Published on 9/10/2019 11:36:37 AM | Source: Yes Securities Ltd

Buy KNR Constructions Ltd For Target Rs.293 - Yes Securities

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Delay in receipt of appointed dates hit execution

KNR Constructions Ltd reported subdued performance during Q1 FY20 largely impacted by delays in receipt of appointed dates for certain Hybrid Annuity (HAM) projects. During the quarter, topline degrew ~17% yoy to Rs.4.6 bn. Operating margin remained at elevated levels of ~19.5% aided by certain projects nearing completion. Weak operating performance and higher interest costs impacted bottomline performance. The company’s order book as at end of Jun’19 continues to remain healthy at ~Rs.65bn (including EPC value of 6 HAM projects). However, out of the portfolio of 6 HAM projects, the company is awaiting appointed dates in 3 projects constituting ~30% of its total order book value. The Company is targeting order inflow to the tune of ~Rs.15 bn during the remaining period of FY20. With projects coming under-execution, we expect company to clock ~17% yoy topline CAGR during FY19-21E. Earnings growth is likely remain healthy backed by high margin order book in hand. Also, Share Purchase Agreement (SPA) with Cube Highways to sell its entire stake in 4 HAM projects in a phased manner will allow KNR to focus on its core expertise of EPC. The stock is currently trading at 13.9x FY21E P/E. With recent correction in stock price, we upgrade the stock to a BUY for target price of Rs.293 (based on SOTP valuation).


While Order book is healthy, receipt of appointed date critical

KNR is currently sitting on the robust order book of ~Rs.65bn (~3x FY19 revenues) with majority of contribution from Roads (85%) segment. However, the company has able to commence execution only in 3 HAM projects, while awaiting appointed dates in balance 3 projects - mainly impacted by financial closure delays and land acquision problems. The receipts of appointed date, therefore, remains key for robust revenue performance. We expect 17% revenue CAGR during FY19-21E. 


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