>JAIHIND PROJECTS LIMITED (HSBC)

We recently met with the management of Jai Hind Projects Limted (JPL). JPL is a Engineering, Procurement & Construction (EPC) company focused on the Infrastructure sector including hydrocarbons (oil & gas) and water. JPL has specialised in layout of cross-country, plant and onshore pipelines. JPL has laid over 10,000 km of pipelines with 4,000 km of Hydro Carbon pipelines.

Key Highlights
• Gas Transport Infrastructure is the key going forward – The Oil & Gas discoveries from RIL, GSPC, ONGC, CAIRN, etc. would require massive transportation Infrastructure within the country (both across the states and cities and within the city/towns). The physical network for expanding the City Gas Distribution & PNG is high on the government’s agenda. The proposed gas pipeline network to be built by GAIL, GSPL and other domestic players is valued at Rs 200bn over the next two years.

• Competition – JPL competes primarily with Punj Lloyd on many projects. The management is of the opinion that it is trying to position itself in the Rs.1bn~Rs5bn space where the economics to operate are superior for them compared to the larger players like Punj Lloyd owing to size.
However, the Infrastructure requirement in the country is massive so as to accommodate a large number of players.

• Superior EBIDTA margins – The margins has improved from 14% to 19% over the last couple of quarters which is on the higher side when benchmarked to the EPC business. The management has sighted two reasons for this – 1. The contribution of the non EPC (services) business to the overall mix has led to higher margins and 2. There was a substantial gap between the award and execution of one of the large orders, during which the commodities collapsed.

• Debt/Equity – The D/E at 1.8x is on the higher side given the nature of the business (EPC). The management however has taken a conscious decision to build captive Assets over the last two years which has made the balance sheet Asset heavy leading to lower Asset turnover.
Moving into FY10 & FY11, with better utilisation of these Assets, productivity would improve leading to improvement in Return on Asset and ROE.

• SAP Implementation & Other Administrative Changes - Strong ERP systems is the key for any growing company. The management is gearing up the company and creating more bandwidth so as to service the intake of large ticket orders efficiently. JPL has also added an office space of
69000Sq.Ft at Ahmedabad. This would not only centralize its functions across the city, but also give the company strength to negotiate the cost of working capital.

• The management is looking to raise funds provided it gets the right price for its equity. This would enable the company to participate and own Asset in water infrastructure space and other projects vide BOT & BOOT mode.

To see full report: JPL