KNR Constructions | Q4 was no great shakes but analysts in high spirits

KNR Constructions | Q4 was no great shakes but analysts in high spirits

Neither did Q4 see any great shakes, nor does the share price tickle someone pink. Yet, analysts seem to be full of beans!

In the past three months, shares of KNR Constructions have dropped 3 percent and in the past one year, they are down 2 percent. The company reported consolidated net sales at Rs 1,245.33 crore in the quarter ended March, up 13 percent year-on-year, with net profit rising to Rs 147.27 crore from Rs 139.16 crore a year ago.

KNR Constructions, Hyderabad-based engineering, procurement and construction company, has major projects in the roads and highways segment with an established presence in irrigation and urban water infrastructure management.

Strong order book

KNR Constructions secured new orders worth approximately Rs 2,000 crore in the fourth quarter of FY23, taking its total order book to around Rs 8,900 crore. In FY23, the order inflow was affected by competitive intensity and overcrowding in the market. However, the company is now seeing opportunities in sectors such as railways, metros and irrigation.

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The order pipeline looks decent, with the company expecting Rs 4,000-5,000 crore in new project wins in FY24. KNR Constructions is actively exploring various opportunities in other sectors, such as urban development projects, metro and railways, and is also considering bidding in western regions, such as Maharashtra, analysts highlighted.

Including the three recent hybrid annuity model (HAM) road project wins, its order book remains healthy at Rs 8,872 crore, which is 2.4 times TTM or trailing twelve month standalone revenue, according to Sharekhan by BNP.

Even as some analysts have pointed out that the company faces intense competition along with delays in bidding opportunities in the short term, the company’s robust order book ensures revenue stability for the next couple of years.

“The robust tender pipeline in the road sector is expected to generate order inflows worth Rs 4,000-5,000 crore in FY24, which should support growth in FY25 and beyond,” said Motilal Oswal Financial Services. The brokerage firm has retained its ‘buy’ rating on the stock with a target price of Rs 320.

Diversification bodes well

Although the company’s main focus will be HAM projects, it is looking to diversify to other segments such as railways, metros and urban infrastructure, to expand its revenue stream beyond the road segment, analysts said.

The move into other segments will also help increase order inflows, they point out.

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With newer opportunities emerging in various infrastructure-related sectors, further diversification strategy augurs well for the company, said Axis Securities. The brokerage firm has a ‘buy’ rating on the stock with a target price of Rs 325.

Sharekhan also believes this diversification offers potential for expansion. Business segment-wise, HAM projects account for 50 percent of the order book currently, while other road and irrigation projects form 27 percent and 23 percent, respectively.

Concerns over irrigation receivables allayed

“Additionally, KNR's balanced financial position and reliable receivables in irrigation projects provide a sense of security,” added Sharekhan, which too has a ‘buy’ call on the stock with a Rs 301 target price.

With a strong collection in irrigation, receivables as of March 2023 stood at Rs 500 crore against Rs 650 crore as of December 2022.

Payment-related issues also seem to be getting resolved. According to HDFC Securities, this will help allay concerns over the irrigation segment and speed up execution in the sector.

HDFC Securities has also maintained a ‘buy’ rating with a Rs 318 target price.

Moreover, analysts believe the road construction company is well placed to benefit from the government's investments in infrastructure, particularly in roads and highways.

Capital expenditure outlay for the roads and highways sector was increased by more than 33 percent in Budget 2023-24.

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