KNR Constructions Ltd : Research Summary

CMP (Rs) = 254.60 (as on 07/09/2022)
High/Low (Rs) = 396/219
Market cap (Cr) = 6630
Avg. daily vol. (6m) Shares. = 497330
No. of shares (Cr) = 25.6

KNR Constructions Ltd, incorporated in 1995 is engaged in the business of the infrastructure sector, primarily in the construction of roads, bridges, flyovers and irrigation projects.

Some of the customers of the Co include National Highways Authority of India (NHAI), Ministry of Road Transport & Highways (MoRTH), Government of Telangana, Karnataka State Highway Improvement Project (KSHIP), Madhya Pradesh Road Development Corporation Ltd (MPRDCL), etc.

KNR Constructions Ltd (KNRCL) reported a healthy set of Q1FY23 numbers, leveraging its execution capabilities. The company reported revenue of Rs 891 Cr, up 20% YoY.

KNRCL has an order book of Rs 8,586 Cr (as of 30 th Jun’22), implying revenue visibility of over 2- 3 years. The Road sector is gaining significant traction on account of the central government’s proactive push for infrastructure development and incumbents like KNRCL are likely to be the key beneficiaries of the structural growth opportunities available in the sector. With a robust order book and better execution prowess.

The company’s order book break up is as follows: 30% from the Roads-others, 44% from the roads-HAM, and balance 26% from the Irrigation segment. In road projects other than HAM, 42% is contributed by the state government, 11% from the central government, and the balance of 3% comes from others. The company’s total order book currently stands at Rs 9,351 Cr, including a recently won HAM project worth Rs 765 Cr.

KNRCL’s overall margins were impacted by increase in commodity prices and slow execution of irrigation projects. Driven by these factors, the company reported EBITDA margins of 18.5%. The management has guided for EBITDA margins in the range of 18-19% in FY23. However, it indicated that based on the normalization of commodity prices, margins may remain at the current level.

Q1FY23 execution has been robust and road portfolio has contributed largely to the same while irrigation project execution has been lagging owing to payment stress from respective State Govts. Slowdown is expected in execution of irrigation projects till payment cycle is normalized.

Since 92% of the order book is executable, it provides a strong revenue visibility for the next two years. Over the years, KNRCL has emerged as one of the leading EPC (Engineering, Procurement & Construction) players in the Road sector.

The company’s working capital days stood at 60 days in Q1FY23 against 63 days in Q4FY22 .The company debt is Rs 125 Cr and Cash & Cash Equivalent stands at Rs 45 Cr as of 30 th June, 2022. Going forward the management expects the company to become debt free once the receivables are collected. For FY23 the minimum order inflow target is Rs 3000 Cr, revenue growth of 15% and EBITDA margins between 18-19% is expected.

With continuous development in the infrastructure space, a healthy and diversified order book position, efficient execution, asset monetization of HAM projects and a lean balance sheet we can expect a healthy upside movement in KNR Constructions Ltd.