lenders' consent for restructuring of Wainganga expressway while Vindhyachal asset sale may be concluded by Mar-22. The FYTD22 order inflow was robust at INR 99.8bn, taking the order book (OB) to an all-time high of INR 191.9bn. Given (1) an all-time high OB (~5.2x FY21 revenue); (2) potentially stronger balance sheet, post-restructuring of BOT assets by Mar-22; and (3) likely growth outperformance on the back of robust order backlog, we maintain BUY with a revised target price of INR 162 (11x Dec-23E EPS). We change our FY22/FY23/24 EPS estimates by (22)/0.4/(3.6)%."

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.