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Research
KNR Constructions - Execution to pick up in FY14; Buy - Anand Rathi
Posted On : 2013-06-15 22:01:20( TIMEZONE : IST )
Key takeaways from management meet
Order book visibility low. KNR Constructions' (KNR) has an order book of Rs. 20bn (2.9x TTM revenue), after deducting Rs. 6.8bn order from GVK. In FY13, it bagged orders of Rs. 10bn, and is aiming at another Rs. 13bn in FY14. Management is geared up to bid for upcoming EPC contracts from NHAI and is currently negotiating with private developers for orders. Apart from roads, it is also focused on diversifying into urban infra, irrigation and bridges.
Revenues likely to improve. For FY13, the company's revenue declined 8% yoy, despite receiving Rs. 480m early-completion bonus (Bijapur-Hungund tollroad). Most of the benefit of the bonus was lost as a lot of equipment was idle during the year. In 4QFY13, however, revenue grew 41% yoy, higher than we estimated, following strong project execution in Karnataka and Nagpur. With execution now picking up at its Kerela project (own BOT), management is aiming at revenue of Rs. 9bn for FY14.
EBITDA margin to stabilise. For FY13, KNR clocked EBITDA margin of 16.4% (vs 17.7% in FY12). We estimate margins to be maintained at ~16.5% over the next two years, backed by strong revenue growth.
Update on BOT projects. In May'13, KNR completed financial closure on the Kerala project. So far, it has invested equity of Rs. 700m (of the total Rs. 1.36bn committed), funded through internal accruals (Rs. 300m) and loans (Rs. 400m). Moreover, the company has obtained all environmental and forest clearances and work on the project has begun in 4QFY13. Further, it is working on issuing NCDs to raise ~Rs. 400m from its BOT project in AP, slated to be used to fund the remaining equity requirement for Kerala project.
Our take. Strong revenue growth is likely in FY14 with significant contribution of its own BOT projects. We retain Buy with TP of Rs. 115. Our SOTP target is based on 5x FY14e earnings, a 33% discount to other midcap construction companies (Rs. 105) and 1x BV of investments (Rs. 10).
Risks. Slow road awards, high input costs, delay in obtaining clearances by clients.
