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Fresh orders remains the key

KNR Constructions Ltd (KNR) is a leading EPC player, largely focusing on national and state highway projects. KNR has successfully executed ~8,700 lane km of road projects across 12 states in India.

* Q2FY25 revenue declined by 6.1% YoY due to slow progress in execution and a delay in approvals of projects awarding impacted the topline growth.

* EBITDA margin improved by 99bps YoY to 18.6% due to a significant drop in subcontracting expenses (56% YoY).

* KNR’s order book + L1 remains healthy at Rs 5,606 cr (1.4x TTM revenue). The company has not received any orders in H1FY25; however, the management remains optimistic for H2FY25 and increased the inflow guidance to Rs 6,000cr to Rs 8,000cr.

* We expect new orders to remain the key catalyst for stability in execution. The strong order pipeline worth Rs 2 lakh cr from NHAI will give more impetus to the order book.

* KNR is also targeting new segments like railways, irrigation, metro, tunneling, railways, and solar to cater to the revenue growth.

Outlook & Valuation

The opportunity in the infra space remains optimistic in the H2FY25. We expect the new order inflows and the benefit from diversification in segment will remain a key catalyst to be watchful for stability in execution. Due to the recent underperformance in the stock price, we expect most of the headwinds are factored in the price. We therefore revise our rating to Accumulate and value the core business at a P/E of 17x on FY26E EPS and HAM projects at 1xP/B to arrive at the SOTP target price of Rs 345.

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SEBI Registration Number: INH200000345