Weak Quarter; Order inflows key for growth recovery
About the stock: KNR Constructions is a leading company in the highways sector having executed 6,000+ lane km of projects across 12 states, along with established presence in irrigation and urban water infrastructure management.
• Reported ~14% revenue CAGR over FY19-24 and has consistently delivered industry-leading operating margin
Q3FY25 Performance: The reported standalone revenue at ₹743 crore was down 17.9% YoY. On adjusted basis, revenue stood at ₹ 708 crore, down 21.8% YoY, given the modest order book. Reported EBITDA margin stood at 20.4%. However, adjusted margin at 16.6% was up 30 bps YoY. At net level, reported PAT stood at ₹182 crore, up 113% YoY, owing to one-off gain. On Adjusted basis, PAT stood at ₹79 crore, down 7.6% YoY.
Investment Rationale:
• Muted inflows for FY25; Awarding activity poised to pick up in FY26: KNR’s orderbook stood at ₹5517 crore, 1.5x book to bill. It anticipates to capitalise on the accelerated tendering process, guiding for order inflows to the tune of ₹8000 crore over the next 5-6 months. We highlight that order inflows were muted, given that it lost out on major bids submitted under Railway and Metro segments. With no major orders expected in FY25 and delayed payments (irrigation projects), it expects topline degrowth of 10-15% for FY25 and ₹ 3500-4000 crore revenues in FY26 with margins maintained at 15%+. Consequently, we bake in ~3% CAGR over FY24-27E at ₹ 4512 crore, with major recovery in FY27.
• Enjoys a healthy standalone balance sheet: KNR enjoys a healthy standalone balance sheet with debt/cash of ₹27 crore and ₹19 crore as of Q3FY25. We highlight that it has targeted to monetize 4 HAM projects by FY26. It has invested approx. ₹589 crore across all its HAM assets and has an overall equity requirement of ₹900 crore. The additional equity requirement of ₹401 crore is to be infused over next ~2 years. We expect its debt to remain at minimal to zero levels with operating cash flow generation to fund for HAM equity infusion.
Rating and Target Price
• We like KNR as it enjoys a strong execution track record, completing projects on time/ahead of the schedule. The company also enjoys healthy balance sheet and strong return ratio. Only missing piece is order inflows, post which KNR could witness sharp improvement in growth visibility from FY27 onwards.
• We maintain BUY and value on SoTP basis at target price of ₹ 280/share
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