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 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 3,000 crore worth of projects. The company has adiversified portfolio given that it undertakes construction work for transport, irrigation, pilling, bridges, airport runways and buildings. 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 is organised into telecom software products, services and automotive, industrial and utility business. Though software products were the key contributor to its topline accounting for 40 per cent historically, currently services contribute almost 95 per cent to the topline.

The company has been able to improve its margins in 2008-09 to 23.5 per cent from 14 per cent in 2007-08, on the back of a 22 per cent growth in revenues and lower selling and administrative costs. However, the cut in R&D expenditure of communications companies has dented revenues as well as margins in the current fiscal. For the 9 months ending December 2009, sales were down 21 per cent while operating profits were down 37 per cent with margins at 17.6 per cent. How the margins move going ahead will depend on the pace of pickup in IT spending of communications companies.

The company is, however, bullish and is betting on the pickup in demand for handsets (increasing subscriber base and use of smart phones, especially in the emerging markets) and semiconductors. Sasken is also diversifying its presence post its acquisition of Ingenient Technologies, an embedded multimedia software solution provider, in the December quarter. At Rs 178, the stock is trading at 6.5 times 2010-11 estimated earnings of Rs 27 and looks attractive.