Stock Update

JMC Projects Ltd

Healthy Q4; Retain Hold
Powered by the Sharekhan 3R Research Philosophy Capital Goods Sharekhan code: JMC

3R MATRIX + = -
Reco/View: Hold  CMP: Rs. 75 Price Target: Rs. 86 â

Result Update
Right Sector (RS) ü á Upgrade  Maintain â Downgrade

Right Quality (RQ) ü Summary

Š JMC positively surprised on execution for Q4FY2022 with standalone revenues rising by 15.6%
Right Valuation (RV) ü y-o-y. Operating profit and net profit dip 2.5% y-o-y and 4.3% y-o-y affected by higher input
+ Positive = Neutral – Negative costs, increased interest and depreciation.
Š The management targets revenue growth of 15-20% y-o-y, OPM at 9% and order inflows of Rs.
10,000 crore to Rs. 11,000 crore for FY2023.
Š Restructuring and refinancing of road assets continue to be delayed. Merger with KPTL expected
to complete by Q4FY2023.
What has changed in 3R MATRIX
Š We retain a Hold rating on the stock with a revised PT of Rs. 86. Expect it to trade in sync with
Old New swap ratio announced. The CMP offers arbitrage of ~14% which is expected to narrow down as
merger nears completion.
RS 
JMC Projects (India) Limited (JMC Projects) reported better-than-expected standalone revenues (up
RQ  15.6% y-o-y at Rs. 1560 crore) for Q4FY2022 led by healthy execution in B&F and water segments.
Standalone OPM at 8.5% (lower 157bps y-o-y) surprised positively. The operating profit/net profit
RV  declined by 2.5%/4.3% y-o-y at Rs. 132 crore/Rs. 58 crore (higher than our estimates). Its order
inflows for Q4FY2022 remained weak (down 87% y-o-y at Rs. 155 crores) although remained strong
for FY2022 at Rs. 10,139 crore (up 28% y-o-y). For FY2023, the management expects 15-20% y-o-y
revenue growth, OPM at 9% and order inflows of Rs. 10,000 crore to Rs. 11,000 crore. The merger of
JMC with its parent company is likely to be completed by Q4FY2022.
Company details Key positives
Market cap: Rs. 1,259 cr Š Higher-than-expected execution and OPM.
Š Order inflows of Rs. 2193 crore during FY2023 till date along with L1 status in Rs. 2700 crore orders.
52-week high/low: Rs. 130/65
Key negatives
NSE volume: Š Standalone net debt increased by Rs. 37 crore q-o-q to Rs. 640 crore. Interest expense up 21% y-o-y
1.7 lakh
(No of shares) and 6% q-o-q at Rs. 34 crore.
Š Restructuring of WEPL road asset expected to be completed in H1FY2023 versus earlier guidance
BSE code: 522263 of FY2022 end.
NSE code: JMC Š Expect loss funding of road assets of Rs. 60 crore to Rs. 70 crore in FY2023 due to maintenance
obligations and delay in the restructuring of WEPL road asset.
Free float: Management Commentary
5.4 cr
(No of shares) Š JMC’s revenues are expected to grow at 15-20% y-o-y (conservatively) for FY2023. The OPM is
expected at 9% for FY2023 due to volatility in commodity prices. The order inflows are expected to
be Rs. 10000 crore to Rs. 11000 crore for FY2023.
Š It has started refinancing of the Vindhyachal road project (VEPL) and expects to complete it over
Shareholding (%) the next two quarters.
Š The road assets (excluding KEPL) are generating Rs. 58 lakhs per day revenue run-rate in FY2023
Promoters 67.8 till 11th May 2022. It needs Rs. 66 lakhs per day revenue run-rate to cover its operating and finance
FII 1.0 expense.
Revision in estimates – We have revised our estimates upwards for FY2023-FY2024 factoring higher
DII 19.4 execution run-rate.
Others 11.9 Our Call
Valuation – Retain Hold with a revised PT of Rs. 86: JMC Projects has shown healthy execution
improvement, which is expected to continue going ahead. The order inflows have been robust with a
positive outlook for further order wins. However, the company has long standing claims of Rs. 1700
crore in arbitration. The company is expected to merge with Kalpataru Power Transmission (KPTL) by
Price chart Q4FY2022 with a swap ratio of 4:1. Hence, we expect JMC and KPTL to trade in sync with the swap
140 ratio announced. At CMPs of both the stocks, there is an arbitrage of ~14% between the two which is
expected to narrow down as the merger nears completion. We retain our Hold rating on the stock with
120 a revised price target (PT) of Rs. 86.
100 Key Risks
A slowdown in the domestic macroeconomic environment and higher loss-funding in the roads
80
segment can affect business outlook and earnings growth.
60
Valuation (Standalone) Rs cr
Sep-21

