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Order book diversification to aid margins...

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 of road projects across 12 states in India.

• KNR’s order book looks robust at Rs 7,453cr (including recently won 3 projects), which is 2x TTM revenue and provides revenue visibility for the next two years.

• In Q2FY24, revenue grew by 11% YoY, led by a pick up in execution of road projects.

• Gross margin improved by 347bps YoY to 54.7%, led by benign raw material prices and a drop in sub-contracting expenses. However, the EBITDA margin declined by 462bps YoY to 17.7% due to higher other expenses.

• The company guided FY24 revenue at Rs 4,000cr + with an EBITDA margin of 18%-19%. KNR is looking for diversification of the order book for tunnelling projects of railway and metro projects to aid margin visibility.

• We remain positive on a long term basis, given its strong order book, debt-free on standalone level (Consol. D/E 0.3x) and strong execution track record. We maintain Accumulate rating and value the core business at a P/E of 17x on FY25E EPS and BOT/HAM projects at 0.7xP/B to arrive at SOTP target price of Rs330.

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