Accumulate KNR Cons.; target of Rs 822: Geojit BNP Paribas

Q2FY17 revenue grew by 72% to Rs 373 cr, which is above our estimate. The improved executions in Madurai- Ramanathpuram Project, TVM Bypass, Tamil Nadu EPC projects have led to this stunning performance. EBITDA margin declined 309bps YoY to 15% in Q2FY17 owing to higher subcontracting & other expenses. KNR signed a share purchase agreement to sell their entire equity stake in two BOT assets to Essel Group Company. The total enterprise value of both assets is Rs 850 crore. This is in line with the company’s strategy to focus on their EPC business. We expect improving execution coupled with strong order book will stimulate the revenue to grow by 33% CAGR over FY16-18E.

Healthy order book & cost control mechanism will drive earnings at a CAGR of 17% over FY16-18E. We value standalone business at a PE of 14x (13x earlier) FY18E earnings on account of improved earnings outlook and BOT project at 1x P/B to arrive at SOTP price target of Rs 822 with an Accumulate rating.