KNR Constructions (2QFY15) : Fresh order wins remain the key. Maintain BUY :: HDFC Sec, link

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Fresh order wins remain the key
KNR Constructions’ (KNRC) 2QFY15 revenues of Rs
1,704mn (up 8% YoY) were below our estimate of Rs
2,000mn. However, stronger than expected EBITDA
margins of 17.8% vs. est. 16% (owing to lower
material expenses) led to EBITDA of Rs 304mn and
PAT of Rs 139mn that was in line with estimates.
Although order inflow has been muted in 1HFY15 at
Rs 2.2bn, management maintains its guidance of
fresh order inflows of Rs 20bn in FY15E. The company
has already submitted bids worth Rs 50-60bn
consisting mostly of NHAI projects and expects to
submit further bids between Nov-14 to Jan-15.
Owing to fresh order wins, we expect revenues to
grow at 18% CAGR over FY14-17E to Rs 13.8bn. We
estimate PAT CAGR of 16% over FY14-17E, marginally
below revenue CAGR owing to lower EBITDA margins
of ~14.6%. We expect KNRC to achieve RoEs of 12.6%
in FY16E and 13.9% in FY17E owing to strong
execution. We maintain our BUY rating with SOTP
value of Rs 341/sh. Our valuation includes Rs 275/sh
for standalone EPC business (9x P/E on average FY16-
17E EPS of Rs 30.5, 10% discount to multiples of mid
cap construction companies) and 1x P/B of
investments of Rs 66/share (Kerala BOT project and
land parcels).
 Order book remains steady : KNRC has an order
book of Rs 11.8bn as of Sep-14 (1.4x FY14 revenues)
with 95% of its order book concentrated in road
projects. As per KNRC management, the Kerala BOT
project will be completed in 2HFY15E (64% work
complete as of Sep-14) with CoD expected in Apr-15
(seven months ahead of scheduled CoD of Nov-15).
 All eyes on fresh order wins : KNRC’s management
maintains its guidance of fresh order inflows of Rs 20bn
in FY15E. The company has already submitted bids
worth Rs 50-60bn consisting mostly of NHAI projects
and expects to submit further bids between Nov-14 to
Jan-15.

LINK
http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3009859