Jan-22
May-21

May-22

Particulars FY21 FY22 FY23E FY24E

Revenue 3689 5353 6136 7201
OPM (%) 9.0 7.9 9.0 9.0
Adjusted PAT 71 224 185 238
Price performance % YoY growth -55.1 214.5 -17.3 28.5
(%) 1m 3m 6m 12m Adjusted EPS (Rs.) 4.2 13.3 11.0 14.1
P/E (x) 17.7 5.6 6.8 5.3
Absolute -14.8 -19.5 -25.7 -21.6
P/B (x) 1.2 1.4 1.2 1.0
Relative to EV/EBITDA (x) 5.5 4.7 3.4 2.6
-7.4 -11.0 -14.0 -28.5
Sensex RoNW (%) 7.2 23.6 19.1 20.2
Sharekhan Research, Bloomberg RoCE (%) 12.3 15.7 20.0 21.4
Source: Company; Sharekhan estimates

May 16, 2022 1

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Better than expected operational performance: The company’s standalone revenues grew by 15.6% y-o-y
to Rs. 1560 crore which was much higher than our estimate. The standalone OPM surprised positively at
8.5% (down 157bps y-o-y, down 58bps q-o-q) as against our estimate of 7%. Lower other expense (down
113bps y-o-y as a % of sales) led to better than expected OPM. Standalone operating profit declined by 2.5%
y-o-y at Rs. 132 crore, which was higher than our estimate. Higher interest expense (up 21% y-o-y) and higher
depreciation (up 12% y-o-y) was partially offset by lower effective tax rate (12.6% Vs 25.1% in Q4FY2021)
leading to 4.3% y-o-y dip in standalone net profit at Rs. 58 crore (PBT declined by 18% y-o-y at Rs. 66 crore).

Healthy guidance for FY2023; Road assets status quo: The management expects standalone revenue
growth of 15-20% y-o-y (conservatively) for FY2023. The OPM is expected at 9% for FY2023 due to high
volatility in commodity prices. The order inflows are expected to be Rs. 10000 crore to Rs. 11000 crore for
FY2023. It has received consent for restructuring Wainganga road project (WEPL) from majority of lenders
and is awaiting approval from NHAI. It expects closure of restructuring in H1FY2023. It has started refinancing
of Vindhyachal road project (VEPL) and expects to complete in over next two quarters. It did loss funding of
Rs. 140 crore during FY2022 and expects Rs. 70 crore to Rs. 80 crore funding requirement for FY2023 for three
road assets. Out of FY2023 funding requirement, Rs. 20 crore to Rs. 25 crore is maintenance obligation and
Rs. 10 crore to Rs. 11 crore is due to delay in WPEL restructuring.

