JMC Projects

Stock Opportunities
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Posted on behalf of Hitesh Patel, of Hitstocks fame

JMC projects-- cmp 153-- promoters took pref offer at around 207 back in 2010 and raised their stake. Subsequently they made open offer to acquire 52.8 lac shares at 207 and could get only 16.58 lac shares. Now there is an announcement on bse which mentions that they have a total of 67% stake wherein they got around 16.58% stake thru open offer and earlier their stake was at around 50%. From the look of things it looks like company wants to delist the company so at cmp of around 153, risk looks low. This could be a situational investment wherein if we hold it for around 6-8 months, the way things are going about, there could be a delisting offer and I dont think they would be miserly for rest of the stake if they want to delist-- effectively I expect minimum of 207 Rs per share. So in effect there seems to be a safe 30% upside from hereon.

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Hindu Business Line story, Sunday Dec 19, 2010

JMC Projects a Open Offer: Avoid

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Presence in diverse segments, successful move into the developer turf and strong parent backing are positives.

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Bhavana Acharya

Shareholders in JMC Projects can refrain from accepting the open offer made for their shares by Kalpataru Power, the parent company of JMC. The open offer was triggered by Kalpataru hiking its stake in the company from 53 per cent to 61 per cent through preferential issue of 43.5 lakh shares.

At Rs 207, the offer price is a slight 3 per cent premium to the current market price of Rs 200. The stock trades at 13 times the estimated FY-11 earnings per share at current market price. Valuations are at a premium to peers such as Ahluwalia Contracts.

JMC showed sluggish earnings in the first half of FY-11 owing to prolonged monsoons. However, it has sustained order inflows and has a healthy order pipeline. Presence in diverse segments, successful move into the developer turf and strong parent backing indicate that there may be good prospects in store for the company.

Order book

JMC’s primary business is construction of industrial projects in sectors such as automobiles, petrochemicals and pharmaceuticals, infrastructure projects such as roads, bridges, power and so on, besides commercial and residential real-estate projects. Presence in multiple segments could protect the order book from suffering dips due to slowdown in one or more segments. Industrial and real-estate projects account for about 60 per cent of the order book with infrastructure projects, including power, making up the rest. The ongoing capex activity in sectors such as automobile and pick up in real-estate projects are likely to ensure that these segments provide order flows for the company.

Order inflow during the year has been robust, with the order book growing from Rs 2,670 crore at the start of FY-11 to Rs 4,250 crore now, a near-60 per cent jump. At 3.2 times the revenues for FY-10 and with an average execution period of 30 months, the order book offers medium-term earnings visibility.

In March 2010, the company secured a build-operate-transfer (BOT) 83-km road project in consortium with Srei Infrastructure Finance, progressing up the value chain from a contractor to a developer. In the near term, the company will require consortiums to qualify for such large projects which would compress its revenue flow from these projects. It would, however, help JMC build its expertise and experience to secure at least smaller-sized projects on its own.

Financials

Prolonged monsoons this year hampered construction activity for a good many players, including JMC. Revenues dipped 13 per cent for the first half of this financial year while net profits declined 12 per cent. Lower raw material costs helped to slightly improve operating margins to 8.6 per cent for the six months ended September '10 from the 7.8 per cent in the same period in 2009. As execution picks up, raw material costs may see increases with input costs such as steel on the rise. The company more than doubled its plant and machinery over the past three years. Such investments ensure timely availability of key equipment and lower reducing hiring charges, but result in higher depreciation. Depreciation costs for JMC take up a good 4 per cent of sales.

Some comfort, though, may be derived on the interest front. Interest costs rose marginally by 2 per cent in FY-10. The company had also reduced debt in FY-10, the effect of which manifested in a 6 per cent fall in interest costs for the six months ending September '10. This has left net margins at 2.1 per cent for the six months ended September '10 against the 2 per cent in the same period in 2009. Net margins have hovered around 3 per cent for the past three years.

JMC appears to be fairly well-placed to finance both its BOT project as well as working capital for its EPC business. Debt-equity ratio stands at a reasonable 0.8 times. Working-capital turnover is healthy at 6.5 times for FY-10.

