j kumar infraprojects ltd share price Management discussions

Indian Economic Overview

In FY23 Indias economy consolidated its place as one of the fastest-growing in the world, outpacing other significant emerging and developing economies like China. Despite challenges including inflation and geopolitical uncertainty, the National Statistical Office (NSO) reported a growth rate of 7.2% for FY23 in its second advanced estimates. Because of the countrys robust domestic demand, brisk investment activity, and wide-ranging sectoral expansion, the Indian economy showed outstanding resilience.

Additionally, the economy benefited from increased government support for the infrastructure and building sectors, which helped to facilitate economic activity. The first two quarters saw a considerable rise in the price of commodities globally, which has since subsided. Although Indias Current Account Deficit (CAD) widened, India had enough foreign exchange reserves in FY23 to finance its CAD and intervene in the foreign exchange market to tame volatility in the Indian rupee.

A strong growth cycle is suggested by a number of high- frequency indicators, such as GST receipts and rail and air transport. India is increasingly becoming a desirable place to invest due to its sustained growth trajectory.

Outlook

An increase in economic activity and a favourable demand environment in India suggest that the nations growing momentum will likely draw large investments. According to the Reserve Bank of India, the country would see 6.5% growth in FY24. An optimistic forecast for the manufacturing, services, and agriculture sectors will support this rise.

Furthermore, rising consumer and investor confidence as well as a quickening of credit growth are anticipated to improve domestic consumption and investment. The governments incentives for investing in infrastructure and productive capacity are anticipated to increase employment possibilities and raise Indias potential for growth. Significant investment activity is anticipated in the coming years, which would provide India the push it needs to start along a path of long-term domestic demand-led growth.

Indian Infrastructure Overview

Infrastructure is the cornerstone of any nations economic progress and societal well-being. Its multi-faceted benefits encompass economic growth, job creation, connectivity, social development, sustainability, disaster resilience, and rural empowerment. Strategic investments in infrastructure can pave the way for a prosperous and inclusive future for any nation.

The last several years have seen a huge increase in infrastructure spending and policy commitment, which caused robust economic growth. This was done to create a strong foundation for private investment and growth over the next ten years. Following the trend, the government proposed major capital investments in the infrastructure sector for the third year in a row, which is expected to subsequently increase the nations GDP and open up job possibilities. Additionally, streamlining compliance requirements and decriminalising legislative restrictions would aid in fostering a climate that is favourable to investment. The green industrial and economic transition is likely to be supported by policy announcements like the green hydrogen mission, the green credit programme, the withdrawal of renewable energy, and battery storage systems with viability gap finance. The budget plans to boost macroeconomic stability, growth (including green growth), and job creation. India is likely to achieve its aim of a $5 trillion economy by 2025 owing a multiplier effect caused by the infrastructure spending.

In the past eight years, ports and airports have seen significant improvement while roads, railways, and waterways have experienced extraordinary expansion. Extending infrastructure facilities is only one aspect of the narrative; modernization is another crucial goal that has been aggressively sought and swiftly accomplished. To further support the infrastructure development and creation, a strong foundation has been established with the National Infrastructure Pipeline (NIP) in 2019 and the National Monetization Pipeline in 2021 by the government, offering a wide range of options for international investment and collaboration.

Government Impetus

• The Union Budget 2023-24 increased the capital investment outlay allocation to Rs. 10 lakh crore from Rs. 7.28 lakh crore in 2022-23 marking a 37.4% increase1.

• The National Infrastructure Pipeline (2020 - 2025) was introduced with 6,835 infrastructure projects and a ? Ill lakh crore estimated infrastructure investment. This includes economic and social infrastructure projects that are jointly sponsored by the Central Government, State Governments, and the private sector. It has grown to include over 9,000 projects over 35 subsectors. Physical infrastructures strong forward and backward ties will, over time, increase the economys productivity3.

• In the Union Budget for 2023-2024, the Indian Railways was allocated a capital outlay allocation of Rs. 2.4 lakh crore. The national transporter has never received an allocation this large, and this years trend is continuing with a gross budgetary support ofRs. 1.37 lakh crore in fiscal 2022-233.

