KNR Constructions Ltd. share price target

KNR's order book (OB) was at a strong | 6,518.8 crore (including the recently won HAM project and Karnataka State Highways Improvement Project (KSHIP) HAM project), implying order book-to-bill ratio of 3.2x (on TTM basis). The OB consists of | 5,544.6 crore from roads division and | 972.8 crore from irrigation. On new orders front, it won Mallanna Sagar irrigation project worth | 850 crore in September, 2019. KNR is targeting another HAM order worth | 1,000-1,500 crore in FY20E. With this, we expect revenues to grow at 19% CAGR to | 3,031.1 crore in FY19-21E....

KNR has entered into share purchase agreement with Cube highways for 4 HAM projects wherein KNR will receive `3.58 bn against its equity investment of `2.0 bn (51% share). The average deal valuation works out at 1.8x P/B. Cube Highways will be investing 49% equity (1.9 bn) out of total requirement of 3.9 bn during construction period. On achieving CoD, Cube Highways will acquire 25% equity stake out of 51% from KNR and will acquire remaining 26% after expiry of lock in period (~2 years) post CoD. Thus, acquiring 100% stake from KNR....

Keeping in view of FY19 s high earnings base, we expect the earnings to normalize during FY19-21E with a revenue growth of 19.6 percent CAGR coupled with EBITDA margin of around 16.5 percent.

KNR delivered inline financial performance though execution could have been better. Delay in ADs impacted the same (Rs 500mn of work could not be billed). While we have cut our FY20E Revenue estimate by 7.1% to factor in back ended ADs, new wins in irrigation segment of Rs 8.5bn will drive EBIDTA margins higher. This has resulted in 1.3% cut to your FY20E EPS and 3.5% increase to our FY21E EPS. Kerala/Muzaffarpur BOT collection per day stood at Rs 1.9/2.7mn vs. Rs 1.8/2.4mn QoQ. KNR for its total Rs 2bn investment in 4HAM projects expects to receive Rs 3.6bn from Cube Highways. We maintain BUY. Key risks (1) Slowdown in government ordering (2) Higher crude and cement prices (3) Increase in interest rates and (4) Tightening liquidity in the financial sector. We maintain BUY on KNR with an increased SOTP-based TP of Rs 375/sh (valuing core EPC business 18x FY21EPS at Rs 315/sh, Subsidiaries Rs 60/sh) vs. Rs 363/sh earlier. KNR delivered Revenue/EBIDTA/APAT beat of 11/(2)/5%.

Soft Performance; Healthy Recovery on the Cards KNR Constructions (KNRC) has reported a soft performance in 1QFY20, mainly led by delay in AD for its key HAM projects and general slowdown in execution due to elections. Revenue declined by 17% YoY and 35% QoQ to Rs4.6bn, while EBITDA stood at Rs900mn (-18% YoY and -38% QoQ) vs. our estimate of Rs1bn. EBITDA margin continued to remain healthy at 19.4% mainly supported by higher revenue contribution from near-completion projects having highmargin components and the impact of IndAS 116. However, soft revenue booking along with higher finance cost and higher tax resulted in steep 36% YoY decline in net profit to Rs477mn. Current order book at Rs46.3bn (2.3x of TTM revenue) compared to Rs40bn in FY19 provides...

KNR Constructions' (KNRC) Q1FY20 revenue dropped 17% YoY to Rs 4.6bn, >20% under estimates due to deferred AD award.

View: Spike in execution in H2FY20E, maintain Buy KNR's revenue is down 16.5% YoY to 4.6 bn in Q1FY20 (33.5% below estimates), due to delay in receiving appointed date for HAM projects coupled with 400-500 mn worth of execution not billed in Q1FY20. The EBITDA margin fell 37 bps YoY to 19.4% (287 bps above estimates), due to higher construction and employee cost which was partially offset by lower other expense. EBITDA margins are on the higher side led by lower sub contraction cost and various irrigation projects are on the verge of...

KNR constructions (KNR), reported its Q1FY20 numbers and surprised us negatively due to lower than expected topline growth.

We recently interacted with KNR Construction's (KNRC) management to seek more clarity on the awarding activity of roads and irrigation projects. Management believes the ordering activity, primarily from NHAI, should pick up from August 2019. KNRC is looking to monetize its Walayer BOT project (invested Rs4bn), which is selfsustaining and has an average toll collection of Rs8mn/day. In our view, successful...

We recently met the management of KNR Constructions' (KNR) to understand its current business status and opportunities ahead. KNR is a focused road based EPC player that enjoys a strong execution track record and healthy balance sheet (0.19x currently). Revenues, PAT have grown at 20.7%, 34.0% CAGR to | 2,137.3 crore, | 263.3 crore, respectively, in FY1419. Currently, its orderbook is at | 5,900.6 crore (including three recently won HAM projects), 2.8x FY19 revenues. KNR is negotiating opportunities on irrigation projects worth ~| 1,500 crore. Overall, it expects order inflow...