Key Conference call takeaways

Š Guidance: JMC’s revenues is expected to grow at 15-20% y-o-y (conservatively) for FY2023. The OPM is
expected at 9% for FY2023 due to volatility in commodity prices. The order inflows are expected to be Rs.
10000 crore to Rs. 11000 crore for FY2023.
Š Q4FY2022 performance: The revenues for Q4FY2022 grew by 16% y-o-y led by execution in both B&F
and water segments. OPM at 8.5% was affected by higher commodity and input costs. The net debt
increased to Rs. 640 crore as against Rs. 512 crore a year ago led by rise in working capital, capital
expenditure and repayment obligations. It received order inflows of Rs. 10,199 crore during FY2022. The
order book as on FY2022 end stands at Rs. 17,139 crore. It further received Rs. 2193 crore order inflows
during FY2023 till date and has L1 position in Rs. 2700 crore orders.
Š Kurukshetra Road project (KEPL): It has issued termination notice with asset handed over to NHAI. By
Q1FY2023, it expects to hear from NHAI on the road project. The company has nothing to provide for with
respect to the asset going ahead. It does not expect any positive cash flows from the same.
Š Restructuring and refinancing of assets: It has received consent for restructuring Wainganga road project
(WEPL) from majority of lenders and is awaiting approval from NHAI. It expects closure of restructuring in
H1FY2023. It has started refinancing of Vindhyachal road project (VEPL) and expects to complete in over
next two quarters.
Š Loss funding of road assets: The road assets (excluding KEPL) are generating Rs. 58 lakhs per day
revenue run-rate in FY2023 till 11th May 2022. It needs Rs. 66 lakhs per day revenue run-rate to cover its
operating and finance expense. It did loss funding of Rs. 140 crore during FY2022 and expects Rs. 70 crore
to Rs. 80 crore funding requirement for FY2023 for three road assets. Out of FY2023 funding requirement,
Rs. 20 crore to Rs. 25 crore is maintenance obligation and Rs. 10 crore to Rs. 11 crore is due to delay in
WPEL restructuring.
Š Promoter Pledge: The company expects promoters’ pledge of shares to come down from Q2FY2023
onwards.
Š Merger: The merger of JMC with KPTL is expected to complete by Q4FY2023.

May 16, 2022 2

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Results (Standalone) Rs cr
Particulars Q4FY2022 Q4FY2021 y-o-y% Q3FY2022 q-o-q%
Net sales 1,560 1,349 15.6 1,348 15.7
Operating expenses 1,428 1,213 17.7 1,227 16.4
Operating profit 132 135 (2.5) 122 8.3
Other income 10 11 (7.0) 12 (12.6)
Interest 34 28 20.9 32 6.0
Depreciation 42 38 11.7 43 (2.6)
Profit Before Tax 66 80 (18.0) 58 13.5
Taxes 8 20 (58.8) (10) -
PAT 58 60 (4.3) (19) -
Exceptional items - - NA (88) NA
Adjusted PAT 58 60 (4.3) 68 (15.8)
Reported EPS (Rs.) 3.4 3.6 (4.3) 4.1 (15.8)
Margins
OPM (%) 8.5 10.0 (157) 9.0 (58)
NPM (%) 3.7 4.5 (77) 5.1 (138)
Tax rate (%) 12.6 25.1 (1,249) (17.8) -
Source: Company, Sharekhan Research

May 16, 2022 3

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Outlook and Valuation

n Sector View – Roads to remain one of the key focus areas in government’s infrastructure spending
The government is aiming at infrastructure investments of Rs. 111 lakh crore over FY2020-FY2025. The road
sector is expected to witness Rs. 20 lakh crore investments during the same period. Huge investments and
favourable government policies are expected to provide strong growth opportunities. The roads sector
has recovered with near pre-COVID level manpower strength and availability of materials post easing of
restrictions after the COVID-led lockdown in the country. The industry is expected to see strong order inflows
and an improvement in execution run-rate going ahead. Working capital issues of companies have been
handled by proactive payments from the NHAI.

n Company Outlook – Awaiting merger with parent

The management is confident of achieving standalone revenue growth of 15-20% with OPM at 9% for FY2023.
The company expects order intake of Rs. 10,000 crore to Rs. 11,000 crore for FY2023. On the asset front, the
company expects to complete restructuring of one of its road BOOT assets by H1FY2023, while the refinancing
of other asset is expected over the next two quarters. The company is expected to merge with KPTL with a swap
ratio of 4:1, the process is expected to complete by Q4FY2022. We expect the stock to trade in sync with its
parent company’s valuation in the ratio of swap announced during February 2022.

n Valuation – Retain Hold with a revised PT of Rs. 86

JMC Projects has shown healthy improvement in execution which is expected to continue going ahead. The order
inflows have been robust with a positive outlook for further order wins. However, the company has long-standing
claims of Rs. 1700 crore in arbitration. The company is expected to merge with Kalpataru Power Transmission
(KPTL) by Q4FY2022 with a swap ratio of 4:1. Hence, we expect JMC and KPTL to trade in sync with the swap
ratio announced. At CMPs of both the stocks, there is arbitrage of ~14% between the two which is expected to
narrow down as the merger nears completion. We retain our Hold rating on the stock with a revised price target
(PT) of Rs. 86.

