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Buy KNR Constructions Ltd For Target Rs.310

A STRONG order pipeline to TENDER a bright prospect

Firmly placed to capitalize on the huge industry opportunity

* Robust tender pipeline…: We delved deep into the open tender pipeline (link) for Roads segment (at INR1,144b currently, and translating into 4,100kms of projects) and concluded that KNR Constructions (KNR)’s growth visibility beyond FY24 is likely to brighten notably. While the order inflows over the last couple of years have been tepid, we believe this strong tender pipeline can translate into decent order inflows for the company in the coming months.

* …to propel strong order wins: KNR is currently having an order book of INR80b and is aiming for INR30–40b of order wins in the remaining months of FY23. Though the management is also looking to bid in other regions within India, its focus area would continue to remain on the Roads segment. KNR is likely to go slow on bidding for Irrigation projects until its pending Irrigation order book is executed and payments are received from authorities.

* Balance sheet strength to weather any downturn: KNR would likely experience muted execution in FY23 due to heavy monsoons and delayed ramp-up in execution (from FY24 onwards) for several projects. However, it has the best balance sheet among the mid-cap Road EPC companies. KNR continues to follow an asset-light model and has reinforced its balance sheet further by monetizing the HAM projects.

* Strong execution with stable margin; reiterate BUY: Based on the current order book of INR80b, we expect KNR to clock 14% revenue growth over FY22-24, with EBITDA margin in the 18-19% range. We maintain our BUY rating with an SoTP-based TP of INR310, implying 25% potential upside.

* Key downside risks: slowdown in awarding and delays in getting the appointed date.

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