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.

Q2FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 609 572 6.47% 485 25.57% 1094 1053 3.89%
PBT 69* 90 -23.33% 57 21.05% 1265* 1489 -15.04%
PAT 50 70 -28.57% 40 25.00% 90 118 -23.73%

Consolidated Financials (In Crs)
Q2FY21 Q2FY20 YoY % Q1FY21 QoQ % H1FY21 H1FY20 YoY
Sales 664 614 8.14% 530 25.28% 1193 1164 2.49%
PBT 175** 95 84.21% 59 196.61% 234** 151 54.97%
PAT 155 75 106.67% 42 269.05% 197 120 64.17%

*Contains Exceptional item of loss of Rs 11.25 Cr

**Contains exceptional item of profit of Rs 85 Cr

Detailed Results

  1. The consolidated revenues for Q2 were up 8% YoY.
  2. Consolidated PAT saw a rise of 106% YoY on account of the exceptional item which was earned from the sale of KNR Walayar to Cube Highways.
  3. EBITDA for Q2 rose 8% YoY and margin declined 87 bps to 26.1%.
  4. Consolidated Cash & cash equivalents as of 30th Sep 2020 was at Rs 32.6 Cr
  5. The EPC order book as of 30th Sep ’20 is Rs 8554.5 Cr out of which 31% are captive HAM projects and 45% are irrigation projects while other road projects were at 24%.
  6. The top 6 road projects are of Rs 3720 Cr while other projects consist of Rs 973 Cr. Irrigation projects form Rs 3861.5 Cr of the order book.
  7. The order book distribution is:
    1. Arunachal Pradesh: Rs 82.2 Cr
    2. AP & Telangana: Rs 5110.3 Cr
    3. Karnataka: Rs 1112.2 Cr
    4. Kerala: Rs 9.6 Cr
    5. Tamil Nadu: Rs 2240.2 Cr
  8. The net-working capital days have fallen to 44 days in Q2.

Investor Conference Call Highlights

  1. So far in H1 FY 2’21, NHAI has awarded road contracts for building 1,330 km of highways, worth INR 47,289 crore, which is 1.6x higher than 880 — 828 km awarded in the financial year 2020 and 3.5x higher than 373 km awarded in the FY ’19 during the same period.
  2. The NHAI has set a target of awarding 4,500 km of projects during FY ’21. NHAI has plans to award contracts worth INR 2 lakh crores in the second half-year.
  3. NHAI recently disclosed that the number of FASTag users in the country has crossed 2 crore landmark, registering a robust 400% growth in the year. Currently, revenue from FASTag constitutes about 78% of the toll collection.
  4. KNR’s average operational effectiveness this quarter stood at 80%.
  5. The percentage physical progress as of September 30, 2020, for 4 HAM projects is as follows: Chittoor to Mallavaram is at 64%, Ramsanpalle to Mangalore is at 56%, Trichy to Kallagam is at 50%, Magadi to Somwarpet at 14%.
  6. On October 5, 2020, KNR received a date for its 5th HAM project (Oddanchatram to Madathukulam, KNR Palani HAM project), which is worth INR 920 crore BPC.
  7. The toll collection in the Muzaffarpur Barauni project was at Rs 12 Cr in Q2.
  8. Client wise, 69% of the order book is from third-party clients and the balance 31% is from captive HAM projects.
  9. KNR is targeting a further order inflow of INR 2,000 crores to INR 2,500 crores in the second half of this fiscal year.
  10. It has also received a top challenger award and the 18th Construction World Annual Rewards in October 2020.
  11. There has been a delay in the collection of dues for the irrigation projects from the Telangana Government as the government has to divert its funding towards other essential sectors and services to prioritize COVID-19 relief measures. The total exposure for the Telangana Government projects as on September 30, 2020, amounts to INR 740 crore. KNR expects the set of fast tranche payments of INR 300 crores approximately from the Telangana Government by the end of November ’20 and the balance will be in the fourth quarter.
  12. KNR completed the sale of a 100% stake in the Walayar-Vadakkencherry BOT project, that is KNR Walayar Tollways Private Limited to Cube Highways in Q2.
  13. The management is expecting plus/minus 5% of Q2 revenues of Rs 600-700 Cr in Q3.
  14. The management expects the Rs 740 Cr due from Telangana Govt to be fulfilled by Q4.
  15. The company has started receiving payments for the Kaleshwaram project.
  16. The progress in the Palamuru-Rangareddy lift irrigation project with Navayuga is 30%.
  17. There was no impact on the execution of the Kaleshwaram lift project from the objection raised by NGT.
  18. From  Rs 308 Cr from Cube, around Rs 210 Cr was used to pay off outstanding promoter loans while the rest was used for working capital.
  19. The exceptional item of Rs 11 Cr on the standalone level was the write off dut to fall in final value for Walayar transaction.
  20. The management believes that margins should be sustainable at 17-18%.
  21. The company is looking to add 3 more projects to replace the 3 HAM projects that are already at 60-70% completion.
  22. There hasn’t been any overhang on irrigation projects from political disputes over water in AP & Telangana.
  23. The order from Hooghly, Hospet is at Rs 188 Cr.
  24. In Mallanna Sagar, KNR has done 60% of the work while in Vettam it did 30%.
  25. Mallanna Sagar is expected to be completed in 6-8 months.
  26. The company is at 100% in terms of equipment but has only 80% of required labour and thus operational capacity is capped at 80%.
  27. Ramsanpalle is expected to be completed by March while Chittoor should be done by Feb.
  28. The Trichy project is stuck as a 5 km stretch is still not available and without it the project has gotten stalled. KNR expects the delay to be around 2-3 months in this project.
  29. The company has done Rs 35 Cr of Capex in H1. Overall Capex in FY21 should go up to Rs 100-120 Cr.
  30. The company is targeting 10-15 projects out of which, 4 projects are in Kerala, 3 are in Tamil Nadu & 3 are in Telangana. The overall size is around Rs 2000-2500 Cr.
  31. The company has received rs 66 Cr from the Palamuru project and is expecting Rs 160 Cr by the end of Nov.
  32. Revenue breakup was: Rs 138 Cr or 23% from irrigation, Rs 315 Cr or 53% from HAM & the rest from other EPC and back-to-back projects.
  33. Interest costs in Q2 were at Rs 5.9 Cr.
  34. In any new HAM project from NHAI, 40% of project cost comes as a grant before COD.
  35. There are no pending receivables from NHAI currently.
  36. The company is expected to follow the new tax regime in FY22 once the Mat credit gets exhausted.
  37. 80% of the Hubli project is expected to be done by March.
  38. Unbilled revenue is at Rs 500 Cr mostly from irrigation projects which are expected to be paid by end of Q3.
  39. The equity infusion in H1 in HAM projects was at Rs 27 Cr. In H2, this figure is expected to be at Rs 240 Cr.

