Buy KNR Constructions; target of Rs 390: Motilal Oswal

Motilal Oswal's research report on KNR Constructions

In 1QFY25, KNR Constructions (KNRC) received certain arbitration claims. For like-to-like comparison, we have adjusted the same in revenue, other income, other expenses, and total taxes for 1QFY25 and have shown that the company as an exceptional item. KNRC’s 1QFY25 revenue declined 12% YoY at ~INR8.2b (12% above our estimate). The execution was primarily driven by the implementation of the road HAM projects. EBITDA stood at INR1.4b (vs. our estimate of INR1.6b) registering a 22% YoY decline. EBITDA margin stood at 16.6% (-210bp YoY) vs. our estimate of 17.4% for 1QFY25. In line with weak operating performance and higher tax outgo, APAT for the quarter de-grew 27% YoY to INR 807m against our estimate of INR946m. KNRC’s current order book stands at ~INR61b (incl. L1). The order pipeline looks promising, with expectations of INR60-70b in new project wins in FY25.

Outlook

We cut our revenue/EBITDA/APAT for FY26E by ~5%/5%/ 6%. We reiterate our BUY rating with a revised TP of INR390 (based on SoTP valuation). We value the EPC business at a P/E of 18x on FY26E EPS and BOT assets at 1x investment value.