Buy KNR Constructions Ltd For Target Rs.377 - Yes Securities
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Robust execution
Our view
KNRC reported strong set of numbers in 2QFY23, despite onset of monsoon. Revenue grew 12% YoY to Rs8.5bn owing to pick up in execution of HAM projects and it included one?off income of Rs327mn w.r.t to arbitration income and early completion bonus. Despite inflationary pressure EBITDA margin came at 22.3% (vs 18.5% in Q1FY23). As of Q2FY23, KNR’s order book continued to decrease to Rs80bn from Rs90bn in FY22 as only one new order was bagged in H1 worth Rs343mn. Tendering pipeline is expected to be strong and management expects order inflows of Rs40?50bn in FY23E. Balance sheet continues to improve on account of healthy operating cashflows and low net working capital. Management has retained its revenue guidance of Rs35bn for FY23E and EBITDAM in the range of 18?19%
We remain positive on KNRC’s strong financials given its (a) lean balance sheet (b) strong execution capabilities (c) healthy operating margins (average 18% over FY15? 22) and (d) decent working capital cycle. It fits perfectly in our thesis of comfortable order book and lean balance sheet(lowerrisks of equity dilution). We have introduced FY25 estimates with Revenue / PAT growth of 14%/12% YoY. We maintain our ‘BUY’ rating valuing the EPC business at 18x FY25E EPS and HAM portfolio and BOT projects at 1x book value, to arrive at a TP of Rs377.
Result Highlights
* For Q2FY23, KNR’s revenues grew 12.2% YoY to Rs8.5bn (our estimates of Rs7.3bn) on the back of strong execution momentum in its order book.
* EBITDA grew 12.7% YoY to Rs1.9bn, with EBITDAM contracting 10bps YoY to 22.3%, (above our estimates of 17.9%) led by lower other expense.
* On the bottom?line front, adj PAT came in at Rs1.1bn, up 12.9% YoY (our estimates of Rs952mn), mainly attributed to better execution. Other income came in low at Rs76mn (below YSec of Rs131mn).
* At the CMP, the stock trades at a P/E of15.7x FY23E and 13.9x FY24E.
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