KNR Constructions - Robust Order Pipeline to Drive Growth; Result Update Q2FY15 :: Edelweiss

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KNR Constructions Ltd. has reported better-than-expected Q2FY15 results on EBITDA and PAT front. Net sales for the quarter grew at a moderate pace of 8% YoY on account of flattish order backlog, while EBITDA and PAT beat our estimates with 18.9% YoY and 66.2% YoY growth. The beat in bottomline was driven by EBITDA margin, which expanded by 160bps YoY to 17.8%, as some projects came to near completion levels. The company expects sharp pick-up in order inflows in H2FY15 considering a strong bid pipeline. KNR has already submitted bids in INR 5000-6000 cr tenders, which include a ~INR 900 cr NHAI EPC project in Tamil Nadu (where it is lowest bidder, but finalization is subject to ministry approval). Further, it has a robust pipeline of over 70-80 tenders for which bids would be submitted in the next three months. The company has maintained FY15 order inflow guidance of INR 2000 cr, which would double its order book by FY15-end from the present level of INR 1183 cr. We believe that KNR is well placed to gain from the impending revival in the road construction space, led by the anticipated pick-up in NHAI project awarding activity.

Modest sales growth, but margins expand

The company’s net sales grew at a modest pace of 8% YoY to INR 170 cr on account of a flattish order book on a YoY basis. However, the company managed to maintain strong EBITDA margin at 17.8%, up 160bps YoY, led by lower material content (as orders that got executed were near completion). For H1FY15, the company has reported 15% EBITDA margin which is in line with what it had guided earlier. Strong margin in Q2FY15 resulted in beat in bottomline, with EBITDA and PAT growing at 18.9% YoY and 66.2% YoY, respectively. Besides, the interest expenses also declined on reduced debt. The tax rate for the quarter continued to be low on 80IA tax exemption being claimed by the company. The management has guided to maintain EBITDA margin at 15% on the current order book.     

Strong project pipeline, maintains FY15 order inflow guidance of INR 2000 cr

KNR has witnessed INR 223 cr of order inflows in H1FY15. The company expects strong order inflows in H2FY15 considering its robust bid pipeline. Presently, it has submitted bids in INR 5000-6000 cr project tenders and would participate in over 70-80 new tenders over the next three months. The present bid pipeline also includes NHAI EPC project of INR 900 cr in Tamil Nadu where it has quoted the lowest bid (L1) with L&T being the second lowest (L2) among six bidders. Since the bid price is 20% more than NHAI estimate, the project has gone for road ministry approval, which is expected to take two months for assessment. Further, it has submitted bids in INR 700-800 cr worth of projects in Karnataka. Besides, the company is targeting new opportunity in the elevated metro space. It is bidding for Lucknow Metro EPC contract through a joint venture (JV) route. Further, the company also has a bid pipeline of INR 1600-1700 cr from Telangana and AP, where construction activity is expected to gain traction going ahead post the long-pending political resolution.         

Order book at INR 1183 cr, expects to double by FY15-end

KNR presently has an order book of INR 1183 cr, which comprises 95% road projects (with 20% in-house orders from the Kerala BOT project). The order book is expected to more than double by the end of FY15, considering ~INR 2000 cr of order inflows guided for the year, led by strong opportunity in road EPC over the next six months. NHAI has over 5500 km of tenders in the pipeline, out of which over 3000 km is on EPC basis and are expected to be awarded in the next 6-8 months. 

Kerala BOT expected to be completed 6-8 months ahead of schedule

KNR’s Kerala BOT project is expected to be completed by April 2015 as against November 2015 - 6 to 8 months ahead of schedule. The management is expecting early completion bonus of INR 25-35 cr, as the partial toll collection is expected to begin from Q4FY15.

LINK
https://www.edelweiss.in/research/KNR-Constructions--Robust-Order-Pipeline-to-Drive-Growth;-Result-Update-Q2FY15/10005211.html