Analyst’s View

KNR has been one of the top performers in the construction industry. Despite the industry headwinds and the general plight of the companies in this sector due to delays in payments from NHAI, KNR has been able to continue to improve its margins substantially. The company has been able to weather the severe issues regarding land acquisition and labour crisis which it met earlier this year and has been able to achieve marginal growth despite working at only 80% operational capacity. The management was expecting labour to start coming back after monsoons but COVID-19 fears have kept this issue from getting fully resolved. The company has done well to source a new HAM project and is looking to replace the 3 HAM projects that will be over in the next 6-8 months. It remains to be seen how the industry will fare going forward and how long will it take for the Govt’s push in infrastructure to gain proper momentum. Nonetheless, given its strong balance sheet, good operational history, and resilient order book, KNR Constructions remains a pivotal construction sector stock to watch out for.


Q1FY21 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 485 481 0.83% 683 -28.99%
PBT 57 59 -3.39% 86 -33.72%
PAT 40 48 -16.67% 67 -40.30%

 

Consolidated Financials (In Crs)
Q1FY21 Q1FY20 YoY % Q4FY20 QoQ %
Sales 530 549 -3.46% 741 -28.48%
PBT 59 56 5.36% 93 -36.56%
PAT 42 45 -6.67% 75 -44.00%

Detailed Results

    1. The consolidated revenues for Q1 were down 3.5% YoY.
    2. Consolidated PAT saw a decline of 6.7% YoY.
    3. EBITDA for Q1 rose 12% YoY.
    4. The consolidated EBITDA margin improved 310 bps YoY to 24.9% in Q1.
    5. BOT toll operations were suspended from 1st April 2020 to 19th April 2020 which resulted in a Toll revenue loss of 19 days in Q1FY21.
    6. The company has not opted for any form of the moratorium and continues to meet all of its debt obligations in time.
    7. The EPC order book as of 30th June ’20 is Rs 7208.9 Cr out of which 31% are captive HAM projects and 54% are irrigation projects.
    8. The top 5 road projects are of Rs 2498.3 Cr while other projects consist of Rs 84074 Cr. Irrigation projects form Rs 3869.9 Cr of the order book. The company has an additional Rs 640 Cr worth HAM project which has not been included in the order book.
    9. The order book distribution is:
      1. Arunachal Pradesh: Rs 82.2 Cr
      2. AP & Telangana: Rs 5255.9 Cr
      3. Karnataka: Rs 1210 Cr
      4. Kerala: Rs 9.6 Cr
      5. Tamil Nadu: Rs 651 Cr
    10. The net-working capital days have risen to 66 days in Q1.

