KNR CONSTRUCTIONS, Muted performance
Call & Research Report by HDFC Securities
Sector: Construction – Infrastructure
CMP Rs. 263, Target Rs. 335 (27% upside potential)
Target Period: 12 Months
KNR delivered a strong quarter, with revenue/EBITDA/APAT of INR 8.3/1.6/0.8bn beating our estimates by 1/(2)/(9)%. FY23 revenue guidance remained unchanged at INR 35bn, with the EBITDA margin pegged at 18-19%. At the standalone level, the gross/net debt (cash) stood at NIL/(INR 1.2bn) as of Dec’22 vs. INR 2/1.3bn as of Sep’22. The balance HAM equity requirement is INR 4.4bn as of Dec’22 with INR 0.8/2.5/1bn to be invested in Q4FY23/FY24/FY25. KNR incurred a Capex of INR 1.1bn in 9MFY23 vs. FY23 guidance of INR 1.5bn. The NWC days stood at 53 as of Dec’22 (vs. 54 as of Sep’22). The irrigation receivables as of Dec’22 stood at INR 6.5bn vs. INR 9 bn as of Sep’22. We cut our estimates to factor in lower margins. We maintain BUY with a reduced TP of INR 335/sh (18x Dec-24E EPS, HAM 1x P/BV).
● Financial performance: Revenue: INR 8.3bn (+8%/+2% YoY/QoQ, 1% beat). EBITDA: INR 1.6bn (-2%/-1% YoY/QoQ, 2% miss). EBITDA margin: 18.8% (-194bps/-44 bps YoY/QoQ); less than our estimate of 19.3%. Interest cost: INR 160mn (+151%/+90% YoY/QoQ); includes INR 90mn impact of interest on IT provisioning for prior period tax dues. Taxes: INR 840mn (+86%/+134% YoY/QoQ); has INR 250mn of IT search tax provisions and INR 270mn tax on an exceptional gain on HAM stake sale to Cube Highways. RPAT: INR 1.6bn (+61%/+51% YoY/QoQ). Exceptional Item: Profit of INR 1.4bn on the sale of stakes in its three HAM subsidiaries. APAT: INR 832mn (-2%/-7% YoY/QoQ, 9% miss); adjusted for IT search, tax provisioning and interest on the same as well as gains on the stake sale adjusted for tax.
● Stable OB; all eyes on NHAI Q4FY23 ordering: The OB stands at INR 81bn (~2.5x FY22 revenue). Captive (HAM project) works constitute 49% of the OB whereas state/central government/other orders constitute 36/11/4%. Geographically, the OB is diversified in southern India with Kerala/AP & Telangana/TN/Karnataka contributing 35/37/13/15%. Business segment-wise, irrigation/HAM/roads (others) account for 23/49/28% of the OB. Despite the aggressive competitive intensity, the NHAI bid pipeline is robust at INR 800bn. KNR reiterated its FY23 OI guidance of INR 40-50bn.
● Strong liquidity position: At the standalone level, the gross/net debt (cash) stood at NIL/(INR1.2)bn as of Dec’22 vs. INR 2/1.3bn as of Sep’22. The NWC days stood at 53 as of Dec’22 (vs. 54 as of Sep’22). With a strong collection in irrigation, receivables as of Dec’22 stood at INR 6.5bn (vs. INR 9bn as of Sep’22), and payment-related issues seem to be getting resolved. This will help alleviate concerns over the irrigation segment and speed up the segment’s execution.
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