About the Company

KNR Constructions is engaged in the business of the infrastructure sector, primarily in the construction of roads, bridges, flyovers and irrigation projects.

Q3FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 564.85 470.56 20.04% 571.75 -1.21% 1617.98 1469.78 10.08%
PBT 58.8 59.52 -1.21% 90.05 -34.70% 207.73 189.22 9.78%
PAT 40.2 52.1 -22.84% 70.09 -42.65% 158 171.11 -7.66%

 

Consolidated Financials (In Crs)
Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 612.95 505.79 21.19% 614.39 -0.23% 1776.81 1579.16 12.52%
PBT 68.55* 58.1 17.99% 94.69** -27.61% 219.69*** 176.74 24.30%
PAT 49.96 50.5 -1.07% 74.64 -33.07% 169.86 158.33 7.28%

*includes an exceptional item of Rs 6.7 Cr

**includes an exceptional item of Rs 4 Cr

***includes an exceptional item of Rs 10.7 Cr

Detailed Results

    1. The consolidated revenues for Q3 were up 21.2% YoY.
    2. Consolidated PAT saw a modest decline of 1% YoY.
    3. The exceptional item of Rs 6.7 Cr in Q3 was due to impairment of KNR Walayar Tollways which is to be sold to Cube Highways with whom KNR has signed a SPA.
    4. EBITDA for Q3 rose 38% YoY.
    5. The consolidated EBITDA margin improved 240 bps YoY to 26.7% in Q3.
    6. It currently has 5 HAM projects worth Rs 6049 Cr.
    7. The company entered into a Concession Agreement for KNR Palani Infra Pvt. Ltd. (NHAI HAM) project worth Rs 920 Crores (BPC) in Tamil Nadu has been signed on 6th Dec ’19.
    8. The company has 2 irrigation projects from Megha Engineering & Infrastructure Ltd and Navayuga Engineering Company Ltd worth Rs 1697 Cr.
    9. The order book as of 31st Dec ’19 is Rs 5888.3 Cr out of which 49% are captive HAM projects.
    10. The top 5 road projects are of Rs 3155 Cr while other projects consist of Rs 1077 Cr. Irrigation projects form Rs 1654 Cr of the order book. The company has an additional Rs 920 Cr worth HAM projects which have not been included in the order book.
    11. The order book distribution is:
      1. Arunachal Pradesh: Rs 109 Cr
      2. AP & Telangana: Rs 3454 Cr
      3. Karnataka: Rs 1379 Cr
      4. Kerala: Rs 44 Cr
      5. Tamil Nadu: Rs 901 Cr
    12. The net-working capital days has stayed stable at 43 days.

Investor Conference Call Highlights

  1. The management has stated that interest costs were higher due to interest incurred in mobilizing advances for HAM projects going higher in Q3.
  2. Out of the 5 HAM projects, 3 projects have already been commissioned.
  3. The company is still following the old tax regime and the current MAT credit is Rs 60 Cr. The company will stay on this regime for the next 1.5-2 years until this credit is exhausted.
  4. In the Magadi project, 70% of the land is available and 80% of the project is expected to be completed in the next 6 months. In the Palani project, the company is waiting for confirmation on how much land is available for the project.
  5. In KNR Walayar, the company expects to get all NOCs from all vendors in the next two weeks.
  6. The company expects to get Rs 1000-1500 Cr by the end of FY20. The majority of these projects will be HAM.
  7. The company is targeting 2 road projects and 1 irrigation project in the next month.
  8. Standalone debt is Rs 329 Cr including Rs 194 Cr of promoter debt.
  9. The revenue contribution of irrigation projects is 30% in Q3 and 20% in 9M.
  10. The land acquisition in the Navyuga project is pending as the company has only 1 km of the 6 km required. The management expects this project to go slowly as more and more land is available.
  11. The Capex in 9M is Rs 120 Cr. The management expects to complete the current order book by March 2021. The company will be able to have clarity on Capex plans for FY21 in Q4.
  12. The company has acquired 90% of land in Srirangam. The company is short of 4-5% in the Mangaluru project which is expected to be done by end of Feb. The Tirupati project land acquisition is already above 90% and the company has also applied for a 50% grant from NHAI in this project.
  13. The company is confident of achieving the 3rd milestone in the Trichy project in time.
  14. The management has expressed its intention to bid on the Mumbai-Delhi Expressway. The company is targeting 10-15% revenue growth in FY21. The revenue target for FY20 is Rs 2500 Cr.
  15. For the 2 remaining HAM projects, the total equity requirement is Rs 120-125 Cr in FY21.
  16. The irrigation projects which are not part of the backlog are Rs 655 Cr project from Megha Engg and Rs 847 Cr project from Navayuga.
  17. The company will be completing 60-65% of the Magadi project next year.
  18. The management has stated that the company needs to add 2000-3000 Cr in FY21 to maintain its revenue growth.
  19. The company is expecting tenders in Kerala to go through in March.
  20. The company expects to realize any arbitration claims only in FY21.
  21. The company will be realizing the profits from sales to Cube only on the date of completion of projects which is expected to be in FY21.
  22. The management has clarified that subcontracting has gone down as the projects requiring subcontracting has gone down. Only when the project is Rs 100-150 Cr does the company looks to subcontract.
  23. The company has receivables of Rs 350 Cr where Rs 320 Cr is from SPVs and thus the company is not going for debt raising at SPV level.
  24. The management has stated that debt levels should stay stable at the standalone level.
  25. The arbitration award in favour of KNR is Rs 600 Cr.
  26. The management is not expecting too many orders from the 3 capital formation in Andhra Pradesh fir itself. This is because most of the road projects there are being done by central govt and the state govt is mainly commissioning building projects.

