Buy KNR Constructions; target of Rs 236: Kotak Securities

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26 Aug, 2025 12:21

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Kotak Securities's research report on KNR Constructions

KNR Constructions is focusing on growing its order book by adding new projects in road and irrigation space. The company has strong bid pipeline in road sector from Hybrid Annuity Model (HAM) based projects in south India. The company targets to add Rs 20-25 bn per annum of new orders in FY18E and FY19E. It is well placed/L1 in ~Rs 16 bn of new projects in road and irrigation space which would help it in achieving its guidance. Its strong balance sheet with low net debt to equity at 0.1x gives edge over many of its peers in meeting funding requirement in future HAM projects. Its order book of Rs 33 bn (in Q1FY18) with all of its projects moving on expected lines and strong future order pipeline gives revenue growth visibility for FY18E and FY19E. We believe that Q2FY18 revenue will not have any major impact of rainfall in south and expect KNR to exceed its annual guidance of Rs 17-18 bn of revenue. The company has track record of beating its guidance and we expect the trend to continue looking at order book and future pipeline. We maintain our estimates and upgrade our rating on the stock to BUY (from Accumulate) with unchanged target price of Rs 236.

Outlook

KNR has track record of generating positive operating cash flows and low net debt equity at 0.1x which would help it in funding HAM projects. Based on current order book of Rs 33.4 bn and robust pipeline for future projects, we expect KNR’s revenue growth to remain strong. We maintain our FY18E & FY19E EPS estimates factoring in strong execution and positive outlook of the sector. The stock is trading at PE of 14.9x and 13.7x based on FY18E and FY19E EPS of Rs 12.5 and Rs 13.6 respectively after adjusting for BOT value of Rs 19 per share. We upgrade our rating on the stock to BUY (from Accumulate) due to recent correction and maintain target price of Rs 236 based on SOTP valuation.

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