Initiating coverage | Infrastructure
July 10, 2015
KNR Constructions
NEUTRAL
CMP
`593
Road laid for a sustainable drive….
Target Price
`582
Recent order inflows provide revenue growth visibility: KNR Constructions (KNR) is
Investment Period
12 Months
a specialist Roads & Highways EPC player. Over the last 4 months, KNR has
reported `2,591cr of order wins (excludes `555cr of Chittagong order win), which
Stock Info
is significantly higher than `950cr of order inflows in FY2015. Management has
Sector
Infrastructure
guided for another `750cr of order wins for remaining part of FY2016E. These
Market Cap (` cr)
1,668
order wins from the road vertical, take the 1QFY2016 unexecuted order book to
Net debt (` cr)
72
`3,356cr. This would result in order book / last twelve month (LTM) sales ratio at
Beta
1.3
1QFY2016 to be at 3.8x, which is higher than order book / LTM ratio of 1.2x at
52 Week High / Low
618/200
4QFY2015-end. With award momentum in road vertical to continue, we expect
KNR to report 5.4x growth in its order book to `5,450cr by FY2017E. Taking into
Avg. Daily Volume
8,722
account its past execution track record and average execution cycle of 24-36
Face Value (`)
10
months, we expect KNR to report strong top-line growth over FY2015-17E.
BSE Sensex
27,574
Nifty
8,329
New orders won amidst low competition: KNR has impressed us by prudently
Reuters Code
KNRL.BO
selecting projects, mainly in southern India, where it has strong foothold. Notably,
Bloomberg Code
[email protected]
recent order wins by KNR have come amidst low competition (2-3 bidders for
each project), when compared to higher competition witnessed across other NHAI
bids (5 to 8 bidders for each project). Recent order wins have been entirely from
Shareholding Pattern (%)
southern India (except the M.P. order which was won in Jul-2015), where KNR has
Promoters
65.5
aggregate mines as well as majority of its idly lying construction equipments. This
MF / Banks / Indian Fls
20.8
in our view would enable KNR to attain synergy in its operations and continue to
FII / NRIs / OCBs
0.9
post higher EBITDA margins.
Indian Public / Others
12.9
Comfortable Balance Sheet: KNR is one of the few Road EPC players with low D/E
ratio of 0.2x (FY2015), whereas peers are having D/E ratio of over 1.0x.
Abs. (%)
3m 1yr 3yr
Valuation: Improved order book outlook, strong earnings growth potential, and
comfortable Balance Sheet, strengthen our view that KNR would continue to trade
Sensex
(4.5)
8.7
58.5
at rich valuations. Announcement of recent order wins, have supported the KNR’s
KNR
30.3
152.1
380.7
stock price run up, which is up 30% in last 3 months. On valuing the standalone
entity at 14.0x our FY2017E EPS of `37, and adding up free cash flow to equity
3 year price chart
shareholders value for its Kerala based BOT project, we arrive at FY2017E sum-
600
of-the-parts (SoTP) based price target of `582/share, implying that the KNR stock
400
is close to its fair value. We initiate coverage on KNR Constructions with a Neutral
rating, given that all the positives have been captured in the stock price.
200
Key Financials (Standalone)
0
Y/E March (` cr)
FY2013
FY2014
FY2015E
FY2016E
FY2017E
Net Sales
689
837
876
915
1,479
% chg
(8.1)
21.5
4.7
4.5
61.6
Net Profit
52
61
73
57
105
Source: Company, Angel Research
% chg
(1.2)
17.0
19.7
(21.7)
82.9
EBITDA (%)
16.4
15.3
14.4
14.3
13.9
EPS (`)
18.5
21.7
26.0
20.3
37.2
P/E (x)
32.0
27.4
22.8
29.2
15.9
P/BV (x)
3.7
3.2
2.9
2.7
2.3
RoE (%)
12.1
12.6
13.5
9.6
15.6
RoCE (%)
16.0
15.4
13.8
12.2
19.3
Yellapu Santosh
EV/Sales (x)
2.5
2.1
2.0
1.9
1.2
022 - 3935 7800 Ext: 6811
EV/EBITDA (x)
14.8
13.6
13.8
13.5
8.8
[email protected]
Source: Company, Angel Research; Note: CMP as of July 9, 2015
Please refer to important disclosures at the end of this report
1
Initiating coverage | KNR Constructions
Investment Argument
Government’s increased focus on Infra sector
In order to revive the economy, the government has been increasingly focusing on
the infrastructure sector, in recent times. Sub-sectors like Roads & Highways, Water
& Water Treatment, and Urban Infrastructure, have caught the government’s
attention as well.
The National Highways Authority of India (NHAI) spent ~`21,000cr in FY2015.
NHAI has set an ambitious target of spending ~`75,000cr in FY2016 (a 3-fold
increase). Of the incremental NHAI spending, ~`55,000cr would be funded
through higher budgetary allocation (~`15,000cr) and borrowings (~`40,000cr).
