KNR Constructions is one of the leading companies in the Roads and Highways sector having executed 6,000+ lane km of projects across 12 states in India. The company also has an established presence in Irrigation and Urban Water Infrastructure Management.
KNR PAT was boosted by profit on HAM stake sale completion
KNR’s share price has grown at ~11% CAGR over the past five years (from ~₹ 158 in February 2018 to ~₹ 263 levels currently).
We value KNR at ₹ 305/share
Besides KNR, we like HG Infra in the EPC space.
|| crore||FY20||FY21||FY22||5 yr CAGR (FY17-22)||FY23E||FY24E||FY25E||3 yr CAGR (FY22-25E)|
|EBITDA Margin (%)||21.7||19.8||20.7||-||19.2||18.5||18.5||-|
KNR’s order book at the end of Q3FY23 stood at | 8,100 crore, majorly contributed by Roads - HAM (49%), Roads - EPC (28%) and Irrigation (23%) segments. Going forward, the company is targeting order inflows of ~| 4,000-5,000 crore during FY23, largely in roads segment. The company has indicated towards execution challenges with a) slowed execution pace in irrigation projects due to funding issues at government level and b) extended monsoon season impacting construction activities in M9FY23. Considering these, the company expects revenue to hover ~|3,500 crore during FY23 and | 4000 crore in FY24. In-line with these, we expect company to report ~12% CAGR during FY22-25E with margin to hover at ~18.5%.
KNR largely maintain lean balance sheet structure backed by its prudent strategy to mainly focus on an asset light business model and efficient manage working capital. With receipt from Cube deal and improved irrigation collection, it is debt free. Going forward, it has total equity requirement of | 732 crore (| 293 crore already invested till Q3FY23; | 78 crore estimated to be spent during rest-FY23, | 256 crore in FY24 and balance | 97 crore in FY25) towards already secured HAM projects. Despite these, we expect its debt to remain at minimal to zero levels with healthy operating cash flow generation arising from improved profitability, and better cash flow management. Further, its net working capital at the end of Q3FY23 improved to 53 days (vs 60 days at Q1 FY23 -end). We note that the company has become cautious towards incremental execution in Irrigation segment and is now focusing higher towards clearance of pending bills which would aid its working capital cycle to improve further.
KNR is a proxy play on increased focus on roads and overall infrastructure push. Considering a) strong execution, b) healthy margins, c) monetisation of BOT/HAM assets, d) healthy balance sheet, and e) strong return ratios. We maintain BUY rating on the stock with SOTP TP of | 305. Key trigger will be order inflow momentum in the near term
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