Analyst’s View

KNR has been one of the top performers in the construction industry this year. Despite the industry headwinds and the general plight of the companies in this sector due to delay in payments from NHAI, KNR has been able to clock an impressive 21% revenue growth while improving its margins substantially. It remains to be seen how long the company can manage to maintain its current margin profile which is among the best in the industry. It also needs to be seen how will the road projects announced by in the Union Budget in January will be awarded and how many will the company be able to win. Nonetheless, given the company’s spectacular performance so far in FY20 and its robust balance sheet, KNR remains one of the best construction stocks to watch out for.


 

 

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 571.75 425.1 34.50% 481.37 18.78% 1053.13 999.22 5.40%
PBT 90.05* 45.26 98.96% 58.88 52.94% 148.93 129.69 14.84%
PAT 70.09 45 55.76% 47.71 46.91% 117.81 119 -1.00%

 

Consolidated Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 614.39 460 33.56% 549.45 11.82% 1163.85 1073.37 8.43%
PBT 94.69* 35.94 163.47% 56.44 67.77% 151.13 118.64 27.39%
PAT 74.64 35.62 109.55% 45.26 64.91% 119.9 107.83 11.19%

*includes an exceptional loss of Rs 4 Cr.

Detailed Results

    1. The consolidated revenues for Q2 were up 34% YoY.
    2. Consolidated PAT saw a big rise of 163% YoY.
    3. The consolidated EBITDA margin improved 410 bps YoY to 27% in Q2.
    4. It currently has 5 HAM projects worth Rs 6049 Cr.
    5. The company has received an arbitration claim in one of its projects amounting to Rs. 57.15 Cr in the quarter (including interest of Rs. 21.75 Cr).
    6. The company received LOA for an irrigation project worth Rs 850 Cr from Megha Engineering & Infrastructure Ltd.
    7. The order book as of 30th Sep ’19 is Rs 5146.8 Cr out of which 43% are captive HAM projects.
    8. The top 5 road projects are of Rs 2732 Cr while other projects consist of Rs 563 Cr. Irrigation projects form Rs 1850 Cr of the order book. The company has an additional Rs 2064.5 Cr worth HAM projects which have not been included in the order book.
    9. The order book distribution is:
      • Arunachal Pradesh: Rs 109 Cr
      • AP & Telangana: Rs 3461 Cr
      • Karnataka: Rs 492 Cr
      • Kerala: Rs 71.2 Cr
      • Tamil Nadu: Rs 1013 Cr
    10. The net-working capital days has stayed stable at 42 days.

