Kridhan Infra Ltd Research Report By BOB Capital Markets

Kridhan Infra Ltd.

Possible re-rating on cards : maintain BUY

Kridhan Infra is a 2nd largest player in Foundation Engineering in Singapore with ~10% market share, having executed over 250 projects overseas and 11 projects in India. It has presence in 5 countries with strong in-house technical skills in piling work to dig up to 60-90 meters. Its expertise in construction and infrastructure projects like Metro Rail, Ports, Industrial Projects, and Commercial & Residential Buildings, augurs well to capture the potential opportunities going ahead. It is one of the few specialist in piling work in India, with an order book of Rs. 7.9bn (as on June 2017).

Well positioned to benefit from the growing construction industry in Asia and India:

Building and Construction Authority (BCA) of Singapore, forecasts Singapore construction demand to grow more than 7%. The projected growth in construction is due to an increase in demand for building and civil engineering work. Kridhan infra’s ~80% of revenue contribution is from Singapore. Government of India is focusing on development of rural and urban region by taking initiatives on new schemes like Pradhan Mantri Awaas Yojana, Smart Cities Mission, Pradhan Mantri Gram Sadak Yojana, Affordable housing etc. The company is eyeing in-organic growth to capture the potential opportunities in India. It’s expertise in Foundation & Engineering and EPC (especially after acquisition of Swee Hong), and steady execution coupled with evolving opportunities in Singapore as well as India, would lead to traction in order inflow (to ~Rs.900-1000cr.), ensuring sustained and consistent revenue visibility going forward.

Transformational Acquisition to top up existing revenues:

Kridhan Infra through its Singapore subsidiary KH Foges Pte has acquired a majority stake of 56% in Swee Hong Ltd., a Singapore leading public listed EPC company. Swee Hong’s order book as on 31st March 2017 is $80.9mn (SGD to INR: 46.41). Its revenues grew by ~76% YoY which shows financial turnaround and we believe it would significantly drive new order inflows in the next couple of quarters. Kridhan would see an upsurge in order book due to higher inflows from overseas and better bidding capacity due to acquisition. We believe, its revenues would grow at a CAGR of ~35% over FY17p-FY19e due to a full year consolidation of Swee Hong accounts, new projects in Singapore & India EPC business, steady growth in Singapore foundation engineering business.

Valuation:

At CMP of Rs. 75, Kridhan Infra is trading at PE of 12.2x/ 9.3x/6.0x in FY17p/ FY18e/FY19e respectively. We expect revenue/earnings to grow at 35%/ 42% during FY17p-19e respectively driven by huge opportunities in Singapore, potential growth in Infrastructure sector in India. Going forward, significant addition in the top and bottom line, through Swee Hong’s acquisition, is expected coupled with improving profitability of other subsidiaries. We would like to maintain the PE till the time we don’t see significant traction in order book. We maintain our BUY rating with a price target of Rs. 150 (at PE of 12x EPS of FY19e).