• The Union Budget increased the allocation for the Ministry of Road Transport and Highways (MoRTH) by 36% to around Rs. 2.7 lakh crore for 2023-24. It represented an increase of over 10% over the budgetary allocation ofRs. 1.99 lakh crore announced in the budget for 2022-20234.

Railways

India is on a trajectory of rapid urbanization whereby it would require enhanced urban mobility in the upcoming years. Also, railways are a crucial mode of transporting freight over long distances. They are particularly effective for transporting heavy and bulky goods, such as coal, minerals, oil, and manufactured goods in large quantities. Rail freight transport is cost-effective, energy-efficient, and capable of carrying substantial loads, thereby supporting industries and supply chains. Hence, Indian Railways has developed a National Rail Plan (NRP) for India- 2030, which seeks to create a "future-ready" railway infrastructure by that year. The NRP aspires to create policies based on both operational capabilities and commercial policy initiatives to increase the share of the Railways in goods to 45%. The plans objective is to increase capacity before demand so that it can meet demand growth through 2050. Additionally, it aspires to increase and preserve railroads modal share of freight traffic, which is now at 35%5.

The building of the Eastern and Western dedicated freight corridors (DFCs) that run along the golden quadrilateral, is one of the largest infrastructure projects in railways. Through this project, the nations transport output will rise while transit time and cost are reduced.

Metro Railways

A major work has been initiated in making the urban life easier and the transport system more modern with the rapid development of metro rail. The Metro trains are giving new identity to the model urban transportation.

The government has strategically prioritised the expansion of metro rail systems as a response to the challenges posed by rapid urbanization and the burgeoning population. Prior to 2014, merely five Indian cities were equipped with a metro rail network spanning 229 km. However, as of FY 2023, an impressive 860 km of operational metro rail lines now crisscross 20 different cities. This remarkable shift is exemplified by the fact that the monthly average of newly inaugurated metro lines, which stood at a mere 0.68 km before 2014, has increased to an impressive 5.6 km per month.5

Demonstrating this commitment, a substantial allocation of Rs. 19,518 crore has been earmarked for various metro projects across India in the Union Budget for the fiscal year 2023-24.6

Roadways

The nations diversified population of consumers and businesses relies heavily on the nations road infrastructure, which consists of a network of national highways, state highways, district roads, rural roads, and urban roads. Roads provide last-mile connectivity to the remote areas of the nation, enhancing the other means of transportation. Roadways serve as vital links in the supply chain, enabling the transportation of goods from producers to consumers. They facilitate trade within regions, countries, and across borders, connecting businesses to markets and ensuring the efficient movement of goods. 4,060 kms of NHs/roads were built in FY23 (through October 2022). The amount of total budgetary support for sector investment has been rising quickly over the last four years, and as of October 31, 2022, it was over Rs. 1.4 lakh crore8. Furthermore, the expansion of the nations highway and road infrastructure would be significantly aided by programmes like the PM Gati Shakti Yojana and the Bharatmala Pariyojana.

PMGSY, or Pradhan Mantri Gramme Sadak Yojana

Rural consumerism is likely to increase in the upcoming years. Hence, to enhance rural logistics and facilitate rural mobility, PMGSY was launched to support and boost the rural road infrastructure. The goal of PMGSY is to connect all eligible unconnected habitations in rural areas of the nation with a single all-weather road to the designated population size (500+ in plain areas, 250+ in North-Eastern and Himalayan States). The programme also includes an upgrade component for districts where all qualifying settlements with the required population size have access to all-weather roads9.

