Recommendation From Construction & Engineering Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year
KNR Constructions
BUILD ON YOUR RETURNS WITH KNR CONSTRUCTIONS
HERE IS WHY
Strong order pipeline
Healthy revenue visibility
Cleaner balance sheet
KNR Constructions is a multi-domain infrastructure project development company providing EPC services across numerous sectors such as roads and highways, irrigation and urban water infrastructure management.
On the standalone financial front, the company reported net sales of Rs715.7 crore in Q4FY19 as against Rs624.4 crore in Q4FY18, posting a growth of 14.6 per cent. EBITDA showcased a growth of 19.3 per cent YoY as it increased to Rs144 crore in Q4FY19 from Rs120.7 crore in Q4FY18. EBITDA margin improved to 20.1 per cent in Q4FY19 from 19.3 per cent in Q4FY18. Net profit grew 15.6 per cent YoY to Rs 92.1 crore in Q4FY19 from Rs79.7 crore in Q4FY18. PAT margin rose to 9.7 per cent in Q4FY19 from 8.5 per cent in Q4FY18. EPS soared to Rs6.55 in Q4FY19 from Rs5.67 in Q4FY18, thereby rising 15.52 per cent.
On the consolidated financial front, the total income from operations climbed to Rs2,291.50 crore in FY19 from Rs2,069.60 crore in FY18, posting a growth of 10.72 per cent. EBITDA stood at Rs536.67 crore in FY19 as compared to Rs448.47 crore in FY18, an increase of 19.66 per cent. Net profit rose to Rs261.81 crore in FY19 from Rs228.89 crore in FY18, a growth of 14.38 per cent. EPS soared to Rs19.24 in FY19 from Rs16.28 in FY18, an increase of 18.18 per cent.
The company earned Rs150 crore revenue from the Tirumala HAM project. The management has guided for 10 to 15 per cent growth in FY20. Nearly 32 per cent of the order book amounting to Rs1,900 crore remains to be executed. Moving forward, we can expect healthy order inflows from the irrigation and HAM projects. The company has set a target of winning new projects worth Rs2,500 crore in FY20. It is engaged in private negotiations for subcontracting opportunities in two irrigation projects in Telangana. This has the potential to generate revenues to tune of Rs800-1,200 crore. The new Tamil Nadu HAM project’s concession agreement of Rs9,200 crore is yet to be signed. KNR boasts a healthy balance sheet with net working capital days at 48. It reported gross debt of Rs2,600 crore, of which promoters' debt stands at Rs2,100 crore. As such, the company reported net D/E ratio of 0.2x.
Some key risk factors that investors should watch out for include slackening pace in government ordering, higher crude and cement prices, rising interest rates and tightening liquidity in the financial sector. Moving forward, the tax rate is likely to increase as projects with tax exemption are nearing completion. Overall, the new order inflows project a stable revenue visibility in the upcoming quarters. KNR is well-placed to generate steady cash flows in FY20. The improvement in working capital cycle, driven by 10 per cent mobilisation advances on NHAI road EPC orders, will keep the debt levels under control.
We can expect the stock performance to be propelled by investments in the road sector. The pick-up in order activity bodes well for the company’s prospects. By virtue of these factors, we urge our reader-investors to BUY this stock.