Also, Ministry of Road Transport & Highways (MoRTH) has set an ambitious target
to award ~12,000km (including NHAI’s target of ~9,000km) of road projects in
FY2016 itself. Again, three-fourths of these projects, expected to be awarded in
FY2016, are engineering, procurement & construction (EPC) projects. On the back
of sharp revival in EPC Road award activity, we expect Road EPC players, including
KNR, to benefit. Recent order wins by KNR further strengthen our view that the
company is well positioned to continue reporting order inflows, going forward.
Order Book grows 3.3x, gives better revenue visibility….
KNR, in the last 4 months, has announced large ticket project wins mainly from the
Roads & Highways EPC space. To-date in FY2016, KNR reported `2,591cr worth
of project wins (excludes `515cr Chittagong Ring Road project), thereby taking the
order backlog at 1QFY2015E to `3,356cr (vs `1,010cr in 4QFY2015), which gives
better revenue visibility for FY2016-17E. The order book of the company in the last
1 quarter has grown by 3.3x, which is impressive.
Exhibit 1: Details of recently won EPC Road projects
Announced
Project Value
Project Details
Stake (%)
On
(` cr)
Upgradation of 3 road stretches across Tamil
13-Apr-15
100%
729
Nadu
2/4 laning of the Madurai- Ramanathapuram
17-Apr-15
100%
937
section (115 kms, NH-49)
14-May-15
4-laning of Kazhakkottam-Mukkola (NH-47)
100%
669
Widen/ Reconstruct 3 road stretches across
8-Jul-15
100%
256
different locations within Madhya Pradesh
Total
2,591
Source: Company, Angel Research
NHAI is expected to award ~20,000km of road projects during FY2016-18E. Of
this, the target for FY2016E is of ~9,000km (~3,000km of EPC+~2,000km of
BOT+~4,000km of Hybrid). KNR’s Management has highlighted that it intends to
bid only for Road EPC projects. Also, the Management has set its sight on 25-30
EPC Road tenders worth `14,000-16,000cr, which are likely to be up for bids, in
few months time from now. In line with the Management’s expectation, we are
optimistic that KNR would report order wins of ~`750cr in the remaining part of
FY2016E. We expect KNR’s order inflow growth momentum to continue going
forward. In FY2017E, we expect KNR to report `3,500cr worth of project wins
across verticals.
July 10, 2015
2
Initiating coverage | KNR Constructions
Accordingly we expect the order book to report 132.3% CAGR during FY2015-
17E. KNR’s unexecuted order book stands at `3,356cr, which gives revenue
visibility for 24+ months.
Exhibit 2: Order Inflow to gain pace...
Exhibit 3: Execution to pick-up, as order book grows...
4,000
6,000
1.0x
3,500
0.9x
0.9x
5,000
0.8x
3,000
0.7x
2,500
4,000
0.7x
0.6x
2,000
3,000
0.5x
0.5x
1,500
0.4x
0.4x
0.4x
2,000
0.3x
1,000
0.3x
0.2x
500
0.2x
1,000
0.1x
0
FY11
FY12
FY13
FY14
FY15
FY16E FY17E
0
0.0x
(500)
FY11
FY12
FY13
FY14
FY15
FY16E FY17E
(1,000)
OB (` cr)
Execution Rate (x)
Source: Company, Angel Research
Source: Company, Angel Research
KNR to report good set of EBITDA margins…
We remain impressed by KNR, given its strategy to prudently select projects, mainly
in southern India, where it has strong foothold. Notably, recent order wins by KNR
have come amidst low competition (2-3 bidders for each project), when compared
to higher competition witnessed across other NHAI bids (5 to 8 bidders seen across
projects). Recent order wins have been entirely from southern India (except the
M.P. order which was won in Jul-2015), where KNR has aggregate mines as well
as majority of its idly lying construction equipments. This would enable KNR to
attain synergy in its operations and continue to post higher EBITDA margins.
Exhibit 4: 15.9% Avg. EBITDA % during FY2011-15
Exhibit 5: Peers’ margins below KNR’s...
20.0
20.0
17.1
16.1
18.0
Avg. EBITDA Margins (FY2011-15)- 15.9
14.7
15.0
13.4
10.7
16.0
12.1
12.4
12.0
10.9
14.0
9.7
8.7
9.3
10.0
12.0
10.0
4.0
8.0
5.0
6.0
0.2
4.0
0.0
FY11
FY12
FY13
FY14
FY15
2.0
15.3
17.8
16.8
15.1
14.4
14.4
13.9
(2.1)
0.0
(5.0)
FY11
FY12
FY13
FY14
FY15
FY16E
FY17E
MBL Ahluwalia
J Kumar
Source: Company, Angel Research
Source: Company, Angel Research
KNR, during FY2011-15, reported EBITDA margin in the range of 14.4-17.8%
(average of 15.9%). Except for J Kumar’s FY2014 and FY2015 EBITDA margins,
KNR’s margins during FY2011-15 have been ahead of the industry peers (MBL
Infrastructures, Ahluwalia Contracts and J Kumar). In our view, (1) higher asset
turnover ratio (vs. industry peers), (2) acquisition of aggregate mines closer to
projects under execution, (3) receipt of early completion bonus for some of the
projects, and (4) minimal dependency on sub-contracting, helped the company
report over 14% EBITDA margins during FY2011-15.