	BE FY23	April- Nov 2022	April- Nov 2021	YoY growth %
Road Transport and Highways	1.88	1.49*	0.74	102.10
Railways	1.37	1.15	0.65	76.65

Bharatmala Pariyojna

The Bharatmala Pariyojana, named the India Garland Project, is an extensive road development endeavour that includes tunnels, bridges, flyovers, and more, with the goal of establishing efficient, congestion-free links between various destinations. It plans to create approximately 26,000 km of Economic Corridors, along with the existing Golden Quadrilateral (GQ) and North-South and East- West (NS-EW) Corridors, to handle the majority of freight traffic. Additionally, around 8,000 km of Inter Corridors and 7,500 km of Feeder Routes are identified to enhance the effectiveness of existing corridors. The initiative also aims to build Ring Roads, bypasses, and elevated corridors to ease urban traffic and enhance logistical efficiency.

Company Overview

J. Kumar Infraprojects Limited (JKIL) holds ISO 9001:2015 and ISO 14001:2015 certification for Quality Management Systems and Occupational Health and Safety Management System. JKIL has developed a niche in construction of Urban Infra Projects including Metros, Flyovers, Bridges, Tunnels, STP, etc. It is renowned for undertaking design and construction projects on a turnkey basis meeting their clients requirements to effect. JKI Lis focused on EPC projects, having strong foothold in various sectors like Urban Infrastructure, Transportation, Infrastucture & Civil Construction etc.

With a commitment to delivering high-quality projects and innovative solutions, JKIL has earned a strong reputation for its reliability, technical expertise, and timely execution.

The company has a diverse portfolio of projects across different sectors, including roads, highways, bridges, metro railways, urban infrastructure, tunnelling water supply etc. JKIL has successfully undertaken and completed several prestigious projects, contributing to the growth and development of the nations infrastructure.

Metro Projects

The Company is actively engaged in expanding Indias Metro rail network by constructing an additional 61 kilometers of track during the year. Notably, Metro projects make up around 53% of J. Kumars current order book. 47 % of the total revenue for the Fiscal Year 2022-23 came from underground and elevated metro projects.

Furthermore, as we progress with the completion of Metro Line 3, which is currently 86% finished, the Company is planning to undertake more substantial projects independently. The Line 3 Metro section which spans from Colaba to SEEPZ and covers two packages, both of which are at an advanced stage of completion, constructed by J. Kumar.

The Mumbai Metro Rail Corporation (MMRC) is on track to inaugurate the first phase of Line 3, connecting SEEPZ to BKC, highlighting the significant progress achieved. Simultaneously, other metro lines such as Line 9, Line 2B, Line 6, Navi Mumbai Metro, Pune Metro, Delhi Metro, and Surat Metro are progressing swiftly. As a result, there will be an annual unveiling of operational segments across these metro lines, bringing improved connectivity to the public.

In the upcoming fiscal year, the Company, J. Kumar, aims to not only handover the Pune Metro but also actively participate in bidding processes for the Bhopal, Indore and Kanpur Metro Projects, showcasing our commitment to expanding urban transportation networks across India.

Flyovers, Roads & Tunnels

47 % of the total revenue for the Fiscal Year 2022-23 came from Flyovers, Roads & Tunnels segment. In the fiscal year 2023, the company successfully established unobstructed connectivity at Amra Marg and opened up public access to the JNPT Port. The Chheda Nagar Flyover, a remarkable infrastructure, guarantees a seamless and continuous journey between Mumbai, Thane, and Navi Mumbai. This not only facilitates the smooth flow of traffic but also contributes to the reduction of air pollution in the eastern part of Mumbai. Furthermore, the SCLR flyover showcases a distinctive feature - Indias second double-decker flyover - marking a pioneering achievement for the city.

Water

In the fiscal year 2023, the company has made substantial improvements in its water division, securing an order book worth ?1,340 crore, which accounts for 11% of the total order book composition. Notably, the company has successfully secured contracts for designing, constructing, and operational commencement of sewage tunnels in Mumbai, in two distinct phases.

Civil and Others

The company also constructs swimming pools, sports facilities, hospitals, and other medical facilities. It also constructs railway terminals and stations. During Fiscal Year 2022-23, the segment contributed 7% of total revenue.

