KNR Constructions - Emerging Corporates : INVESTOR FORUM Key takeaways :: HDFC Securities

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

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

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KNR Constructions Execution to pick up in FY14; Buy :::Anand Rathi

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.

Ambit research report: KNR Construction - BUY - CMP: Rs195 - TP: Rs300

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INITIATING COVERAGE
KNR Construction — Building The Road To Growth

Initiate coverage with BUY: Target price Rs300
We initiate coverage on KNR Constructions (KNRC) with BUY and SOTP TP of Rs300 (valuing standalone business at Rs271/sh based on 9x FY12E earnings and AP-7 BOT at Rs30/sh based on DCF). We have not valued KNT-1 as it has been securitized and KNRC has realized the cash proceeds.
Significant discount versus peers
Our analysis suggests that KNRC is trading at 35% discount to the average peer group multiple, owing to: (i) muted order booking during FY10; and (ii) lull in order awards. During Q1FY11, KNRC has seen Rs8bn worth of order inflows taking the order book to Rs18bn and is currently L1 in orders worth Rs14bn. This robust order intake is expected to result in multiple expansion.
Order book to grow 3x, diversification on anvil
Momemtum in Road segment awards is expected to pick up in 2HFY11. Besides Roads, KNRC is evaluating opportunities in Pipeline and Contract mining via MOUs with other players. KNRC has pre-bid MOUs with large players in roads segment. We expect order book to grow 3x over FY12E.
Profitability and growth robust
KNRC has witnessed strong growth in last 5 years having delivered average 13-15% EBIDTA margins and 6-7% net margins. This has been on the back of higher average order drop size, own equipment bank and ownership in aggregate quarries. Ahead, KNRC is focusing on maintaining margins as they intend to enter at the pre-bid stage with key developers.
Balance sheet strong; CFO positive; D/E at 0.3x
Strong cash flow generation and high promoter holding gives comfort on future growth. D/E at low levels versus peer group, strong customer advances and high margins have resulted in strong cash flows. Low D/E gives adequate headroom for funding future growth.
BOT story intact; asset monetization freeing up capital
KNRC owns 40% in two BOTs — KNT-1 and AP-7. KNT-1 is already monetized through securitization and AP-7 is likely to be securitized in 3QFY11. This will free up Rs1bn for investment in other BOTs. Currently KNRC is L1 in a toll project on BOT basis in Kerala worth Rs7.4bn, LOA is expected in 3QFY11.