KNR CONSTRUCTION

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KNR Construction is a 25 year old ISO 9001:2000 Certified company engaged in infrastructure sector and undertaking Turnkey EPC contracts and BOT & HAM projects on public-private partnership basis.

Established in 1995, KNRCL has evolved into a multi domain infrastructure project development company. It is amongst the industry leaders in providing EPC as well as BOT solutions across several fast growing segments with a main forte in roads, highways,  flyovers and bridges. It also focuses on other important segments like irrigation projects, urban water infrastructure management and agriculture.

KNR is planning forays into new business areas while strengthening existing business activities and investing in infrastructure.

Strengths

KNRCL has the following competitive strengths:

• Significant experience and strong track record in, timely and successful execution of projects.
• Repeated orders received by us on continuous basis.
• Good clientele base.
• Qualified and experienced employees led by a proven management team.
• Expertise in sourcing and maintaining supply chain for raw material.

Business Strategy

Company intend to achieve our growth objectives by adopting the following strategies:

• Maintain performance and competitiveness of existing business to capitalize on huge investments expected to be made in infrastructure development especially in segments where we presently operate.
• Focus on EPC Projects in the infrastructure sector.
• Focus on projects involving higher degree of engineering skills.
• Qualified and experienced employees led by a proven management team.
• Leverage business growth by identifying and forming strategic joint venture relationships for mutual benefit through sharing of resources and business skills.

Clientel

Orderbook at | 6,681.8 crore as of Q2FY20 -:

KNR’s order book (OB) was at a strong | 6,681.8 crore (including the recently won HAM project and Karnataka State Highways Improvement Project (KSHIP) HAM project), implying order book-to-bill ratio of 3.1x (on TTM basis). The OB consists of | 4,830.6 crore from roads division and | 1,850.4 crore from irrigation. On the new orders front, it secured order inflows (OI) worth | 1,800 crore (comprising | 1,700 crore irrigation projects and | 100 crore from change in scope at certain projects). KNR is targeting incremental OI worth | 1,000-1,500 crore in H2FY20E. Overall, we expect revenues to grow at 19.1% CAGR to | 3,031.1 crore in FY19-21E.

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Monetizes Walayar BOT asset In line with its strategy of monetizing BOT assets, KNR Construction’s (KNR) has entered into a share purchase agreement (SPA) with Cube Highways to sell its 100% entire equity stake in Walayar BOT project at an enterprise value of | 529.3 crore. This implies equity value of | 386.2 crore and P/BV multiple of 0.97x. The proceeds from the deal could be utilized towards retiring debt and as a growth capital. Also, this could lead to KNR becoming a net cash positive entity. We like the company given its focus on EPC business, best in class WC and healthy balance sheet position. KNR remains our top pick in the sector. 

Enters into SPA with Cube for Walayar BOT project KNR has entered into a share purchase agreement (SPA) with Cube Highways to sell its 100% entire equity stake in KNR Walayar Tollways BOT toll asset. The EV of this deal is | 529.3 crore excluding claims receivables (worth | 170 crore) from NHAI & other government instrumentalities, which would be passed to KNR Constructions as and when realized. As of Q2FY20, KNR Walayar SPV had total | 143.1 crore debt, implying equity value of | 386.2 crore. KNR had infused total | 397.4 crore in this toll project, which implies a deal multiple of 0.97x. Since KNR has already completed its portion of equity infusion worth | 175.4 crore in these three HAM projects, proceeds from the Walayar deal could be utilized towards debt reduction (which could make KNR cash positive) and also as growth capital. The company is yet to infuse equity in the other two HAM projects (total BPC: | 2,064.5 crore) which are yet to start execution. KNR can easily fund this equity requirement.

Financials

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Quaterly-:

• KNR Construction’s (KNR) revenues grew strongly by 31.2% YoY to | 546.2 crore in Q2FY20. 
• Net Sales at Rs 603.75 crore in December 2019 up 24.78% from Rs. 483.85 crore in December 2018.
• Quarterly Net Profit at Rs. 51.89 crore in December 2019 up 2.94% from Rs. 50.40 crore in December 2018.
• EBITDA stands at Rs. 170.14 crore in December 2019 up 21.9% from Rs. 139.57 crore in December 2018.
• Core revenues grew 25.6% YoY to | 523.0 crore
• KNR also enjoys best in class WC cycle with very healthy balance sheet and strong return ratio (RoCE: 19.0% & RoE: 18.6%). 
• Balance sheet is strong, net D/E 0.2x, NWC days at 42: KNR balance sheet is robust with NWC days at 43. Gross debt is Rs 3.3bn (Rs 200mn QoQ) of which promoter debt is Rs 1.9bn. Gross D/E is 0.2x (ex promoter is 0.1x). KNR has invested its share of Rs 1.7bn equity in 3HAM projects.  (Source- HDFC Securities)

Key Features-:

• Company has a average ROCE over 5 year period of above 13% (Excluding 2019).
• Company has ROE of 17%.
• OPM of the company is consistent in range of above 20% over last 3 year period. (Excluding 2019)
• Company has solid compounded sales growth of 21% and 25% over 3 and 5 year period respectively.
• Company has solid profit growth of 33% and 35% over 3 and 5 year period respectively.
• Debt to equity ratio stands at apron 0.50 which very low as compared to industry peer companies.
• Company has sufficient cash and equivalents to fund its working capital .

ShareHolding Pattern

Outlook

Infrastructure will play a crucial role in achieving the Government’s ambition of making India a USD 5 Tn economy by 2024. Growth in infrastructure related activities like electricity generation, highway construction, railway freight traffic and cargo at major ports will give much needed boost to the infrastructure sector. Considering this, the Government of India has placed a huge impetus on developing the infrastructure of the country. Various initiative such as industrial corridors, DFC, Bharatmala, Sagarmala and UDAN schemes will help in improving the connectivity of the country. Over the next five years, the Government has planned an investment of 100 Lakhs Crores in the infrastructure segment. Apart from budgetary support, the Government is encouraging foreign portfolio investors to invest in infrastructure debt funds, introduce credit default swaps for the infrastructure sector, deepen the corporate bond market, and encourage equity investment by non-residential Indians. 

India has attracted foreign investor in the infrastructure space, some of the recent investment of 2018-19 includes: 

The private equity and venture capital invested USD 1.97 Bn in the infrastructure sector 

The Asian Infrastructure Investment Bank (AIIB) has announced USD 200 Mn investment into the National Investment & Infrastructure Fund (NI IF)

The Asian Infrastructure Investment Bank (AIIB) has announced USD 200 Mn investment into the National Investment & Infrastructure Fund (NI IF) 

INDIAN ROAD CONSTRUCTION SECTOR 

Road construction sector has been one of the best performing sectors for the Indian Government. Over the last five years, the investments in road sector has increased by three times to 1.58 Lakhs Crores in 2018-19 on the back of financial support from private players and the Government. The authorities had set an optimistic target of constructing 15,000 km for financial year 2018-19 out of which they have achieved approximately 10,800 km. This was mainly due to land acquisition delays and lack of fund availability. Despite of this the target achievement stood at 72% which is better than the five-year average range of target achievement which has remained between 55%-70% for road construction. Going ahead, the road construction target per day has been set at 40 km/day. The Government aims to 

Awards and accolades