>J KUMAR INFRAPROJECTS (ANAND RATHI)

High-growth urban infra play; Reiterate buy

■ 49% earnings CAGR over FY09-12. Given steady order inflows and a proven execution record, we raise FY10 and FY11 earnings estimates by 25% and 21%, respectively. We estimate a 49%
CAGR in J Kumar’s earnings over FY09-12.

■ Healthy order book. J Kumar’s Rs14.5bn order book (3.7x FY09 and 3.1x TTM revenues) is a healthy mix of varied projects – transport engineering, skywalks, irrigation, civil construction and piling. It has an average execution period of two years.

■ Superior operating margins. J Kumar’s operating margin (15%) is better than the sector average (10%) given its strengths: geographical concentration, owned machinery and manpower and a strategy of not bidding for sub-contract work. For FY10-12, we estimate it would maintain margins at current levels.

■ Macro growth opportunities… scale up in execution is key. Increase in outlay on infrastructure development would increase order flows to construction companies. J Kumar, with a threedecade long track record in Maharashtra, is in a good position to capitalise on the potential for infrastructure investment.

■ Valuation. We value J Kumar at 7.5x FY11e earnings, a 50% discount to the average of large cap construction companies and a 25% discount to mid cap companies. At the current price of
Rs172, the stock trades at 5.0x FY11e earnings.

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