Investor Conference Call Highlights

  1. The management maintains that road and highway makers have continued to have muted performance in the year so far. The contract awarding has remained low and projects have been going slowly due to issues relating to land acquisition and funding.
  2. The management expects NHAI to be awarding almost 6000 km of projects in the rest of the year.
  3. NHAI has a pipeline of projects of Rs 7,00,000-8,00,000 Cr for the next 3 years.
  4. In the company’s Chidambaram project, the concessional agreement has been deemed as terminated as NHAI was unable to provide the required 80% of the land required due to disputes.
  5. The company has a total of 2 BOT annuity projects, 2 BOT toll projects and 5 HAM projects currently. It also has 2 irrigation projects in addition to the above.
  6. The progress in the company’s ongoing HAM projects is as follows:
    • Chittor to Mallavaram: 5%
    • Ramsanpalle to Mangloor: 4%
    • Trichy to Kallagam: 5%
  7. In the Walayar Tollways BOT project, the average toll collection is at Rs 18.6 Lacs per day. The company is looking for other opportunities to monetize this project. In the Muzaffarpur Barauni Tollway project, the average toll collection is at Rs 22.65 Lacs per day.
  8. The company is planning to bring in an additional Rs 1000-1500 Cr of orders in the rest of the year.
  9. The management has decided to follow the old tax regime to use up their MAT reserves which will take around 2 years to get used up.
  10. The revenues from irrigation projects were 18% of revenues in Q2.
  11. The Capex done in H1 was Rs 142 Cr.
  12. The Capex may go up to Rs 200 Cr for the whole of FY20.
  13. The revenue guidance of Rs 2300-2400 Cr for FY20 remains intact for the management.
  14. The management has guided that they should get margins of 15-16% from road projects and >20% from irrigation projects.
  15. Employee costs have risen sharply in the current quarter because of the payment of variable bonuses to the employees and directors of the company.
  16. The company has stated that it has not faced any problems with billing and dues payment from NHAI on the surface.
  17. The equity requirement for the 2 pending HAM projects is around Rs 220 Cr.
  18. The management has guided for revenues above Rs 2600-3000 Cr in FY21.
  19. The management has maintained that they will not stretch themselves by bidding for more HAM projects than what they can handle and they will be bidding for high margin projects since they have the strength of balance sheet to compete effectively for such projects.
  20. The management expects the other income figure of Rs 30 Cr for FY20 for the company.

Analyst’s View

KNR has been one of the top performers in the construction industry this year. Despite the industry headwinds and the general plight of the companies in this sector due to delay in payments from NHAI, KNR has been able to clock an impressive 34% revenue growth while improving its margins substantially. The company has done well to maintain a healthy balance sheet to be able to compete effectively while bidding for attractive projects and have seen good success in bagging high margin irrigation projects. Furthermore, the management is optimistic that NHAI will be handing out a greater number of projects in the near future. It remains to be seen how long the company can manage to maintain its current margin profile which is among the best in the industry. It also needs to be seen whether they will be rewarded in time from the increased number of projects handed out by the NHAI. Nonetheless, given the company’s spectacular performance so far in FY20 and its robust balance sheet, KNR remains one of the best construction stocks to watch out for.


 

 

Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 481.38 574.12 -16.15% 730.85 -34.13%
PBT 58.88 84.42 -30.25% 101.37 -41.92%
PAT 47.71 74 -35.53% 92.15 -48.23%

 

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 549.45 613.32 -10.41% 786.68 -30.16%
PBT 56.44 82.69 -31.75% 112.52 -49.84%
PAT 45.26 72.2 -37.31% 103.46 -56.25%

 

Detailed Results

    1. The consolidated revenues for Q1 were down 10% YoY. This was mainly due to the delay in receiving an appointed date for HAM projects from the NHAI.
    2. Consolidated PAT saw a big decline of 37% YoY. This was mainly due to higher depreciation from irrigation projects and higher tax expenses.
    3. The consolidated EBITDA margin declined 100 bps YoY to 21.8% in Q1.
    4. The company recently won an NHAI HAM project worth Rs 920 Cr in Tamil Nadu.
    5. It currently has 6 HAM projects worth Rs 6531 Cr.
    6. The company received LOA for an irrigation project worth Rs 847 Cr from Navayuga Engineering Company Ltd.
    7. The company’s credit was revised to AA- Stable from A+ Positive by CRISIL and Care India.
    8. The company expects to get around Rs 262 Cr from the SPA with Cube Highways for 3 HAM projects.
    9. The order book as of 30th June ’19 is Rs 4633.8 Cr out of which 54% are captive HAM projects.
    10. The top 5 road projects are of Rs 3059 Cr while other projects consist of Rs 600 Cr. Irrigation projects form Rs 972 Cr of the order book. The company has an additional Rs 2546 Cr worth HAM projects which have not been included in the order book.
    11. The order book distribution is:
      • Arunachal Pradesh: Rs 125 Cr
      • AP & Telangana: Rs 2773 Cr
      • Karnataka: Rs 526 Cr
      • Kerala: Rs 104 Cr
      • Tamil Nadu: Rs 1104 Cr
    12. The net-working capital days has risen to 42 days from 36 days in Q4FY19.

