IGI Logo

Order book robust; second wave to impact execution

KNR Constructions reported a healthy performance in Q4FY21 wherein standalone revenue improved 38.5% YoY to | 935.8 crore aided by a) its strong order book position, b) receipt of appointed date in most of its projects and c) normalisation in labour availabilities and smoothening of raw material supply chain. Also, its operating profit margin was at an elevated 19.5%, down 227 bps YoY, on account of better project mix led by higher contribution by HAM and irrigation projects. Strong operating performance coupled with lower interest expense translated into healthy 72.8% YoY growth (to | 148.5 crore) in PBT. However, PAT improved 14.5% YoY to | 77 crore mainly impacted by higher tax to utilise MAT credit.

Healthy order book position…

At the end of Q4, KNR’s order book was at | 7,117.9 crore, mainly contributed by irrigation (43.7%), roads - HAM (25.5%) and roads - EPC (30.8%) segments. Including the recently won two HAM and one EPC projects (worth | 4322.9 crore), its order book position was robust at | 11,441 crore (4.2x book to FY21 revenues). With a handful of orders, the company is aiming to bag | 3,000-4,000 crore of orders in FY22. Going ahead, KNR expects its execution pace to get impacted in the near term with decline in execution efficiency currently at ~65% (from 95% in Q4) owing to unavailability of desired labours. With these, while it is internally aiming at | 3000 crore of topline in FY22, it has guided for flattish topline. Additionally, its operating margin may get impacted by less efficiency and higher volatility in raw material prices.

SPV receivables stretch working capital

KNR’s net working capital at the end of FY21 increased to 54 days (vs. 43 days in end-FY20) as the company has not drawn new debt at HAM levels, resulting in a sharp rise in receivables. The debt is likely to be drawn by its three HAM SPVs before its completion (over the next couple of months). The Telangana dues were at | 300 crore as of Q4 while the company has | 500 crore (including unbilled revenues) of total exposure towards Telangana projects, as on date. Going forward, KNR expects its dues to decline with clearance of pending bills with the normalisation of current situation. Also, KNR has achieved gross debt free status at the standalone level at the end of FY21 and has cash & cash equivalent at ~| 117 crore, which strengthens its balance sheet position.

Valuation & Outlook

KNR is a proxy play on increased focus on roads and overall infrastructure push. While H1FY22 could be muted, we expect a sharp pickup from H2. Considering a) strong execution, b) healthy margins, c) monetisation of BOT/HAM assets, d) healthy balance sheet and e) strong return ratios, we maintain BUY rating on the stock with an unchanged target price of | 270.

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

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