Despite healthy earnings outlook, J Kumar's stock does not look attractive

MUMBAI: A healthy order book and low leverage provides good earnings visibility for J Kumar Infraprojects in the coming quarters. However, upside on the stock may be limited since the company has been enjoying a premium valuation compared to its peers.

Mumbai based J Kumar Infraprojects is a small sized construction company with focus on roads, flyovers, bridges, ROBs. At present, it has an order book of Rs 4700 crore, which are over four times its trailing twelve-month revenues. This gives a healthy revenue visibility for the next three years. Another positive for the company is its low debt. At the end of September 2012, it had a debt-to-equity ratio of 0.43, which is one the highest in the industry. This has resulted in lower interest out go, which has been a concern for most of its peers in the last two years.

At current market price of Rs 230, the stock is trading at a P/E of 8.5. On the other hand, its peers like Unity Infraprojects and Pratibha Industries are trading at a P/E of 3.5 and 5.6 respectively. In the coming quarters as interest rates soften, the earnings of its peers are likely to improve more than J Kumar. As a result, the valuation gap may reduce in the coming quarters.