Order Book Breakup

Segment wise breakup

Sr. No.	Segment	Order Book (Rs in Crores)	%
1	Metro Elevated	3,393	29%
2	Metro Underground	2,904	24%
	Total - Metro	6,296	53%
3	Flyover	2,152	18%
4	Road & Tunnels	1,603	14%
5	Water	1,340	11%
6	Civil & Others	463	4%
	Total Non Metro	5,557	47%
	Total	11,854	100%

Geographical breakup

Sr. No.	Geography	Order Book (Rs in Crores)	%
1	Maharashtra	8,147	69%
2	NCR	2,636	22%
3	Gujarat	685	6%
4	Karnataka	237	2%
5	U.P.	149	1%
	Total	11,854	100%

Order Wins FY 23

Sr. No.	Name of the Project	Authority	(Rs In Crores)	Sub Segment
1	Vadodara - Mumbai Expressway	IRCON	1,068	Roads & Tunnel
2	Sewer Tunnel Phase 1	MCGM	306	Water
3	Siddharth Municipal General Hospital	MCGM	315	Civil & Others
4	Dwarka Expressway Pkg 1 (COS)	NHAI	464	Flyover & Bridges
5	Bangalore Metro-Phase - 2A & 2B	BMRCL	237	Metro Elevated
6	Sewer Tunnel Phase 2	MCGM	262	Water
	Total		2652

Revenue Breakup

Geographical breakup

Sr. No.	States	FY23 (Rs In Crores)	%
1	Maharashtra	2,835	67%
2	NCR	1,188	28%
3	Gujarat	176	4%
4	Uttar Pradesh	5	0.11%
	Total	4,203	100%

Segment wise breakup

Sr. No.	Column 1	FY23 (Rs In Crores)	%	FY22 (Rs In Crores)	%
1	Metro - Elevated	1.199	29%	1232	35%
2	Metro - Underground	766	18%	683	19%
	Total Metro	1,964	47%	1915	54%
3	Flyover & Road	1,955	47%	1441	41%
4	Civil & Others	284	7%	171	5%
	Total Non - Metro	2239	53%	1612	46%
	Total	4203	100%	3527	100%

Financial Performance

Particulars	FY23	FY22
Revenue from Operations	4,203.14	3,527.20
Cost of Material Consumed	2,783.98	2,268.24
Construction Expenses	456.61	417.60
Employee Expenses	309.33	278.94
Other Expenses	56.14	57.83
EBITDA	597.07	504.59
EBITDA Margin %	14.2%	14.3%
Other Income	30.44	24.86
Depreciation	154.74	146.79
EBIT	472.77	382.67
EBIT Margin %	11.2%	10.8%
Finance Cost	99.20	99.99
Profit before Tax	373.57	282.68
PBT Margin	8.9%	8.0%
Tax	99.18	76.80
PAT	274.39	205.88
PAT Margin %	6.5%	5.8%
Cash PAT	429.13	352.67
Cash PAT Margin %	10.2%	10.0%

Key Performance Ratios

Ratios	FY23	FY22
Debt-equity ratio (x)	0.22	0.21
ROCE (%)	17.6%	15.2%
ROE (%)	12.4%	10.4%
Working capital cycle (days)	126	127
Debtor turnover cycle (days)	74	92
Inventory turnover cycle (days	61	94
Creditor turnover cycle (days)	41	59
Asset Turnover (x)	4.54	4.47
Interest cover (x)	4.33	3.53
Return on gross block (%)	15.9%	13.9%

Risk Management

While JKIL has achieved commendable success, it faces certain risk factors that need to be effectively managed to ensure sustainable growth and profitability. The Company proactively addresses various risks to safeguard its reputation, ensure sustainable growth, and maintain a competitive edge in the construction industry.

JKIL has implemented a robust risk management system, incorporating a comprehensive framework. The company swiftly identifies risks, evaluates their significance to customers, and takes decisive actions to minimize the likelihood and impact of losses. Risk management practices are ingrained at all levels and across functional areas. The framework includes risk identification, measurement, assessment, mitigation, and ongoing monitoring, all under the oversight of a dedicated Risk Management Committee. This committee reviews and approves credit offers, leads risk assessment and recognition, establishes risk assessment methods, develops policies and procedures, and ensures effective implementation. Additionally, the committee evaluates the efficiency of credit risk management policies, standards, and processes, while reporting risk and credit monitoring outcomes to top management and the Board.

