KNR Constructions Ltd. share price target

Spike in execution from 2HFY19E post dip in 1HFY19E KNR's revenue grew 29.5% YoY in Q4FY18 to `6.2bn (19.2% above estimates) led by better execution. The EBITDA margin expanded 435bps YoY to 22.3% (135bps above estimates) due to lower subcontracting costs and few projects nearing completion having better margins. Depreciation has increased sharply by 152% YoY (up 32.2% QoQ) to `491mn due to higher asset utilization for couple of irrigation projects with shorter execution period. Adj. PAT grew sharply by 52.1% YoY to `797mn (81.7% above...

KNR constructions (KNR), one of best managed road constructer with light balance sheet, low working capital and one of the highest RoCE among peers, reported its Q4FY18 numbers.

KNR Constructions (KNRC) continued to report healthy performance in 4QFY18, led by superior execution and strong margins. Its reported revenue grew by 30% YoY and 44% QoQ to Rs6.2bn, while EBITDA surged by 67% YoY and 23% QoQ to Rs1.2bn. Order inflow from EPC remained muted during FY18 as EPC order intake (barring HAM) stood at Rs5.6bn during the year, taking order backlog to Rs23bn (1.2x FY18 revenue) as of FY18-end. Considering the recently won HAM projects (5 projects with an aggregate value of Rs56bn), KNRC can add Rs39.8bn to its EPC order book out of these HAM projects, which is likely to ensure sustainable growth for standalone business. KNRC expects EPC revenue flow from these HAM projects to start from 3QFY19...

4QFY18 revenue grew 29.5% YoY to INR6.2b, beating our estimate of INR4.9b, supported by smooth execution of projects in hand. Operating profit grew 67% YoY to INR1.2b, ahead of our estimate of INR0.98b, supported by better than expected 31 May 2018 4QFY18 Result Update Infrastructure execution. Operating margin expanded 430bp YoY to 19.3%, missing our estimate of 19.8%. PAT grew 52.1% YoY to INR798m, beating our estimate of INR450m, given lower than estimated tax rate (1.7% v/s estimate of 28.3%) and higher than estimated other income (INR183m v/s estimate of INR92m). 2018, order backlog stood at INR23.

KNR, primarily focused on road EPC, HAM and irrigation shall behold spike in growth in revenue from 2HFY19E as execution on recently won `44.7bn (EPC value `31bn) HAM projects kicks in. Albeit, the revenue is expected to decline during 1HFY19E due to slower execution pace on old projects impacted by project specific issues (land acquisition, etc.) particularly in road segment. The company will continue to focus on road and irrigation sector and expect fresh order inflow of `20bn/ `30bn in FY19E/ FY20E,...

We recently visited KNR's Pollachi to Coimbatore EPC project where we interacted with the top management of the company. The company is positive on its construction business in the longer run and believes that traction in order inflows...

KNRC has been able to ramp up order inflows by winning four HAM projects with an EPC business opportunity of INR31b, leading to order backlog of INR59b and providing revenue visibility of 3.3x its TTM revenue. Incrementally, KNRC expects order inflow of INR30b to materialize in 1HFY19 (two projects in Telanga and one KSHIP project), which will further boost its revenue visibility. With healthy order inflows and potentially strong order inflow piepline, concerns on growth have been addressed by the company With revenue growth visibility concerns being addressed by the company, focus has now shifted to successfully executing projects after achieving financial closure for the same. Currently, all the four HAM projects have 80% land available on 3D basis (publication of notification to acquire land in gazette) and expectation is to have 80% land availability on 3H stage (compensation being paid) by September 2018.

KNR Constructions, a strong player in road construction in south is focusing on growing its order book by adding new projects in road sector. The company has been awarded first Hybrid Annuity project (HAM) from NHAI of value Rs 10.2 bn in the state of Tamil Nadu. This is the first major road project bagged by the company in FY18E and would strengthen its order book to ~Rs 43 bn from Rs 33.3 bn at the end of Q3FY18. The company is also lowest bidder (L1) in another HAM project of Rs 11.7 bn in Karnataka where awarding is expected in near future. The company has strong bid pipeline of road projects in south India particularly in...

The EBITDA margin expanded 762bps YoY to 22.7% (592bps above estimates) due to lower subcontracting costs and few projects are nearing completion having better margins. Depreciation amount increased 123.9% YoY to `371mn due to higher asset utilization for...

KNR Constructions Ltd (KNR) is a leading EPC player largely focusing on national and state highway projects. KNR has successfully executed ~6,000 lane km road projects across 12 states in India....