Key takeaways from management meet
Order book visibility low. KNR Constructions’ (KNR) has an order book
of `20bn (2.9x TTM revenue), after deducting `6.8bn order from GVK. In
FY13, it bagged orders of `10bn, and is aiming at another `13bn in FY14.
Management is geared up to bid for upcoming EPC contracts from NHAI
and is currently negotiating with private developers for orders. Apart from
roads, it is also focused on diversifying into urban infra, irrigation and bridges.
Revenues likely to improve. For FY13, the company’s revenue declined 8%
yoy, despite receiving `480m early-completion bonus (Bijapur-Hungund tollroad).
Most of the benefit of the bonus was lost as a lot of equipment was idle
during the year. In 4QFY13, however, revenue grew 41% yoy, higher than we
estimated, following strong project execution in Karnataka and Nagpur. With
execution now picking up at its Kerela project (own BOT), management is
aiming at revenue of `9bn for FY14.
EBITDA margin to stabilise. For FY13, KNR clocked EBITDA margin of
16.4% (vs 17.7% in FY12). We estimate margins to be maintained at ~16.5%
over the next two years, backed by strong revenue growth.
Update on BOT projects. In May’13, KNR completed financial closure on
the Kerala project. So far, it has invested equity of `700m (of the total
`1.36bn committed), funded through internal accruals (`300m) and loans
(`400m). Moreover, the company has obtained all environmental and forest
clearances and work on the project has begun in 4QFY13. Further, it is
working on issuing NCDs to raise ~`400m from its BOT project in AP,
slated to be used to fund the remaining equity requirement for Kerala project.
Our take. Strong revenue growth is likely in FY14 with significant
contribution of its own BOT projects. We retain Buy with TP of `115. Our
SOTP target is based on 5x FY14e earnings, a 33% discount to other midcap
construction companies (`105) and 1x BV of investments (`10). Risks. Slow
road awards, high input costs, delay in obtaining clearances by clients.
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Order book visibility low. KNR Constructions’ (KNR) has an order book
of `20bn (2.9x TTM revenue), after deducting `6.8bn order from GVK. In
FY13, it bagged orders of `10bn, and is aiming at another `13bn in FY14.
Management is geared up to bid for upcoming EPC contracts from NHAI
and is currently negotiating with private developers for orders. Apart from
roads, it is also focused on diversifying into urban infra, irrigation and bridges.
Revenues likely to improve. For FY13, the company’s revenue declined 8%
yoy, despite receiving `480m early-completion bonus (Bijapur-Hungund tollroad).
Most of the benefit of the bonus was lost as a lot of equipment was idle
during the year. In 4QFY13, however, revenue grew 41% yoy, higher than we
estimated, following strong project execution in Karnataka and Nagpur. With
execution now picking up at its Kerela project (own BOT), management is
aiming at revenue of `9bn for FY14.
EBITDA margin to stabilise. For FY13, KNR clocked EBITDA margin of
16.4% (vs 17.7% in FY12). We estimate margins to be maintained at ~16.5%
over the next two years, backed by strong revenue growth.
Update on BOT projects. In May’13, KNR completed financial closure on
the Kerala project. So far, it has invested equity of `700m (of the total
`1.36bn committed), funded through internal accruals (`300m) and loans
(`400m). Moreover, the company has obtained all environmental and forest
clearances and work on the project has begun in 4QFY13. Further, it is
working on issuing NCDs to raise ~`400m from its BOT project in AP,
slated to be used to fund the remaining equity requirement for Kerala project.
Our take. Strong revenue growth is likely in FY14 with significant
contribution of its own BOT projects. We retain Buy with TP of `115. Our
SOTP target is based on 5x FY14e earnings, a 33% discount to other midcap
construction companies (`105) and 1x BV of investments (`10). Risks. Slow
road awards, high input costs, delay in obtaining clearances by clients.
Valuations
We retain a Buy with a target price of `115. Our sum-of-parts target is
based on 5x FY14e earnings, a 33% discount to other midcap construction
companies (`105) and 1x book value of investments (`10).
Risks
Slowdown in road awards.
High raw material costs.
Delay in securing clearances by clients.
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