Buy KNR Constructions; target of Rs 325: Motilal Oswal

Motilal Oswal's research report on KNR Constructions

In 3QFY24, KNRC did not secure any major orders. As of Dec’23, the order book stands at ~INR66b (considering order inflows post 2QFY24 and expected execution in 3QFY24). KNRC is expecting INR20-30b in new project wins in FY24 (earlier guidance of INR40-50b) as order inflows may be slower than initially expected due to upcoming elections. KNRC is exploring opportunities in various states for project bidding and is also considering selective bidding across infrastructure verticals. The company expects improvements in project execution within the irrigation order book in the coming months. Despite facing challenges in the execution of irrigation projects, KNRC foresees a potential improvement in project execution in the upcoming months. Management is expecting improved execution in 2HFY24, driven by the Road segment. KNRC is targeting to clock a revenue of INR40b in FY24E with margins in the range of 18-19%.  The order inflows have been weak so far in FY24; however, the tender pipeline remains robust and KNRC expects some order inflows to materialize soon. In line with muted awarding activity by NHAI in YTDFY24, KNRC has reduced its order inflow guidance for FY24 to INR20-30b. With the existing order book of ~INR66b, we expect a 10% revenue CAGR over FY23-26.

Outlook

EBITDA margin is expected to be ~18-19%. We reiterate our BUY rating with a TP of INR325 (SoTP-based valuation). We value the EPC business at P/E of 14x on FY26E EPS and BOT assets at 1x Investment value.