__Related Stories:
JMC Projects: Buy

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CONFERENCE CALL - from Capital Markets

Kalpataru Power Transmission and JMC Projects

Both expect net sales growth of around 15% in FY’17

The company held its conference call on 11th February 2016 and was addressed by Manish Mohnot, Managing Director
Key Highlights

As on Dec’15, company has consolidated order book of above Rs 13200 crore. KPTL has order book of around Rs 7000 crore including new orders worth over Rs 1400 crore received during Dec’15 quarter. JMC has standalone order book of Rs 6200 crore with order inflow in excess of Rs 1100 crore.

As on today the KPTL standalone has an order book of Rs 8000 crore. The company has never gone beyond Rs 6500 crore of order book in the recent past.

Softening commodity prices together with delays in conversion of orders received, impacted the T&D segment in Dec’15 quarter. Infact as per the management, 80% of the decline in T&D segment is due to steady state decline in order book position at the beginning of the year.

However with current order book position and L1 position of more than Rs 2000 crore, the company is confident of good Mar’16 quarter and around 15% growth in net sales in FY’17, after factoring in the lower commodity prices.

Margins for FY’17 of KPTL are expected to remain around 10-10.2% level for T&D segment.

Of the total order book of KPTL, around 30% are fixed price contracts.

Infrastructure segment has Rs 1000 crore of L1 order book which will further improve visibility of the segment for FY’17.

Domestic T&D order inflow in first 9 months stood at around Rs 3000 crore. Orders from PGCIL and from Pvt Players were seen. The company has participated in excess of Rs 5000 crore of tenders.

Internationally the orders are from South Africa and Middle East geography and there are no any delays due to lower oil prices.

Management believes momentum to continue in FY’17 as far as orders inflows are concerned.

For JMC, management expects sales growth of around 15% for FY’17 given the order book and L1 orders in excess of Rs 1000 crore. The company is confident of around 8.5% margin going forward.

All 4 BOT Road projects of JMC are operational as on date and the company is earning around Rs 50 lakh a month as toll collection. It needs around Rs 69 lakh a month to breakeven at cash level. A total of another around Rs 35 crore will be required for the BOT projects in FY’17.

For Shubham Logistics due to internal restructuring, the company had to take back step from its planned IPO. Due to lower agriculture commodity prices, warehousing got affected particularly in MP and in Maharashtra region.

Also some key personnel had left the company and new recruitments and internal reshufflings are on. As per the management, there are no near term plans for the IPO.

For 9 months ended Dec’15, net sales of Shubham stood at Rs 197.40 crore as compared to Rs 228.5 crore YoY. The company reported loss at PBT level of Rs 27.80 crore as compared to a profit of Rs 12.80 crore for 9 months ended Dec’14.

Total debt at standalone KPTL level stands at Rs 680 crore and at consolidated level, debt stands at Rs 3400 crore.

Of the Rs 180 crore invested in Thane Mall project, around Rs 60 crore received so far to Dec’15.

Railways are seeing lot of tender moments and lot of tenders are floated and management expects huge order book coming in next 6 months in this segment.

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Writing this post as a shareholder of Kalpataru Power Transmission Ltd (KPTL).

You must have observed a full page advt of Kalpataru Ltd on the front page of ET a couple of days ago (maybe on some other papers as well). This company is promoted by the promoters of KPTL, but it is not a subsidiary of KPTL. Kalpataru Ltd seems to be doing various luxurious real estate projects in and around Mumbai/Pune.

What is more interesting is KPTL has a couple of subsidiaries who are also into real estate development (as per AR 2017).

  1. Energylink (India) Ltd (EIL) : EIL thru its wholly owned subsidiary Saicharan Properties Ltd is developing a resi cum commercial project at Indore.
  2. Amber Real Estate Ltd : The premises developed by this company as Thane IT park has already been leased / sold out.

Another case of promoters doing same/similar business as that of the listed company. But it may be noted while KPTL was incorporated in 1981, Kalpataru Ltd was incorporated in 1988. So both are quite old companies and KPTL got listed somewhere in 2007.

So I have two queries-

  1. Do we need to further investigate this matter?
  2. Is KPTL biting more than it could chew (which could be termed as diworsification in Lynch parlance)?**

**KPTL already has 4 main business lines (transmission lines, Civil construction, Oil & Gas pipelines and Railways track laying & electrification). Through its subsidiaries, it is already doing
(a) Infra development (JMC Projects),
(b) Agri Warehousing (Shri Shubham Logistics - SSLL)
(c ) NBFC business (Punarvasu Financial Services - a WOS of SSLL)
(d) Real Estate development (as mentioned above)

Views invited on KPTL pls.