Investor Conference Call Highlights

  1. Till July, NHAI has awarded a project of about 460 km against the annual target of 4,500 km for FY ’21 vis-à-vis a target of 3,211 km in financial year ’20.
  2. Construction across national highways has rebounded to 637 km in May from just 210 km in April.
  3. The construction industry is expected to see a 10-13% decline in highway construction this year.
  4. Toll collections have reached 73% of pre-COVID levels according to an industry report by CRISIL.
  5. Of the company’s 5 HAM projects, 4 have started construction and the progress in them is:
    1. Chittor to Mallavaram: 6%
    2. Ramsanpalle to Mangloor: 5%
    3. Trichy to Kallagam: 43%
    4. Magadi to Somwarpeth: 3%
  6. The company expects to receive the appointed date for Palani by the first week of September.
  7. The total equity requirement for all the 5 HAM projects is INR 624.28 crores of which we have already invested INR 223.49 crores as on June 30, 2020. The balance equity will be invested over a period of 3 years with an investment of INR 250 crores in balance at the end of FY ’21, INR 110 crores in FY ’22, and remaining INR 40.79 crores in FY ’23.
  8. The deal to divest 3 HAM projects, Trichy to Kallagam, Chittor to Mallavaram, and Ramsanpalle to Mangloor is on track. The discussion with Cube for sale of 100% stake in KNR Walayar Tollways Pvt. Ltd. for an enterprise value of INR 529 crores is in the final discussions of negotiations and the transaction is expected to be closed in the next 2 months.
  9. The company is targeting a further order inflow of around Rs 2,000 Cr this financial year.
  10. The management assures that 80-85% of manpower requirements will be met in all projects and around 80% efficiency should come back by Q3.
  11. Essentially, the company only uses migrant labour to cover for 35-40% of requirements, and the rest is met using local operators and the workforce.
  12. The land acquisition in the Palani project is at 72% as of 15th August 2020. The management to reach 80% by the end of August.
  13. Irrigation projects are expected to yield EBITDA margins of 18-20% normally. Right now due to delay in payments it is coming out to be 16-17%.
  14. The company does not have any plans for incremental capex for FY21.
  15. The company has receivables of Rs 540 Cr pending from Telangana Govt at present. It expects this payment to be completed within the next 2 weeks.
  16. The company has applied for 7 tenders orders already and plans to submit another 10 more bids in September. Most of these projects are above Rs 1000 Cr and 3-4 of them are of Rs 500-600 Cr in size.
  17. The competition in tender bidding for NHAI projects has intensified with a few new entrants in the mix.
  18. The company has received mobilization advance of Rs 102 Cr and retention money receivables are at Rs 163 Cr. Gross debt is at Rs 334 Cr. Consolidated debt is at Rs 1048 Cr.
  19. The management does not expect any delay in payments from NHAI.
  20. The new orders added in Q1 were the 2 new irrigation projects of Rs 2300 Cr.
  21. The management expects the company to be able to achieve revenues of Rs 2250 Cr in FY21 and an additional Rs 200-300 Cr can be added depending on how execution on the irrigation projects goes.
  22. The management cannot guarantee that margins will stay at current levels as key input prices like cement and diesel are on the rise.
  23. The company is operating at 90% efficiency in day shift and is not operating at night shift. Overall work efficiency is at 70% at present in irrigation projects. In highway projects, efficiency is at 60%.
  24. The dent went up in Q1 due to a delay in payments. As the payments come back debt will be reduced to previous levels.
  25. The management believes that there may not be enough projects available in the future in the company’s core area of highways and so it is good to go into other project areas and develop competence.
  26. The rise in WC days was mainly due to COVID-19. The management doesn’t see any further rise in WC going forward for the next 1-2 years.
  27. There is an upcoming augmentation issue in Muzaffarpur-Barauni which will come up in the next 3-5 years. This is what is keeping the buyer away as it is making previous valuations uncertain.
  28. The order backlog in irrigation projects is KP Sagar at Rs 84 Cr, Yedula at Rs 12 Cr, Mallana Sagar at Rs 518 Cr, Vattem at Rs 847 Cr. The new projects have added Rs 1600 Cr and Rs 695 Cr.
  29. Unbilled revenue from Telangana is Rs 440 Cr and the company also has additional work done but not certified of Rs 180 Cr.
  30. The management has stated that it doesn’t expect debt to rise as the company is expecting inflows from the Telangana payment and the sale to Cube Highways.
  31. The company will see higher levels of depreciation due to the addition of big irrigation projects. The Net Block is at Rs 75 Cr while the gross block in Q1 was at Rs 300 Cr. The depreciation is expected to rise to Rs 150-160 Cr in FY21.
  32. Irrigation revenue in Q1 was at Rs 108 Cr.
  33. The company may have to do a maximum capex of Rs 100-120 CR to purchase some cranes for additional projects if the need arises.
  34. Of the Rs 475 Cr of debtors at the end of Q1, Rs 127 Cr is from irrigation and the balance is from road projects. Out of the remaining Rs 348 Cr, Rs 20 Cr is from Tirumala and another SPV. Of the Rs 348 CR, the company has already received Rs 180 Cr in July.
  35. The main areas for negotiation for the Cube deal were the high rise in project insurance and revenue shortage during the COVID period and lockdown periods.
  36. The company has stayed away from expressways tenders in the past but it will be interested in bidding for them in the future in MP, Maharashtra, and other states.
  37. The only major capex to be done this year is for a pump house in an irrigation project. The project designs are yet to be approved.
  38. The management remains confident that the NHAI will be able to meet its target of tendering of 4500 km in FY21 based on the rapid pace it is setting on land acquisition.

