Buy KNR Constructions Ltd For Target Rs.362 - Yes Securities
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Playing to its strength
Our view
KNRC reported strong revenues in line with our estimates owing to pick up in execution in HAM and Irrigation projects resulting into healthy margins for 4QFY22 at 20.6%. Tendering pipeline continues to remain strong with NHAI and management expects order inflows of Rs40‐50bn in FY23E. Despite these headwinds, the company continues to maintain strong liquidity position with Rs2.2bn net cash position. Going forward, management observes delay in receiving payments for irrigation projects (Rs5.6bn due as on Mar’22) primarily from State Authorities as funds are being diverted towards welfare services. On the back ofthis development, management has guided for 10% revenue growth for FY23E.
We remain positive on KNRC’s strong financials given its (a) lean balance sheet (Debt free at Standalone level), (b) strong execution capabilities (c) healthy operating margins (average 18% over FY15‐21) and (d) decent working capital cycle. It fits perfectly in our thesis of comfortable order book and lean balance sheet (lower risks of equity dilution). We maintain ‘BUY’ rating valuing the EPC business at 18x FY24E EPS and HAM portfolio and BOT projects at 1x book value, to arrive at a TP of Rs 362.
Result Highlights
* For Q4FY22, KNR’s revenues grew 8% YoY to Rs10.1bn (in line with our estimates of Rs9.9bn) on the back of strong execution momentum in its order book.
* EBITDA grew 14% YoY to Rs2,088mn, with EBITDAM expanding 111bps YoY to 20.6%, (above our estimates of 18.3%).
* On the bottom line front, adj PAT came in at Rs1.1bn, up 46.5% YoY (in line with our estimates of Rs1.1bn), mainly attributed to lower depreciation and higher effective tax rate at 37.6% (vs YSec of 26.5%), due to Rs130mn impact of taxation related to previous years. Other income came in low at Rs185mn (below YSec of Rs354mn).
* At the CMP, the stock trades at a P/E of17.3x FY23E and 14.0x FY24E.
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