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Strong order book provides visibility

KNR Constructions Ltd (KNR) is a leading EPC player largely focusing on national and state highway projects. KNR has successfully executed ~7,500 lane km road projects across 12 states in India

• Q3FY22 revenue grew by 11.7% YoY which is below our estimate due to tepid execution of new projects.

• Despite higher commodity prices, EBITDA margin improved by 103bps YoY to 20.7% due to fall in employee & other expenses.

• Order book stood at Rs10,009cr (31% YoY) which is 3.2x TTM revenue and adds revenue visibility for two to three years.

• The company has already received an order inflow of Rs4,000cr in 9MFY22 expects to add ~Rs2,500cr in Q4FY22 with a revenue target of Rs 3,100cr.

• We expect execution to pick up pace as the company has received appointed date for two HAM projects on Jan,22.

• Robust order book and strong execution track record to support growth prospects in the long term. We therefore, maintain our Accumulate rating and value core business at a P/ E of 16x on FY24E EPS and BOT/HAM projects at 1xP/B to arrive at SOTP target price of Rs354

Order book provides visibility

The company’s total order book stands at Rs10,774cr including recently won orders of Rs765cr. The order book to TTM revenue stays at 3.9x which provides strong revenue visibility for the next two to three years. On YTD basis, the company received an order inflow of Rs4000cr expects Rs2,000cr to 2,500cr of inflows in Q4FY22. The EPC & HAM orders constitute 74% of the order book while balance 26% is from irrigation projects. The equity requirement for eight HAM projects is at Rs1,105cr, of which KNR has already infused Rs480cr and the remaining will be invested in the next two years. We expect order inflows to pick up as the company has already submitted four bids (3 HAM & 1 EPC) for various road projects to NHAI.

Execution to pickup

Q3FY22 revenue grew by 11.7% YoY to Rs766cr which is below our estimate due to tepid execution in recently won projects. HAM projects comprise 34% of the revenue while Irrigation and other EPC projects constitute 36% & 30% respectively. The management is targeting a revenue of Rs3,100cr plus in FY22. Despite higher raw material prices, EBITDA margin improved by 103bps YoY to 20.7% mainly due to a decline in employee costs by 15% YoY and lower other expenses by 18% YoY. Further, lower depreciation and interest cost supported Adj. PAT to grow by 30% YoY to Rs101cr.

Key con-call highlights

• KNR received appointed date for KNR Ramanattukara (Rs2,150cr) Infra Pvt and KNR Guruvayur (Rs1,959cr) in January 2022.

• KNRC has transferred its 49% stake in KNR Tirumala (Rs137cr) and KNR Shankarampet HAM (Rs109cr) projects to Cube Highways Ltd. The balance 51% stake sale will be completed on or before Q1FY23 .

Valuations

Robust order book and strong execution capability provide revenue visibility over the next two to three years. We therefore, maintain our Accumulate rating and value the standalone business at a P/E of 16x FY24E EPS and BOT/HAM projects at 1xP/B to arrive at SOTP target price Rs354

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