Jaihind Projects
Good bet on growth in oil & gas sector
The company’s gas pipeline laying business is on fast track
| Buy | Jaihind Projects |
| BSE Code | 531339 |
| NSE Code | Not listed |
| Bloomberg | JHP@IN |
| Reuter | JHNP.BO |
| 52-week High/Low | Rs 243 / 30 |
| Current Price | Rs 165 (as on 23rd January 2008) |
Jaihind Projects (JPL) is an Engineering and Construction company serving the Oil and Gas and water sectors. Jaihind Projects was formerly known as Jaihind Welding Works.
Strong command in high growth business areas
Pipeline
Pipeline is the cheapest mode of transportation of crude oil and petroleum products. JPL has a strong proven track record in laying pipelines: around 5000 km of cross-country pipelines for oil & gas, plant piping and water services. The company provides EPC solutions for pipeline projects up to 56" diameter in diverse terrain. Apart from this the company has executed many river crossing projects for oil & gas pipelines, some of which involved horizontal directional drilling (HDD). HDD is an advanced technology useful for construction of all types of pipelines and cable lines under various terrain obstacles, such as rivers, lakes, ramparts, roads, canals, swamps, runways, parks, sanctuaries etc. The company also provide corrosion protection services which include the use and application of modern cathodic protection techniques, protective coating materials, including internal tank linings, pipeline coatings, water treatment chemicals, general corrosion inhibitors and a wide variety of chemicals & applications for industrial applications.
Water Projects
JPL has over a decade of experience in executing water projects like intake wells, pump-houses, treatment Plants, reservoirs sumps, substations, instrumentation, transmission and distribution networks.
Environmental Projects
JPL has wide ranging environmental construction experience. Under this company under take activities like: pond construction, liner installation, cutoff & recovery trenches, barrier wall, landfill & soil treatment pad, sewerage systems, water treatment plants, sewage treatment plants and solid waste recycling plants.
Order book is up over 260%
The current order book position of the company as on Sep’07 stands at Rs 235 crore (as against Rs 65 crore in the corresponding previous period). This includes the prestigious gas pipeline order from Gail of Rs 150 crore.
Over the past six months the company has been successful in procuring many orders from established companies. In May 2007, it received a big order from GAIL. In October 2007, the company won an order of Rs 30.30 crore from BRPL (STEMCOR GROUP of U.K.) for executing pipeline for iron ore slurry pipeline tanto beneficiation plant to pellet plant at Jajpur - Orissa. Recently, the company received order of Rs 14.85 crore from Maharashtra Natural Gas for CNG & city gas distribution project at Pune. Notable is the Huge Rs 150 crore order from Gail. This order is bound to propel the company in a higher league and attract many such big tickets orders going forward.
Improving order quality
The average ticket size of the orders executed by the company is hovering around Rs 25 crore. Considering the order book position and the type of orders for which the company has put up the bid, this ticket size will improve to around Rs 50 crore.
Presently the company is engaged in oil & gas pipeline business in domestic market. Of the most of the projects undertaken, the company was engaged predominately for laying and construction activities and less of design and consultancy. This was rightly so, as the company wanted to have sufficient experience in construction part and it is also difficult to tap the high margin design and consultancy business. However, having sufficient experience and after creating its image in pipeline business, the company will aggressively bid for design and consultancy projects. Going forward, the management has identified a right combination for both such projects of high margin and high volume construction business.
Currently, nearly 90% of the sales and order book comes from core cross-country pipeline business. From FY’08-09 onwards, the company will also look aggressively the city gas distribution business and other civil infrastructure business. These new businesses are complex and have long duration periods and offer higher margins
Strong visibility for further orders
The company already had bid for more than Rs 2000 crore contracts in oil & gas pipeline sector. The success ratio for the company is nearly 20%. Further the company is L1 in some Rs 400 crore orders. So going forward, the visibility for order book for the company is very strong.
