The Hindu Business Line : JMC Projects: Invest

JMC Projects is, however, not among the attractive stocks in the construction industry as it missed out on the early part of the infrastructure boom and does not have a stronghold in any particular segment.

Further, the company is just about recovering from erosion of net worth for a couple of years up to March 2004.

JMC Projects plans to raise Rs 46 crore through this rights offer and use the proceeds towards working-capital requirement, purchase of capital equipment and repayment of short-term loan.

Positive features

JMC Projects saw a 21 per cent growth in topline for FY-06. Increase in order-booking has propelled sales.

Work-on-hand, consisting of Rs 405 crore worth of independent projects and 50 per cent from joint venture contracts worth Rs 401 crore, lend visibility to earnings growth.

The order-book is relatively large, after factoring in revenues of earlier years.

Ability of the company to execute orders of this volume will, therefore, be a key factor driving its growth.

JMC Projects' operating profit margins also improved to 8 per cent for the quarter-ended June 2006 from 5 per cent in FY-06.

A good mix of order-book, with 35 per cent from relatively high-margin building projects such as IT parks and commercial complexes, may make up for lower returns from road projects.

The Agarwal-JMC joint venture for NHAI contracts may also offer a breakthrough for the company by providing a platform for future projects in the segment.

Repayment of high-cost debt from funds raised through a rights offer last year has also improved its overall capital structure.

Risks

Kalpataru Transmission's 49.9 per cent stake in the company gives the former the status of a corporate promoter.

This strategic move may culminate into Kalpataru becoming a parent company.

While synergies from this association may well improve JMC's prospects, an unattractive deal for JMC shareholders in the event of a merger with Kalpataru cannot be ruled out.

As the offer document is not clear on JMC's growth prospects arising out of this alliance, the issue remains a key risk.

Intense competition from established players and hike in raw material prices may also hamper the turnaround process.

Offer details: The rights issue offers shareholders two shares for every five held as on September 21.

Inga Advisors is the lead manager to the offer, which is open from September 30 to October 30.

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