KNR Constructions - Strong beginning, move toward a high-growth trajectory; Buy with a target price of Rs 742
KNR Constructions' Q1 FY17 set of figures were sturdy, aided by an execution pick-up on stalled projects of the last two quarters and a strong operational performance. We estimate a 30%/24% CAGR in revenue/PAT over FY16-18 following robust order inflows and its proven execution track record. We have a Buy on it, with a Rs. 742 target.
Revenue growth gaining momentum. KNR's Q1 revenue grew 74% yoy to Rs. 3.04bn aided by an execution ramp-up on earlier stalled projects, converting them to revenue growth. The EBITDA margin was 14.5% (16.1% a year ago, 14.8% last quarter). We expect revenue to record a 30% CAGR over FY16-18 with margins at ~15% as orders bagged in FY16/Q1 FY17 begin to contribute to growth in FY17/18.
Bottom line accelerates. Adj. PAT was Rs. 302m, up a huge 86.6% yoy, due to robust revenue growth coupled with a lower tax rate on MAT credit availed of. The better operational performance and lower tax outgo because of Sec. 80-IA of Income Tax Act benefits drove the higher 10% PAT margin.
BOT project update. The Kerala BOT project's toll collection was Rs. 95.8m. The company expects average toll collection of ~Rs. 1m/day. Muzaffarpur-Barauni achieved pre-COD in Jun'16 and collected Rs. 12.2m toll revenue in Q1 FY17.
Order book rising. The order book in Aug'16 is Rs. 49.2bn (4.9x TTM revenues) backed by ~Rs. 17.6bn inflows in the current fiscal. The company is aiming at orders of Rs. 10bn-15bn in the next eight months, offering strong revenue assurance.
Valuation. We expect the strong execution to contribute significantly to revenue growth in the next two years backed by its large order-book. We retain our Buy, with a sum-of-parts-based target of Rs. 742: construction: Rs. 694 at a PE of 14x FY18e and BOT projects: Rs. 48 at 1x Mar'16 BV. Risk: Execution hurdles.
Shares of KNR CONSTRUCTIONS LTD. was last trading in BSE at Rs.715 as compared to the previous close of Rs. 698.85. The total number of shares traded during the day was 9721 in over 808 trades.
The stock hit an intraday high of Rs. 716.3 and intraday low of 690.05. The net turnover during the day was Rs. 6870486.