Analyst’s View

KNR has been one of the top performers in the construction industry. 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 continue to improve its margins substantially. The company has been able to weather the severe issues regarding land acquisition and labour crisis which it met earlier this year. The management expects labour to start coming back after monsoons but it remains to be seen whether the company to get back to normal operating levels at its prescribed time. The company has done well to win crucial irrigation projects in Q1 and reduce dependence on highway projects. It remains to be seen how the industry will fare going forward and how long will it take for the Govt’s push in infrastructure to gain proper momentum. Nonetheless, given its strong balance sheet, good operational history, and resilient order book, KNR Constructions remains a pivotal construction sector stock to watch out for.


 

 

Q4FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 683 731 -6.57% 565 20.89% 2301 2201 4.55%
PBT 86 101 -15.22% 59* 46.16% 294** 291 1.06%
PAT 67 92 -27.08% 40 67.16% 235 263 -10.65%

 

Consolidated Financials (In Crs)
Q4FY20 Q4FY19 YoY % Q3FY20 QoQ % FY20 FY19 YoY%
Sales 741 787 -5.86% 613 20.82% 2517 2366 6.40%
PBT 93 113 -17.04% 69* 36.18% 313** 289 8.22%
PAT 75 104 -28.06% 50 49.42% 245 262 -6.63%

*includes an exceptional item of Rs 6.7 Cr

**includes an exceptional item of Rs 10.7 Cr

Detailed Results

    1. The consolidated revenues for Q4 were down 6% YoY.
    2. Consolidated PAT saw a big decline of 28% 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 Q4 rose 2% YoY.
    5. The consolidated EBITDA margin improved 160 bps YoY to 21.7% in Q4.
    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 6thDec ’19 and submitted documents for financial closure on 22nd May ‘20.
    8. The company has received 2 irrigation projects worth Rs. 2,309.23 Cr from Irrigation & CAD Department, Govt. of Telangana on 17th May 2020.
    9. The order book as of 31st March ’20 is Rs 5229.7 Cr out of which 47% are captive HAM projects.
    10. The top 5 road projects are of Rs 2697.8 Cr while other projects consist of Rs 958.4 Cr. Irrigation projects form Rs 1573.5 Cr of the order book. The company has an additional Rs 2658.1 Cr worth HAM projects which have not been included in the order book.
    11. The order book distribution is:
      1. Arunachal Pradesh: Rs 93.2 Cr
      2. AP & Telangana: Rs 3122 Cr
      3. Karnataka: Rs 27 Cr
      4. Kerala: Rs 1256 Cr
      5. Tamil Nadu: Rs 732 Cr
    12. The net-working capital days has risen to 53 days in Q4.

