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Last Updated : Feb 17, 2020 03:15 PM IST | Source: Moneycontrol.com

KNR Constructions rallies 3% as brokerages remain bullish, see 13-36% upside after Q3

For Q3, KNRC reported strong set of numbers with margins (around 22.3 percent) surprising positively, led by healthy execution from the irrigation sector.

Sunil Shankar Matkar
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Shares of KNR Constructions gained nearly 3 percent intraday on February 17 after brokerage houses retained their bullish stance on the stock and expect 13-36 percent return in next one year after healthy earnings growth.

The stock has already gained 38 percent in the last one year. It was quoting at Rs 281.90, up Rs 5.20, or 1.88 percent on the BSE at 14:44 hours.

"At the CMP, KNR is trading at attractive valuations of 7.0x FY21E EV/EBITDA. Considering strong execution, best in class working capital, monetisation of BOT assets, healthy balance sheet and strong return ratios, we maintain buy recommendation on the stock with an SoTP target price of Rs 335 per share," said ICICI Securities.


Dolat Capital also said considering pick up in execution from Q4FY20E, healthy return ratios, a well-managed balance sheet, comfortable working capital, low debt: equity, and quality management, it maintained buy with a SOTP-based TP to Rs 345.

KNR has robust financials with (a) lean balance sheet (D:E of 0.2x), (b) strong execution capabilities (c) healthy operating margins (around 17 percent average over FY15-19) and (d) industry best working capital cycle (around 70 days).


For Q3, KNRC reported a strong set of numbers with margins (around 22.3 percent) surprising positively, led by healthy execution from the irrigation sector.

KNR Constructions' revenues grew strongly by 24.3 percent YoY to Rs 557.9 crore on account of strong execution. This includes arbitration claims worth Rs 4.6 crore received in Q3FY20. Adjusting for this, core revenues grew 23.3 percent YoY.

EBITDA margins expanded strongly by 220 bps YoY to 22.3 percent in Q3FY20 on account of higher proportion of revenues from HAM and high margin irrigation projects. PAT de-grew 22.9 percent YoY to Rs 40.2 crore on account of Rs 6.7 crore exceptional item, higher depreciation charges and higher interest in Q3FY20.

With order inflows of around Rs 1,300 crore in Q3FY20, KNRC's order book stands at Rs 5,890 crore (excluding Rs 640 crore HAM project pending financial closure). This translates into an order-book-to-sales ratio of around 2.6x trailing revenues.

KNR has entered into an agreement with Cube Highways to sell its entire stake in subsidiary 'KNR Walayar Tollways BOT project' for an Enterprise Value of Rs 529.27 crore, valuing at P/BV at 0.95x.

Management has guided for revenues of Rs 2,750 crore for FY21 with EBITDA margins of 18-19 percent.

"We believe, KNR fits perfectly in our thesis of a comfortable order book and a lean balance sheet (low risks of equity dilution). On the higher margins and change in revenue mix, we have revised our earnings estimate by 3.4/12.2 percent for FY21/FY22. We expect KNR to post a revenue/EBITDA CAGR of 19/12 percent over FY19-FY22E supported by ramp-ups from the existing order book," said Prabhudas Lilladher which maintained a buy rating on the stock with a revised SOTP of Rs 313 (earlier Rs 304).

"Gross debt continues to remain low at Rs 330 crore, of which Rs 190 crore is the promoter's loan," it added.

Anand Rathi also feels the growth momentum is unlikely to wane as more orders are likely to turn to contribute sooner than later, and as management looks for new orders (including fast-track irrigation orders).

"The balance sheet stays strong and is likely to turn significantly better on the receipt of monetisation proceeds from the Walayar-Vadakanchery project. An industry-leading cash-conversion cycle, low gearing and expected access to growth capital (from monetisation) are some of the key levers that continue to support our buy call, target Rs 320," said the brokerage.

While maintaining buy rating with a target of Rs 376, HDFC Securities said a strong balance sheet, periodic BOT/HAM equity churn and robust execution capability reinforced positive stance on KNR.

Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
First Published on Feb 17, 2020 03:15 pm