Buy KNR Constructions; target of Rs 290: Motilal Oswal

Motilal Oswal's research report on KNR Constructions

Revenue grew 4.4% YoY to ~INR9.3b (in line) in 1QFY24. The performance was primarily driven by the progress made in Road HAM projects, while there was minimal execution in the irrigation segment. EBITDA grew 5% YoY to INR1.7b (in line); EBITDA margin stood flat YoY at 18.6% (est. 18.5%). APAT increased 5% YoY to INR1.1b (in line). KNRC has not secured any new orders in 1QFY24 and the current order book stands at ~INR80b. The order pipeline is decent at INR450b, with KNRC expecting INR40-50b in new project wins in FY24. KNRC is exploring opportunities in various states for bid project bidding and is also considering selective expansion into other infrastructure verticals. Although the execution of irrigation projects has been subpar, KNRC anticipates a potential improvement in project execution over the upcoming months. The robust tender pipeline in the Road sector is expected to generate order inflows worth INR40-50b in FY24, which should support growth in FY25 and beyond. With the existing order book of INR80b, we expect an 11% CAGR in revenue over FY23-25. EBITDA margin is expected to be around 18-19%.

Outlook

We cut our EPS estimates by 7%/5% for FY24/FY25 to factor in lower margin outlook, due to slower execution of high margin irrigation projects. We reiterate our BUY rating with a revised TP of INR290 (SoTP-based valuation).