Investor Conference Call Highlights

  1. The transport infrastructure sector in India holds a further investment opportunity of USD 575 billion over the next 5 years.
  2. Roads and railways constitute 80% of the total investment opportunity, driven by investments in flagships, such as Bharatmala Pariyojana, etc.
  3. The Ministry of Road Transport and Highways has decided to release INR 7,500 crore to INR 8,000 crore of retention money to provide liquidity support to EPC concessionaires.
  4. The physical progress as on March 31 2020 for the 4 HAM projects are as follows:
    1. Chittor to Mallavaram: 54.4%
    2. Ramsanpalle to Mangloor: 43.7%
    3. Trichy to Kallagam: 37.4%
    4. Magadi to Somwarpet: 6.9%
  5. The company has signed a SPA with Cube Highways for sale of 100% stake in KNR Walayar Tollways Pvt. Ltd. for an enterprise value of INR 529.27 crores. The transaction to be completed within the next 1 to 2 months.
  6. The toll revenue during the quarter is INR 17.9 lakhs per day.
  7. In terms of order book breakup, road constitutes INR 3,666 crores (70%) and irrigation projects constitute INR 1,574 crores (30%).
  8. Migrant labour is a real issue for the company with only 20-30% of labourers remaining at sites currently. Projects are running at an efficiency of 50-65%.
  9. The company expects Q1 & Q2 to be muted for the company and most of the work for the year to be done in Q3 & Q4.
  10. The management has stated that the company can easily expect a 2-3% premium on regular margins from irrigation projects.
  11. The company has Rs 500 Cr outstanding from Telangana govt. Payment of around Rs 200 Cr got delayed in March due to COVID-19.
  12. Land acquisition is another area that has been severely affected due to COVID-19.
  13. The company is targeting 3-4 big projects of Rs 3000 Cr to come in this year and is looking to NHAI for these orders.
  14. The company will only do maintenance capex of Rs 15 Cr this year and will refrain from any other capex for FY21 in the irrigation projects.
  15. Quarterly depreciation run rate of Rs 50 Cr is expected to continue.
  16. Other expenses have gone u as the company brought in an external consultant for design and consulting in Q4.
  17. The company has applied for a tender offer in Tamil Nadu for an annuity project which it expects to gain in the near future.
  18. The company expects NHAI order pipeline to be 4000-4500 km in FY21. The company received arbitration of Rs 61 Cr in FY20.
  19. The management expects a dip in margins in Q1& Q2 going forward.
  20. Land acquisition in KSHIP project is at 72% while in Palani it is at 50%. The company should get the appointment date for the Palani project in the next 2 months.
  21. The company has put up Rs 140 Cr in total in projects where Rs 100 Cr was in KSHIP and Rs 40 Cr was in Palani.
  22. According to the current order book and payment schedule, Q1 revenues should be around Rs 450 Cr.
  23. The company has outstanding MAT of Rs 34 Cr which it expects to run down in FY21 before switching to the new tax rate next year.
  24. The tenders from NHAI are expected to be 20 in number with a worth of around Rs 20,000 Cr in total. Out of these the company has identified 5-6 projects to apply for. The bidding for these projects has gotten delayed due to COVID-19.
  25. In Q1, the company has done Rs 300 Cr worth of irrigation and Rs 500 CR is outstanding here.
  26. The monthly fixed cost for the company is at Rs 15 Cr.
  27. The HAM projects that the company is targeting are of around Rs 6000-7000 Cr.
  28. The current order backlog for Megha is Rs 518 Cr and for Navayuga is Rs 847 Cr.
  29. The annuity project for Tamil Nadu is expected to be of Rs 500 Cr.
  30. The management expects the company to reach normal operating capacity from Q3 onwards.
  31. The company had only a 20-30% execution in April & May.
  32. The retention money of the company with NHAI is around Rs 150 Cr.
  33. The management expects labour to start returning from after monsoons are over.

Analyst’s View

KNR has been one of the top performers in the construction industry. 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 continue to improve its margins substantially. But the company does face severe issues regarding land acquisition and labour crisis which is expected to hit the construction industry hard. The management expects labour to start coming back after monsoons but it remains to be seen how long it will take for the company to get back to normal operating levels. The awarding of projects and tenders has also gotten delayed which has put many industry players under stress. It remains to be seen how the industry will fare going forward and how long will it take for the Govt’s push in infrastructure to gain proper momentum. Nonetheless, given its strong balance sheet, good operational history, and resilient order book, KNR Constructions remains a pivotal construction sector stock to watch out for.


 

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 a 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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