Investor Conference Call Highlights

  1. The company expects around Rs 40-50 Cr to be added to next quarter revenues which should have been added in Q1.
  2. In the Chidambaram project, the company is facing issues regarding land acquisition and the NHAI is expected to take the critical decision regarding how to proceed here by the end of August. The company is not much concerned about the cancellation of this project as there are provisions in place within the government contract like penalties that shall help the company avoid losses here.
  3. The land availability in their projects is as follows:
    • Chittor to Malavaram:                  94%
    • Ramsanpalle to Mangloor:          80%
    • Trichy to Kallagam:                       83%
    • Meensuruti to Chidambaram:    64%
    • Magadi to Somwarpeth:              64% (expected to go to 80% in 2-3 months)
  4. The irrigation revenue has contributed to 10% of revenues in Q1.
  5. The monetization process for the Valyar project is on and the company should be able to get it on track by the end of the year. The company may suffer a loss of Rs 10-15 Cr on its investment into this project but they are hopeful of bagging the augmentation and other follow up projects after this one in the next 1-2 years.
  6. The company had seen the appointed date delayed for one of their irrigation projects in Q1 and they were not able to execute it as desired. They expect the revenues would be reflected in Q2.
  7. The management feels that they are on track to achieve their yearly revenue growth target of Rs 2400 Cr, most of which they expect to derive in Q3 and Q4 on the 3 HAM projects that the company has started execution on.
  8. The company expects to execute around Rs 500-600 Cr of orders in an irrigation project in the rest of the year.
  9. The standalone cash position is around Rs 20 Cr.
  10. Other than the 3 HAM projects whose shares are being sold to Cube, there is a fourth project in the SPA where the company has invested Rs 52 Cr and they will get Rs 95 Cr for it from Cube.
  11. The company shall continue to bid for both EPC and HAM projects based on the return estimates. They will also be looking to sell forward their stakes in these projects like in the case of the Cube deal.
  12. The receivables have gone up as the company has finished some work on HAM projects but they have not received any date of disbursement for this work. Thus this amount has been classified as receivables.
  13. The company expects the working capital levels to normalize from the Sep quarter onwards.
  14. The CAPEX for FY20 is around Rs 180-200 Cr. Capex for Q1 was Rs 90 Cr and most of it was done on the irrigation project.
  15. The depreciation rate from the irrigation projects is expected to touch around Rs 45 Cr in the coming quarters.
  16. The company expects the Palamuru irrigation project to be completed by the end of the year and the KP Sagar project is almost over.
  17. The standalone gross debt is at Rs 341 Cr including promoter debt of Rs 205 Cr.
  18. The total equity requirement for all projects is Rs 611 Cr and the company has invested Rs 183 Cr till date towards this amount.
  19. Here once the appointed date comes out the company can start construction and draw down the debt to 90% and Cube will come in and invest the remaining equity.
  20. The company will refrain from bidding aggressively as they are satisfied with the current pace of work and they do not want to jeopardize their balance sheet in current market conditions.
  21. The company has received a claim for an irrigation project for Rs 253 Cr which will come in Q2. The company expects claims of Rs 25-30 Cr to come in the rest of the year. The company expects to get the rest of the claims in the next 2 years. The total quantum of claims is around Rs 532 Cr.
  22. The company expects to bid for new HAM projects to come in from Q3 onwards.
  23. The time limit for the new irrigation projects is 15 months.
  24. The scope of work increased in Q1 is around Rs 100 Cr.
  25. The company expects all the older EPC projects except Hubli to be completed by the end of the year.
  26. The company is expecting EBITDA margins to stay at 17-18% in FY20 and this may rise if claims come through. Net profit margin is expected to be around 10-12%.