Aggressive capex to meet growing demand
The company has planned a capex of Rs 40 crore in span of two years. Rs 15 crore will be spent by FY’08 and the balance in FY’09. The capex is towards purchase of machineries to support the growth for the company.
The company has already issued 10 lakh equity shares at Rs 150 to promoters and others and plans to issue further 40 lakh warrants convertible in to shares.
Soaring financials
Financially, the company has grown by leaps and bounds. For the quarter ended September 2007, its sales grew 71% to Rs 25.69 crore. Importantly, OPM jumped by a solid 420 basis points to 10.7%. This took OP up by 180% to Rs 2.76 crore. Other income grew 140% to Rs 24 lakh and interest cost jumped 524% to Rs 2.12 crore. After providing for depreciation of Rs 76 lakh (up 90%), PBT swelled 413% to Rs 2.72 crore. After providing for tax, PAT sky rocketed 404% to Rs 2.67 crore.
The good performance in September 2007 quarter was after solid June 2007 quarter where it’s sales had grown by 21% and OPM had jumped 500 basis points to 9.2%. In June 2007 quarter PAT had jumped 202% to Rs 1.27 crore.
The good show during the last two quarters took its six month sales up by 101% to Rs 52.73 crore. OPM more than doubled as it improved by 550 basis points to 9.9%. Thus its OP galloped 372% to Rs 5.24 crore. Other income grew 125% to Rs 36 lakh and interest cost jumped 269% to Rs 1.18 crore. After providing for depreciation of Rs 39 lakh (up 15%), PBT swelled 240% to Rs 1.43 crore. After providing for tax, PAT soared 241% to Rs 1.40 crore.
Industry has buoyant outlook
To meet the growing global demand for energy, massive investment in energy supply and infrastructure is required. According to International Energy Agency (IEA), consumption of natural gas is expected to increase by almost 70%, from 92 trillion cubic feet in FY2002 to 156 trillion cubic feet in FY2025.
To build infrastructure to match future demand, investment of US$20 trillion is required globally between FY05-FY30. The huge investment will have a cascading effect on the upstream as well as downstream hydrocarbon sector.
Latent gas demand, accompanied by recent gas finds and thrust on LNG imports will lead to growing demand for gas transportation. GAIL is planning 7,900 km of new trunk lines over the next five years (current pipeline network =4,600 km).
Considering the projects under implementation and projects under various stages of approval, the refining capacity in India is expected to go up to 235 million metric tones per annum (mmtpa) in the XI Plan. The capacity addition in the XI Plan period is expected to be about 92 mmtpa.
Newer discoveries of natural gas reserves and oil fields, coupled with the expansion of refineries all over the world. is expected to boost the demand for pipelines projects to transport Oil & Gas Industry estimates indicate that pipeline projects exceeding 246,000 kms have been identified for the next 5-7 years, of which over 100,000 kms is expected to come up in the Middle East and Asia.
The discovery of huge gas reserves on the eastern coast of India would necessitate the laying of cross country pipelines as the demand centers are mainly located in the northern, western and southern regions. Investments exceeding Rs.325 billion is likely to be committed in setting up the National Gas Grid.
We believe that initiatives taken by the Government in Oil & Gas infrastructure (Pipeline) development will open major growth opportunities for the company.
Going global
The company is planning to enter the construction and laying of pipeline business in the international markets particularly in Gulf regions. The company is in talks with many multinational companies for Joint venture/ equity participation or any such arrangement. The international pipeline margins are better than domestic market. The company aims to lift its international business to contribute atleast 20% to sales by FY’10 from nil currently.
Focus on increasing margins
The management has been aggressively examining the processes by taking full advantage of technology to drive down costs across the organization to improve margins. Moreover, increasing contribution of more complex and larger orders, engineering and design jobs and international business as well as entry in to more complex city gas distribution pipeline laying business will help the company to continuously improve the profit margins going forward.
