Buy KNR Constructions; target of Rs 364: HDFC Securities

HDFC Securities's research report on KNR Constructions

KNRC continues to outperform its growth guidance and delivered strong 4QFY18 revenue at Rs 6.2bn which was 25.9% above estimates. Revenue for FY18 came in at Rs 19.3bn (+25.3% YoY). EBITDA margin for FY18 was 20.0% on account of cost reversals in several near completion projects. We estimate sustainable margins to be around 15-16% after considering contribution from HAM projects.   Order book is now at Rs 63.0bn including Rs 39.8bn EPC works of the 5 HAM projects it won in 4QFY18.  KNRC is now focusing on completing financial closure. It has guided for ~25.0bn for inflows in FY19. Bidding will only be on the EPC front as KNR takes a breather from further HAM tenders. KNRC has delivered industry beating return ratios in the past.

Outlook

We believe it is set on a steady growth path with strong growth visibility, minimal leverage, lean WC cycle, a prudent bidding strategy and a good corporate governance track record. We continue to maintain BUY with SOTP of Rs 364/sh.