IGI Logo

Result marginally below our estimate

Execution to pick up

* KNR Construction (KNRC) delivered 12% YoY revenue growth (10% below our estimate) with EBITDA margin at 20.7% (v/s our estimate of 20%). The order book (OB) stood at INR100b (excluding recently won projects), with OB/revenue at 3.1x.

* KNRC received the appointed dates in two HAM projects in Jan’22, which should support execution in FY23E and FY24E. The company is debt-free at the standalone level. It has pending receivables of INR5.9b from irrigation projects and the management expects to recover INR1.5b by end-FY22.

* We cut our FY24E revenue/EBITDA/earnings by 10%/10%/13%, respectively, to factor in weaker-than-expected execution and subdued outlook on order inflows. With an order book of INR100b, we expect KNRC to clock 20% revenue growth over FY21-24, with EBITDA margin in the 18-20% range. Maintain BUY with an SoTP-based TP of INR360, implying 17% upside.

Execution below our estimates

* 3QFY22 snapshot: Revenue grew 12% YoY (flat QoQ) to ~INR7.7b in 3QFY22 and was 10% below our estimate.

* The EBITDA margin was robust at 20.7% in 3QFY22 (+103 bps YoY). EBITDA/ PAT grew 18%/2% YoY to INR1.6b/INR0.8b (v/s our estimate of INR1.7b/ INR0.95b), respectively.

* KNRC has won orders worth INR40b during FY22 YTD. The current OB stands at ~INR100b (excl. recently won projects), with OB/revenue ratio at 3.1x.

Key takeaways from the management commentary

* In 3QFY22, KNRC transferred its 49% stake in two wholly owned subsidiaries – KNR Tirumala and KNR Shankarampet – to Cube Highways. In relation to this transaction, KNRC has recognized a profit of INR214m, shown as an exceptional item in 3QFY22. The balance 51% stake sale for the above two projects will be completed by Jun’22.

* The 3QFY22 revenue split stood as follows: 34% for HAM, 36% for Irrigation, 20% for EPC, and 10% for others.  The company has won INR40b of projects in YTD FY22 and expects another INR20b of projects by end-FY22.

*  KNRC anticipates to clock a revenue of INR31b in FY22.

Valuation and view

* With receipt of appointed dates in two projects in Jan’22, execution is likely to pick up from the start of FY23. We expect some pressure on margins with decreasing share of Irrigation projects in the OB.

* We cut our FY24E revenue/EBITDA/earnings by 10%/10%/13%, respectively, to factor in weaker-than-expected execution and subdued outlook on order inflows. With an order book of INR100b, we expect KNRC to clock 20% revenue growth over FY21-24, with EBITDA margin in the 18-20% range. Maintain BUY with an SoTP-based TP of INR360, implying 17% upside.

To Read Complete Report & Disclaimer Click Here

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html SEBI Registration number is INH000000412

Above views are of the author and not of the website kindly read disclaimer