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Sunday, June 6, 2010

Good Bet in Infrastructure - J Kumar Infra Projects

A relatively smaller sized construction company, J Kumar Infra Projects is expected to grow by over 50 per cent annually, over the next two years. This is primarily given by its healthy order book of Rs 1,300 crore, which is over three times its 2008-09 revenues. The order book is expected to further improve as the company has already bid for about Rs 5,000 crore worth of projects.

The company has a diversified portfolio given that it undertakes construction work for transport, irrigation, pilling, bridges, airport runways and buildings. These are basically urban infra, opportunities in the states outside Maharashtra. So we expect some kickers to come in the year 2010-2011 where the company will be diversifying outside Maharashtra that has been a concern for J Kumar Infra for a long time. Since there was a huge concentration risk only in Maharashtra, this will help the company to diversify the risk and get into other states as well.

Notably, the company mostly undertakes projects of government agencies, where investments are higher and are less affected by economic slowdown. Also, as majority of its revenues come from Maharashtra, the company is now moving into other states on the back of its increased scale and bidding capacity.

We believe that current valuations are reasonable for a company which is operating in a fast growing industry. Strong order book, high revenue growth, good margins, robust return ratios, regular dividends (paid dividend of 15% and 20% respectively in last two years with a dividend yield of approx 1%) and low debt-equity are among key factors that make a good case for investment in this company.

Being in high growth trajectory and decent track record, J Kumar Infra Projects is trading at a single digit P/E multiple of 8 and seems to be an attractive buy at current market price of Rs 207.

Note: The stocks discussed in Saral Gyan through posts are not a part of "Hidden Gems" issue which we recommend to our paid subscribers only. These are just stock specific views by Saral Gyan Team; one must do the due diligence before doing any investment based on our recommendation.