KNR Constructions - 3QFY17 Result Update - Beats Estimates on Better Execution - Reliance Securities

KNR Constructions (KNRC) has reported an above par performance in 3QFY17 marked by better-than-expected revenue booking (revenue surged by ~87% YoY to Rs3.80bn). A healthy order inflow in 1HFY17 and execution ramp-up in new projects led to better revenue booking. Whilst EBITDA rose by strong 77% YoY and 22% QoQ to Rs560mn, EBITDA margins stood at 14.7% (-83bps YoY and +212bps QoQ). Adjusted PAT grew by 11% YoY to Rs379mn on better operational profit. While we downwardly revise our revenue and earnings estimates by 11% and 5%, respectively for FY18E due to delay in certain projects and no order inflow in 3QFY17, we continue to maintain our positive stance on KNRC mainly owing to healthy order book (3.2x TTM revenue), strong balance sheet (0.1x net D/E) and sound execution credentials. Rolling over our valuations to FY19E, we reiterate our BUY recommendation on the stock with revised SOTP-based Target Price of Rs200.

Revenue Tops on Execution Ramp-up

Notwithstanding the cash crunch in the wake of demonetization, KNRC's recorded a robust and better-than-estimated revenue booking with revenue rising by 87% YoY to Rs3.80bn in 3QFY17 primarily owing to execution ramp-up from fresh projects (secured Rs29bn orders in FY16 & Rs18.0bn in 9MFY17E). While EBITDA surged by 77% YoY, EBITDA margin stood strongly at 14.7%. Though KNRC is likely to exceed its own revenue guidance of Rs12.0bn in FY17E, we envisage 15-20% revenue growth in FY18E owing to delay in certain key projects and no fresh order intake in 3QFY17.

Order Book Remains Healthy Despite a Pause

Its current order book at Rs42.4bn (3.2x TTM revenue) still appears robust, in our view. Notably, government orders account for 95% of its total order book, while 5% orders are from international clients.

Outlook and Valuation

Looking ahead, we believe that healthy order book, sound execution credentials and light balance sheet would fuel growth with revenue and APAT are expected to see 32% and 25% CAGR over FY16-FY19E. We roll over our valuations to FY19E and expand our target P/E multiple for parent from 12x to 13x (20% discount to Ahluwalia) on robust growth outlook and improving balance sheet. We reiterate our BUY recommendation on the stock with a revised SOTP-based Target Price of Rs200, valuing standalone business at Rs185 based on 13x FY19E earnings and Kerala & Bihar BOT at Rs15 (at 1x P/BV).

Shares of KNR CONSTRUCTIONS LTD. was last trading in BSE at Rs.179.3 as compared to the previous close of Rs. 177.05. The total number of shares traded during the day was 5750 in over 215 trades.

The stock hit an intraday high of Rs. 181.65 and intraday low of 174.1. The net turnover during the day was Rs. 1025573.

Source : Equity Bulls

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