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Result Highlights

* KNR Constructions reported topline growth of 39% yoy (at Rs.9.3 bn), much ahead of our estimate of Rs.7.6 bn topline driven by higher execution.  

* Operating margin remained at elevated levels of ~19.5% (‐228 bps yoy/ ‐24 bps qoq). This was in line with our estimates of 20% margins. The margins were strong due to execution of high margin irrigation projects.

* Higher tax outgo saw PAT grew by 15% yoy to Rs.770 mn.  

* Order book at the end of Q4 FY21 stood at ~Rs.115 bn. During the year, Company won projects to the tune of Rs.84 bn  

* The company has declared the divided of Rs 0.25/sh

Our view:

The Company has ended the year on strong note with Order book at ~4x FY21 revenues. We expect KNR to clock in topline growth of ~15% during FY22 driven the existing order book (excluding projects recently won as they would take time to start). We expect the margins to fall to ~17% (from usual levels of 19‐20%) primarily due to sharp increase in input costs which the Company may not be able to entirely pass on. The receivables position which has been impacted due to delayed payments from state projects is expected to normalize in next few months.

The focus on asset monetization is a key positive and would allow the Company to bag more projects. We have marginally revised our earnings estimates lower to factor in slower than expected execution due to COVID related restrictions in Q1 FY22 and increase in input costs. We maintain our BUY rating on the stock for target price of Rs.261 (based on SOTP valuation). We value the standalone business at 14x FY23 EPS and the investment in BOT asset at book value. 

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