KNR Constructions Ltd. share price target

Transaction of stake sale in KNR Walayar Tollways BOT project with Cube Highways is expected to be concluded by 1HFY21E. KNRC reported strong revenues with healthy margins for 4QFY20, beating our estimates primarily due to strong execution in key projects and rising...

12 June 2020 Though 4QFY20 revenues were lower than expectation, KNR Construction (KNR) outperformed on operating margins yet again. Higher interest outflow and depreciation owing to mobilization of HAM projects, coupled with (incl. The net cash balance sheet coupled with pending proceeds from monetization of road assets, provides key competitive advantage in bidding for newer projects. However, owing to the impact of COVID-19 related execution challenges in 1HFY21, we have cut our FY21E EPS by 25%, but raised FY22E EPS by 9%. We maintain our 4QFY20 revenue was down 6% YoY (17% below est.) to INR6.8b. EBITDA was flat YoY at INR1.5b (9% below est.); EBITDA margin came in at 21.7%, up 160bp YoY owing to higher contribution from high margin irrigation projects. Higher interest and depreciation cost coupled with lower other income led to 17% YoY decline in PBT to INR859m.

Construction remains one of the most severely impacted sectors due to the Covid-19 lockdown. The tolling at highways was stopped given the lockdown while execution of EPC/HAM projects has come to a blanket halt amid unavailability of labour and raw materials. We expect labour unavailability to persist even once the lockdown is lifted as it could take time for remobilisation of labourers. Also, even if the work at project sites resume within one or two weeks post the lockdown, the onset of the monsoon season from Q2FY20E could slow down execution, going ahead. Amid these...

Construction remains one of the most severely impacted sectors due to the Covid-19 lockdown. The tolling at highways was stopped given the lockdown while execution of EPC/HAM projects has come to a blanket halt amid unavailability of labour and raw materials. We expect labour unavailability to persist even once the lockdown is lifted as it could take time for remobilisation of labourers. Also, even if the work at project sites resume within one or two weeks post the lockdown, the onset of the monsoon season from Q2FY20E could slow down execution, going ahead. Amid these...

KNR Constructions (KNRC) continued to report robust operating performance in 3QFY20 despite lower-than-expected revenue booking. While revenue grew by 24% YoY to Rs5.6bn vs. our estimate of Rs6bn, EBITDA witnessed a stellar 38% YoY growth to Rs1.24bn vs. our estimate of Rs1.09bn. Adjusted for Rs37mn claim received for arbitration claim under revenue, EBITDA margin stood higher at 21.6% vs. 20.1% in 3QFY19 and 19.7% in 2QFY20. A meaningful increase in depreciation (led by higher capex in irrigation) and interest expenditures (due to mobilisation advances) and lower other income resulted in muted PBT of Rs588mn (-1% YoY and -35% QoQ). Further, KNRC's adjusted PAT declined by 14% YoY to Rs445mn owing to higher tax expenses....

KNR Constructions (KNRC) continued to report robust operating performance in 3QFY20 despite lower-than-expected revenue booking. While revenue grew by 24% YoY to Rs5.6bn vs. our estimate of Rs6bn, EBITDA witnessed a stellar 38% YoY growth to Rs1.24bn vs. our estimate of Rs1.09bn. Adjusted for Rs37mn claim received for arbitration claim under revenue, EBITDA margin stood higher at 21.6% vs. 20.1% in 3QFY19 and 19.7% in 2QFY20. A meaningful increase in depreciation (led by higher capex in irrigation) and interest expenditures (due to mobilisation advances) and lower other income resulted in muted PBT of Rs588mn (-1% YoY and -35% QoQ). Further, KNRC's adjusted PAT declined by 14% YoY to Rs445mn owing to higher tax expenses....

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. Q3FY20 revenue grew by 24% YoY due to strong execution of HAM projects & arbitration claim of Rs4.6cr. EBITDA margin improved by 222bps YoY to 22.3% due to 72% YoY fall...

Order book at | 6,523.3 crore as of Q3FY20 KNR's order book (OB) order book was at | 5,888.3 crore as of Q3FY20, implying 2.9x order book-to-bill ratio, giving revenue visibility ahead. This OB does not include | 920 crore Palani HAM project. KNR is looking forward to incremental | 1,000-1,500 crore order inflow in February, March, 2020 & | 2,000-2,500 crore in FY21E. On the execution front, the management has guided at completing the three ongoing HAM projects in FY21E. The KSHIP project has received appointed date in February, 2020 and execution is...

KNR Constructions (KNRC) continued to report robust operating performance in 3QFY20 despite lower-than-expected revenue booking. While revenue grew by 24% YoY to Rs5.6bn vs. our estimate of Rs6bn, EBITDA witnessed a stellar 38% YoY growth to Rs1.24bn vs. our estimate of Rs1.09bn. Adjusted for Rs37mn claim received for arbitration claim under revenue, EBITDA margin stood higher at 21.6% vs. 20.1% in 3QFY19 and 19.7% in 2QFY20. A meaningful increase in depreciation (led by higher capex in irrigation) and interest expenditures (due to mobilisation advances) and lower other income resulted in muted PBT of Rs588mn (-1% YoY and -35% QoQ). Further, KNRC's adjusted PAT declined by 14% YoY to Rs445mn owing to higher tax expenses....

KNR delivered yet another steady quarterly performance. Order wins are on track with 4QFY20 ask at Rs 8bn to meet the Rs 30bn FY20 order intake guidance. KNR has entered into Kerala BOT stake sale arrangement with Cube Highways for equity consideration of Rs 3.9bn (expected by Mar/Apr'20). For 3 HAM projects Rs 1.7bn investment, KNR expects to receive Rs 3.3bn over the next 4yrs. Strong balance sheet, periodic BOT/HAM equity churn and robust execution capability reinforces our positive stance on KNR. We maintain BUY. Key risks (1) Slowdown in government ordering (2) Higher crude and cement prices (3) Increase in interest rates and (4) Further liquidity tightening in the financial sector. We maintain BUY on KNR with SOTP-based TP of Rs 376/sh (valuing core EPC business 18x FY21EPS at Rs 317/sh, Subsidiaries Rs 60/sh). KNR delivered yet another steady quarter with Revenue/EBIDTA/APAT beat/(miss) of (0.4)/17/(12)% respectively.