Analyst’s View

KNR Construction is one of the leading companies in the EPC work. It has a majority of projects in the roads and highway sector. With more than twenty years of experience in project execution and focus on quality work and timely completion has made a lot of name for them. Given the strong visibility of revenues due to healthy order book built up and their relentless focus on balance street strength, they are in a strong position to benefit in due course. Valuation at current levels is also very reasonable. They have a commendable Balance Sheet strength due to better working capital management and low debt on books. It is rare to find a construction company which has been consistently managed to produce free cash flows even in tough environment. However, the ability to translate order book into sales in a reasonable time would be a key metric to watch in the near term given the slowdown fears looming large.

 


 

Q3 2019 Updates

Financial Results & Highlights

Standalone Financials (In Lacs)

Q3FY19

Q3FY18 YoY % Q2FY19 QoQ % 9M FY19 9M FY18

9M% Change

Sales

 47,056 43,927   7.12% 42,510  10.69% 1,46,978 1,32,831

 10.65%

PBT

5,953 6,243   -4.65% 4,527  31.5% 18,922 18,704

   1.17%

PAT

5,211 6,569  -20.67% 4,500  15.8% 17,111 19,235

 -11.04%

Detailed Results

    1. The results for the current quarter for KNR have been modest with only 7% growth in revenues.
    2. The profit margins have deteriorated with a fall of 4.6% in PAT margin resulting in a decline of 20% in PAT YoY.
    3. KNR has already received financial closure for their Srirangam, Chidambaram and Shankarampet projects.
    4. The company has entered into share purchase agreements with Cube to sell the company’s stakes in the Srirangam, Chidambaram and Tirumala SPVs.
    5. The EPC order book of KNR has increased to Rs 15,41 Cr as of 31st Dec ’18.
    6. KNR has also won HAM orders worth Rs 56,11 Cr of which Rs 39,75 Cr has not been included in the order book yet.
    7. Right now, the majority of orders for the company have been from the South of India. The breakup of projects and their balance value are:
      • Karnataka: 9 Projects of Rs 551 Cr
      • Tamil Nadu: 7 Projects of Rs 314 Cr
      • AP & Telangana: 6 Projects of Rs 325 Cr
      • Kerala: 3 Projects of Rs 175 Cr
      • Arunachal Pradesh: 1 Project of Rs 174 Cr
    8. The net working capital days for the company stood at 26 days.

Investor Conference Call Highlights

  1. The order book as of 31st Dec ’18 consisted of 79% road projects and 21% irrigation projects.
  2. Of the road projects, 63% has been from NHAI and 37% has been from state authorities.
  3. The management expects the working capital days to stay in a range of 26-45 days for the near future.
  4. The company is also waiting on the government for taking decisions on irrigation projects where the company identifies that there is a significant opportunity for them.
  5. The company has already undergone capex of Rs 160 Cr for HAM projects as of 31st Dec and is expecting this to go up to Rs 200 Cr in this year.
  6. The company aims to restrict HAM projects in the future and will try and expand their EPC portfolio.
  7. The sales of the company’s stakes in Srirangam, Chidambaram and Tirumala SPVs to Cube is to be carried out in 2 phases.
  8. The first phase is to be completed after the achievement of the Commercial Operation Date.
  9. The second phase is to be completed after expiry of the mandatory lock-in period.
  10. The sales of the above stakes are estimated yield around Rs 262 Cr.
  11. The total consolidated debt for the company stands at Rs 718 Cr.
  12. The company has pending claims with the NHAI worth Rs 500 Cr which it expects to get resolved in 3 to 4 years.
  13. The company is expecting EBITDA margins of 14% to 15% in the HAM projects.
  14. The company also has 2 unopened HAM projects in the pipeline worth almost Rs 1000 Cr.

Analyst’s View

KNR Construction is one of the leading companies in the EPC work. It has majority of projects in the roads and highway sector. With more than twenty years of experience in project execution and focus on quality work and timely completion has made a lot of name for them. Given the strong visibility of revenues due to healthy order book built up and their relentless focus on balance street strength, they are in a strong position to benefit in due course. Valuation at current levels are also reasonable at around 14times earnings (TTM). Debt equity ratio is also very comfortable at 0.19. The most important factor to watch would be execution of projects in the next four to six of quarters.

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