One-year forward P/E (x) band

25

20

15

10

0
Jul-19
Sep-12

Sep-14

Feb-16
Jan-14
Dec-09

Dec-11

Dec-20
Jun-15

Jun-17
Aug-10

Aug-21
May-13

Oct-16

Nov-18
Apr-09

Apr-11

Apr-22
Mar-18

Mar-20

1yr Fwd PE (x) Average PE Peak P/E Trough P/E

Source: Sharekhan Research

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About company
JMC Projects is a subsidiary of Kalpataru Power Transmission (which has a 67.19% stake in JMC Projects).
Kalpataru Power itself is part of Kalpataru Group, a diversified conglomerate operating in businesses such
as real estate, power generation and transmission, construction of roads, factories, buildings, oil and gas
infrastructure, and agri-logistics. JMC Projects was incorporated in 1986, with its IPO hit markets in 1994 and
KPTL acquired a controlling stake in 2005. JMC Projects is an infrastructure EPC player operating in verticals
such as buildings and factories, roads and flyovers, water and railways, and industrial and power BOP. JMC
Projects also has four operational toll BoT road projects.

Investment theme
JMC Projects is expected to be one of the beneficiaries of expected government spending on infrastructure
over the next five years. A strong order backlog of over Rs. 17,000 crore, which amounts to 3.2x its FY2022
standalone revenue, is skewed towards the growing infrastructure and buildings and factories segments,
which comprise over 63% of its order book. JMC Projects has strong in-house execution capabilities, a quality
balance sheet, and healthy return ratios. The company’s divestment of road BOT assets is a key positive,
which will significantly deleverage its consolidated balance sheet and halt loss-funding from the standalone
balance sheet.

Key Risks
Š Slowdown in the domestic macro-environment can reduce order inflows affecting earnings.
Š A delay in exit from road BOT assets and increased loss funding can negatively affect valuations.

Additional Data
Key management personnel
Mr. S.K. Tripathi Dy. Managing Director and Chief Executive Officer
Mr. Manoj Tulsian Whole Time Director and Chief Financial Officer
Samir Raval Company Secretary & Compliance Officer
Source: Company Website

Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 Kalpataru Power Transmission Limited 67.75
2 HDFC Asset Management Company Limited 9.19
3 Kotak Mahindra Asset Management Co. 5.43
4 SHETH AJAY 3.93
5 SBI Funds Management Private Limited 1.53
6 Arora Sanjeev 1.39
7 Edelweiss Asset Management Limited 0.61
8 ICICI Prudential Asset Management 0.51
9 Dimensional Fund Advisors LP 0.28
10 Investor Education & Protection FD 0.08
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

May 16, 2022 5

Understanding the Sharekhan 3R Matrix
Right Sector
Positive Strong industry fundamentals (favorable demand-supply scenario, consistent
industry growth), increasing investments, higher entry barrier, and favorable
government policies
Neutral Stagnancy in the industry growth due to macro factors and lower incremental
investments by Government/private companies
Negative Unable to recover from low in the stable economic environment, adverse
government policies affecting the business fundamentals and global challenges
(currency headwinds and unfavorable policies implemented by global industrial
institutions) and any significant increase in commodity prices affecting profitability.
Right Quality
Positive Sector leader, Strong management bandwidth, Strong financial track-record,
Healthy Balance sheet/cash flows, differentiated product/service portfolio and
Good corporate governance.
Neutral Macro slowdown affecting near term growth profile, Untoward events such as
natural calamities resulting in near term uncertainty, Company specific events
such as factory shutdown, lack of positive triggers/events in near term, raw
material price movement turning unfavourable
Negative Weakening growth trend led by led by external/internal factors, reshuffling of
key management personal, questionable corporate governance, high commodity
prices/weak realisation environment resulting in margin pressure and detoriating
balance sheet
Right Valuation
Positive Strong earnings growth expectation and improving return ratios but valuations
are trading at discount to industry leaders/historical average multiples, Expansion
in valuation multiple due to expected outperformance amongst its peers and
Industry up-cycle with conducive business environment.
Neutral Trading at par to historical valuations and having limited scope of expansion in
valuation multiples.
Negative Trading at premium valuations but earnings outlook are weak; Emergence of
roadblocks such as corporate governance issue, adverse government policies
and bleak global macro environment etc warranting for lower than historical
valuation multiple.
Source: Sharekhan Research
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