Buy KNR Constructions; target of Rs 329: HDFC Securities

HDFC Securities' research report on KNR Constructions

KNR reported weak revenue/EBITDA of INR 9.3/1.7/, missing our estimates by 6%/3%. APAT, however, at INR 1.1bn beat our estimate by 6.5%. KNR maintained its FY24 revenue at INR 40bn+, with an EBITDA margin decreasing by 200-250bps from FY23 margin (at 18.6%) on likely delay in payments in irrigation projects due to the general election. The OB as of Jun’23 stood at INR 62.7bn with no new orders recorded during the quarter. It is targeting INR 40- 50bn in new orders for FY24. The total project pipeline stands at INR 450bn, of which INR 220-250bn corresponds to NHAI/road orders and the rest are irrigation projects. Within the irrigation project, KNR is looking for partnership and is in talks with some partners (Patel Engineering, NCC and SEW) for mainly water pipeline-related work. Given the aggressive competition, the company is looking at projects from different segments like state highways, metro, railways and irrigation. The balance HAM equity requirement is INR 4.04bn as of Jun’23, of which INR 1.5/1.6/0.22bn will be infused in FY24/25/26. In addition, the three new projects won require a total equity infusion of INR 2.3bn, with 50%/25%/25% scheduled to be infused in FY25/26/27 resp.

Outlook

At the standalone level, KNR continues to enjoy a strong net cash position of INR 1bn. We maintain BUY with an increased TP of INR 329/sh (roll-over to 18x Jun-25E EPS, HAM 1x P/BV).

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