Top Brokerage Recommends Buy This Small Cap Construction Stock, Sees Robust 41% Gains

HDFC Securities has given a buy call to JMC Projects (India) Ltd. for a target price of Rs 172 apiece. Considering the estimated target price given by the brokerage, the stock is likely to surge 41% in 12 months. It is a construction company under the Kalpataru Group primarily engaged in EPC and BOOT projects. The Company has constructed landmark highways, flyovers, townships, hospitals, industrial units, power plants, etc. across the country. It is a small-cap company having a market cap of Rs 2,050.96 crore.

Stock Outlook & Returns

The current market price (CMP) of JMC Projects' stock is Rs 122.15 apiece on NSE. The stock is trading near a 52-week high of Rs 126.95 apiece, which was recorded on 11 November 2022. The 52 week low of the stock is Rs 68.10 recorded on 11 May 2022. 

The stock has performed well over the past 5 years. It gave 3.69% in 1 week, 13.15% in 1 month, and 63.3% in 6 months, respectively. Over a year the stock has given 21.3% positive returns. In the past 3 years, it gave 15.02% positive return. In the past 5 years, it has given 24.22% positive returns.

Financial highlights: Revenue

INR 18bn (+35.9/10.8% YoY/QoQ, a 1.1% miss), aided by strong execution in B&F, water, and international projects. EBITDA: INR 1.5bn (+73.2/+9.7% YoY/QoQ, a 1.3% miss). EBITDA margin: 8.3% (+180/-9bps YoY/QoQ, vs. our estimate of 8.4% estimate, led by higher execution, improved business mix and declined cost pressure). RPAT: INR 533mn (-2.3x/+4.7% YoY/QoQ). Exceptional Item: INR 10.4mn towards provision made for expected credit loss against further loans given to Kurukshetra Expressway Private Limited (KEPL), a Joint venture (49.6%) of the company. APAT: INR 541mn (+6.5x/+6.3% YoY/QoQ, a 9.3% miss). JMC has guided for FY23 revenue growth of 20-25% YoY, with EBITDA margin at around 9% (9-9.5% expected in Q4FY23).

Robust order inflows and OB

JMC received orders worth INR 23.8bn in Q2FY23, taking the OB (ex. L1 orders of INR 17bn) to INR 200bn (~3.7x FY22 revenue). Of the total OB, water/B&F/urban infra constitute 42/43/15%. FY23TD OI stands at INR 75bn (~68% of FY23 OI guidance of INR 100-110bn); domestic/international at 87/13%.

Balance sheet cleaning awaited

Standalone gross/net debt increased to INR 11.2/8bn as of Sep'22 vs. INR 8.8/5.7bn as of Jun'22. The total JMC investment in BOOT asset at the end of the quarter is INR 6.5bn, with INR 210mn invested in Q2FY23. On Wainganga Expressway restructuring, the closure is now expected by end of Q4FY23. The ADTC from road BOOT assets in Q2FY23 came in at INR 5mn (+13% YoY).

Slowing inflation to drive margin upside, buy

JMC Projects (JMC) reported revenue/EBITDA/APAT of INR 18/1.5/0.5bn, missing our estimates by 1.1/1.3/9.3%. The EBITDA margin at 8.3% expanded 180bps YoY, due to higher execution, improved business mix and declined cost pressure.

The average daily toll collection (ADTC) from road BOOT assets in Q2FY23 came in at INR 5mn (+13% YoY), owing to increase in traffic. However, the loss funding requirement for the portfolio is INR 700-800mn for FY23 (incl. INR 250-300mn of major maintenance requirement).

On Wainganga Expressway restructuring, the closure is now expected by the end of Q4FY23. The order inflow (OI) in Q2FY23 was at INR 23.8bn, taking the order book (OB) to INR 200bn (~3.7x FY22 revenue).

Standalone gross/net debt increased to INR 11.2/8bn as of Sep'22 vs. INR 8.8/5.7bn as of Jun'22. "As we roll forward to Sep24E earnings, we maintain a BUY rating on the stock, with an increased target price of INR 172/sh," the HDFC securities said.

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.