Maintain BUY on KNR Constructions - Stellar performance - HDFC Securities

Mr. Parikshit D Kandpal, CFA, HDFC Securities and Mr. Chintan Parikh, Institutional Research Analyst, HDFC Securities

KNR delivered another strong quarter, with revenue/EBITDA/APAT beating our estimates by 25/23/23%. The order book (OB) of INR 114bn provides revenue visibility of four years. Strong free cash flow generation of INR 2bn and Rs 3bn (inflows from Kerala BOT sale) during FY21 led to the company becoming net cash positive. Management has guided for INR 30-40bn/INR 30bn+ order inflow/revenue for FY22E. We maintain BUY on KNR with an increased target price of INR 288/sh (18x FY23E EPS, HAM 1x P/BV). We have increased our FY22/FY23 estimates by 14/3%, following its robust execution.

Another strong quarter: KNR reported revenue/EBITDA at INR 9.4/1.8bn, 25/23% ahead of our estimates. Finance cost reduced sharply to INR 43mn (- 70%/-76% YoY/QoQ) on KNR becoming a debt-free company. Adjusting for the INR 193mn taxes from previous years, APAT came in at INR 963mn (+43%/+24% YoY, 23% beat). Currently, all sites are operating at 60-65% efficiency. Timely approvals for the two recently won HAM projects in Kerala and normalisation of labour availability could help KNR achieve its INR 30bn+ revenue target. EBITDA margin guidance of 14-15% (our estimate ~19%) on higher commodity prices looks conservative. KNR would adopt the new lower tax regime from FY22.

Order inflow guidance of INR 30-40bn: In FY21, KNR received orders worth INR 82bn, taking the total (OB) to INR 114bn. Given the potential strong awarding by the NHAI, we believe this guidance is conservative. Currently, KNR has bid for five projects with average size of INR 10bn. KNR may evaluate other segments if they meet similar margin thresholds.

Virtually debt-free balance sheet; higher debtors from captive projects: Strong FCF generation of INR 2bn and INR 3bn from Kerala BOT sale during FY21 led to KNR becoming virtually debt-free. The sharp increase in debtors (INR 8.6bn vs INR 4.8bn on Mar-20) was largely from its own HAM projects (INR 5.2bn). Capex and HAM equity investment requirements for FY22 were at INR 1-1.3bn and INR 4bn respectively.

Deal with Cube for 3 HAM projects to happen if valuation is reasonable: COD for the three HAM projects, for which SPA has been signed with Cube, could be achieved by 1QFY22. After sharp reduction in debt, KNR is in a much better position. Given the impact of interest rate differential, the company will go through with the deal, only if the valuation is reasonable.

Shares of KNR CONSTRUCTIONS LTD. was last trading in BSE at Rs.233.9 as compared to the previous close of Rs. 227.6. The total number of shares traded during the day was 102022 in over 2198 trades.

The stock hit an intraday high of Rs. 234.4 and intraday low of 230.15. The net turnover during the day was Rs. 23726247.

Source : Equity Bulls

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