Attractive valuation
In FY 2008, we expect the company to register sales and net profit of Rs 170.00 crore and Rs 9.59 crore respectively. On current equity of Rs 7.11 crore and face value of Rs 10 per share, EPS works out to Rs 13.5. This EPS is likely to jump to Rs 24.8 in FY 2009 on current equity. The share price trades at Rs 165. While the P/E on FY 2008 works out to an attractive 12.2, its falls to just 6.7 on FY 2009 EPS. This is low for a construction company focused on oil and gas sector witnessing high growth rates.
| | 0503 (12) | 0603 (12) | 0703 (12) | 0803(12P) | 0903(12P) |
| Sales | 51.83 | 61.99 | 84.73 | 170.00 | 300.00 |
| OPM (%) | 0.8 | 5.6 | 9.5 | 12.7 | 13.0 |
| OP | 0.42 | 3.47 | 8.04 | 21.66 | 39.00 |
| Other inc. | 0.41 | 0.42 | 0.46 | 0.66 | 0.66 |
| PBIDT | 0.83 | 3.89 | 8.50 | 22.32 | 39.66 |
| Interest | 0.97 | 1.08 | 2.27 | 6.12 | 9.79 |
| PBDT | 1.80 | 2.81 | 6.23 | 16.20 | 29.87 |
| Dep. | 0.69 | 0.89 | 1.36 | 1.56 | 2.56 |
| PBT | 1.11 | 1.92 | 4.87 | 14.64 | 27.31 |
| Tax | 0.51 | 0.85 | 1.78 | 5.05 | 9.69 |
| PAT | 0.6 | 1.07 | 3.09 | 9.59 | 17.61 |
| EPS* (Rs) | 0.8 | 1.5 | 4.3 | 13.5 | 24.8 |
| * Annualized on current equity of Rs 7.11 crore; | |||||
| Jaihind Projects: Results |
| | 0709 (3) | 0609 (3) | Var. (%) | 0709 (6) | 0609 (6) | Var. (%) | 0703 (12) | 0603 (12) | Var. (%) |
| Sales | 25.69 | 15.04 | 71 | 52.73 | 26.22 | 101 | 84.73 | 61.99 | 37 |
| OPM (%) | 10.7 | 6.5 | | 9.9 | 4.2 | | 9.5 | 5.6 | |
| OP | 2.76 | 0.98 | 182 | 5.24 | 1.11 | 372 | 8.04 | 3.47 | 132 |
| Other inc. | 0.24 | 0.10 | 140 | 0.36 | 0.16 | 125 | 0.46 | 0.42 | 10 |
| PBIDT | 3.00 | 1.08 | 178 | 5.60 | 1.27 | 341 | 8.50 | 3.89 | 119 |
| Interest | 1.18 | 0.32 | 269 | 2.12 | 0.34 | 524 | 2.27 | 1.08 | 110 |
| PBDT | 1.82 | 0.76 | 139 | 3.48 | 0.93 | 274 | 6.23 | 2.81 | 122 |
| Dep. | 0.39 | 0.34 | 15 | 0.76 | 0.40 | 90 | 1.36 | 0.89 | 53 |
| PBT | 1.43 | 0.42 | 240 | 2.72 | 0.53 | 413 | 4.87 | 1.92 | 154 |
| Tax | 0.03 | 0.01 | 200 | 0.05 | 0.00 | 100 | 1.44 | 0.65 | 122 |
| Deferred Tax | 0.00 | 0.00 | -- | 0.00 | 0.00 | -- | 0.34 | 0.20 | 70 |
| PAT | 1.40 | 0.41 | 241 | 2.67 | 0.53 | 404 | 3.09 | 1.07 | 189 |
| EPS* (Rs) | 7.9 | 2.3 | | 7.5 | 1.5 | | 4.3 | 1.5 | |
| * Annualized on current equity of Rs 7.11 crore; | |||||||||
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