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Please see above screenshot, Lot of small cap funds are adding JMC projects and also investors meetings were happening in last couple of weeks. Anyone is tracking this, Please add any information. Thanks.

Dis: I hold this, looking to add more.

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I had attended the AGM of JMC Projects. Some of the points I noted during the AGM are given below:
• Building & Factory segment - Impact of NBFC slowdown in real estate projects we are undertaking? We are very strong in south markets and there hasn’t been much impact of slowdown in these markets. There is consolidation happening in real estate industry which is helping reputed and low debt real estate companies. We largely work with established companies in this industry. We are extremely choosy about whom we work with and easily walk away from clients where we see there are challenges on balance sheet size. 70% of our private building segment order book is from South India. In building and factory segment we expect growth of 10 – 15% in FY20. Even in building segment, we largely focus on commercial segment as payment are more assured in it compared to residential real estate because many of these projects are funded through private equity money and even demand in some of the cities like Hyderabad and Bangalore is robust. Private building construction space is not tender based while government building segment is tender based.
• Infrastructure Segment – We are very selective about the projects we choose in the segment. We are not present in road segment in big way as competition is high and we don’t want to participate in BOT projects. Margins are very important to us in the segment. Currently, 50 – 60% of the projects in the segment are from irrigation/water segment and remaining from roads. There is no cancellation of orders from Telangana government after the new party took over the reins of the state. In irrigation projects, we are choosy about the projects we pick and state governments we work with. We normally bid for projects where there is relative assurance of getting money in the project.
• Order inflow – we have guided for Rs.4000 – 5000 crore worth of new order inflow in FY20.
• Monetisation of BOT projects – We are realistically looking to monetize our projects. At least few of these projects are expected to be monetized in the near term. We realized our mistake of participating in BOT projects earlier and feel that its difficult to generate RoCE of more than 20% in BOT projects and thus haven’t bid for any BOT projects in past six years now. We feel that capital gets stuck in these projects and it’s better to be a pure play construction player. Also, we are ready to take haircuts (loss on investment) in these projects and would not shy away from it.
• Cash management & RoCEs are our focus while bidding for any projects. Also, margin management is a clear focus for us.
• International projects – we only bid for projects which are sponsored by Multilateral Agencies like World Bank, Asian Development Bank etc. Currently, present only in Ethopia & Sir Lanka. Experience of Kalpataru in international market helps us a lot since it has been present in international market for a long time. We only select a new country to enter if we can remain in it for 10 years as we have to invest atleast Rs.100 crore in a new country for executing a contract.
• Proportion of infrastructure has gone up in our order book and revenues over the past few years as we are seeing increasing orders from these segment due to thrust of Government especially on irrigation side. We do realize that working capital requirements in the segment are much higher compared to private building & factory space. In private building space the working capital requirements are relatively low but margins are lower too.
• In Infrastructure segment we normally get 10% advances from clients, overseas projects – 15 – 20% advances and in private building space advances vary from client to client and project to project.
• We have filed arbitration claims with government authorities which is a substantial amount. We recognize the arbitration claims only after receiving payment from relevant authorities. Some of these claims might help us in setting off hair cut, if any, we need to take on our BOT projects but timing of both the events can’t be confirmed.

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Special Situation brewing up in JMC Projects. Quick Pointers are as follows:

  1. For every four shares of JMC Projects (I) Ltd one share of Kalpataru power transmission will be allotted.
  2. Merger is estimated to be completed by Q4FY23.
  3. JMC Projects Rs. 89/- *4 = Rs. 356/-, CMP of Kalpataru power Rs. 400/- (Upside of 12 %), but wait what about equity dilution of 8 percent of Kalpataru power, in that case currently there is a rough upside of 4% for JMC Projects. (Not interesting).
  4. Combined entity will have order worth 37000/- crs.
  5. Vision 2025 of merged entity says that they want to achieve USD 3 billion revenue, ROCE 22% and order book of USD 6 billion.
  6. The one year estimated forward target price of Kalpataru power considering merger can be conservatively estimated to be 450/- . (Which can mean JMC upside to the tune of 26 % considering merger goes through and Kalpataru power shares are allotted.)
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Hi sir- what is your view on Kapatru Power as an independent entity? Thnaks in advance.