Some of the key risks that the Company faces along with their mitigation strategies adopted are listed below:

Political Risks: The Company has operations in multiple locations in multiple states and is consequently subject to various geopolitical risks. Appropriate mitigation strategies are in place to address the same.

Competition Risks: There has been an increase in the number of operators in the niche segment that the Company functions in. However, the Companys competitive advantage is derived from experienced workforce, strong track record, technical expertise, financial strength, brand equity and regular engagement with Clients and representatives.

Operational Risks: To suit the project requirements, due care is exercised in the selection of sub-contractors, vendors, key technical and non-technical employees, insurance coverages, financial tie-ups, timely obtaining of Right of Way, designs and drawings etc. Identification of associated risks and initiation of mitigation measures are helping the Company to address the operational risks.

Working Capital Risks: Project delays, cost overruns and consequent delays in receipt of payments from the Clients lead to an increase in working capital requirement. There is a process of close monitoring and follow-up with the Clients for the timely approvals and payments for better working capital management.

Contract & Claims: In the competitive environment, to address the foreseeable litigations and claims, the Company maintains a robust documentation and follow up mechanism with Clients, subcontractors and vendors to address the related claims, disputes etc. To mitigate the possible risks due to the differences and disputes with the Clients, sub-contractors and vendors, the Company has a robust system and is in the constant process to identify, analyse, evaluate, and treat loss exposures, breach of contractual obligation and monitor risk control and financial resources to mitigate the adverse effects of loss.

Cyber security Risks: With increasing use of IT in business areas and as systems get interconnected, cyber security becomes an important challenge for the organization in order to protect its information and systems so as to maintain confidentiality, data integrity and to prevent loss of data. The Company has implemented a cyber-security framework to identify, detect and prevent such risks. The Company has been focusing on systematic communication of possible cyber risks and the remedial measures to be followed through awareness programs for all the employees concerned.

Human Resources

JKIL prioritises its human resources, recognizing their pivotal role in the companys success. With a focus on attracting and retaining top talent, the companys Human Resources department employs effective recruitment strategies to identify skilled professionals who align with the organizations values and objectives. The company emphasizes continuous employee development through comprehensive training programs, fostering technical expertise and promoting professional growth.

A robust performance management system ensures regular evaluations, constructive feedback, and recognition of outstanding contributions, instilling a culture of accountability and excellence. JKIL actively promotes employee engagement through open communication, teamwork, and various initiatives such as team-building activities and cultural programs. The company places a high priority on health and safety, implementing measures to comply with regulations, conducting regular safety training, and fostering a safety-conscious work environment. Furthermore, J. Kumar Infraprojects supports work-life balance by offering flexible work arrangements and provides competitive compensation and benefits packages to take care of its employees welfare. By nurturing a talented and motivated workforce, J. Kumar Infraprojects ensures the delivery of high-quality projects and drives the companys growth and success.

Internal Control

JKILs internal control and risk management system is designed and executed in compliance with the highest corporate governance requirements. Internal control systems are a vital aspect of the overall organisational structure, in which different personnel from across the organisational hierarchy collaborate to carry out their separate roles under the supervision of the Board of Directors. The Boards Audit Committee examines the efficacy of the internal control system from the yearly plan and audit results through compliance with accounting principles.

Cautionary Statement

According to applicable laws and regulations, certain statements and/or comments in the Management Discussion and Analysis that describe the Companys plans and projections may be regarded as forward-looking statements. Actual results could significantly differ from the forward-looking statements in this publication due to a number of risks and uncertainties.

The influence of Indias political and economic situations, the erratic nature of interest rates, new regulations and government efforts that could harm the Companys operations, and its capacity to carry out future plans are just a few of these risks and uncertainties. The Company disclaims all liability.