July 10, 2015
3
Initiating coverage | KNR Constructions
Exhibit 6: Construction & Mining Equip. Portfolio...
Exhibit 7: Projects completed ahead of schedule...
(As of 4QFY2015)
Qty.
Sch. Time
Act. Comp
Tippers
531
Bijapur-Hungund
910
582
Excavators
125
Hyderabad-Ramagundam
1,440
1,219
Compactors
60
Karimnagar-Kamareddy
450
343
Concrete Mixers & Pumps
45
Hyderabad-Chanda
365
364
Loaders
38
Siricilla-Siddipet
365
364
Pavers
33
Narsapur-Aswaraopet
365
364
Crushers
14
Source: Company, Angel Research
Graders
31
Tractors
31
Cranes
31
Tankers
28
Transit Mixers
24
Rollers
18
Batching & Mixing
21
Breakers
13
Hot Mix Plant
11
Drillers
12
Dozers
9
Wet Mix Plant
9
Drum Mix Plant
7
Source: Company, Angel Research
During FY2014-15, KNR invested in various types of construction equipments (P&M
gross block at FY2015-end stood at `448cr), this coupled with decline in yoy order
book, resulted in decline in equipment utilization to ~50% as of FY2015-end.
Despite such lower utilization, KNR’s asset turnover was at 1.6x, slightly below the
peers’ average of 1.7x.
Exhibit 8: Industry Peers’ Asset Turnover Ratio (x)
2.5
2.0
Average- 1.7x
1.5
1.0
0.5
1.0
1.9
2.1
1.6
0.0
MBL
Ahluwalia
J Kumar
KNR
Source: Company, Angel Research
These investments towards construction and mining equipments have helped KNR
become self sufficient, and build cushion against rising operating costs.
July 10, 2015
4
Initiating coverage | KNR Constructions
KNR has always focused on backward integration by sourcing aggregates from its
mines, for road projects under execution. Currently, KNR has 4 captive quarrying
mines, 14 crusher units (with daily crushing capacity of 15-20 lakh metric tonne)
and 21 Batching & Mixing plants, in close proximity to its projects under execution.
This helps KNR control its costs as sourcing of raw materials from captive quarrying
mines are 30-40% cheaper than those procured from open market. Also, KNR has
tie-ups with BPCL, HPCL, IOC, and MRPL to source bitumen, which is a core
consumable in a Road project.
KNR currently prefers to use more of its resources and depend lesser on sub-
contracting for getting a given project executed. Management indicated that given
the recent large ticket project wins, it would be left with no option but to increase its
dependency on sub-contracting works. For the outstanding order book, KNR would
incur ~`500cr worth of sub-contracting expenses (excluding the recently won MP
order, where KNR intends to depend majorly on sub-contracting).
Also, over the years, KNR has built a strong execution track record. The above
table (Exhibit 7) clearly highlights that a few of the projects have been completed
ahead of schedule, thereby making KNR eligible for early completion bonus.
Considering all the above mentioned levers, shift in strategies, when coupled with
our assumption that KNR may not receive any early completion bonus for projects,
we estimate 14.4% and 13.9% EBITDA margins for FY2016E and FY2017E,
respectively.
30% & 20% Revenue & PAT CAGR, respectively, during FY15-17E
KNR reported 2.3% top-line CAGR during FY2011-14, owing to weak order inflow
scenario. However, with uptick in award activity and recent order wins, coupled
with average execution cycle of ~24-36 months, we expect KNR to report a strong
30% revenue CAGR during FY2015-17E to `1,479cr.
During FY2011-15, KNR reported EBITDA margins in the range of 14.4%-17.8%
and PAT margins in the range of 7.0%-8.3%. Assuming (1) KNR would not get any
early completion bonus for its ongoing projects and (2) increase its dependency on
sub-contracting, we model 52bp EBITDA margin decline from 14.4% in FY2015 to
13.9% in FY2017E. Higher interest expenses (owing to stretch in working capital
cycle) and higher tax rate assumption (in FY2016-17E) would restrict the entire
benefits of EBITDA growth from flowing down to PAT level. Management clarified
that it is availing tax benefits u/s 80IA. We have assumed 15.0% and 21.0% tax
rate for FY2016E and FY2017E, respectively. As a result, we have estimated
restricted PAT CAGR of 20% over FY2015-17E to `105cr. PAT margins would
decline by 126bp to 7.1% in FY2017E.
Comfortable Gearing ratio
KNR over the years has been prudently managing its overall capital requirements.
It has maintained lower D/E ratio (in the range of 0.1x-0.2x during FY2011-14E),
owing to (1) positive cash flow generation from operations (reported average cash
flows of `87cr during FY2011-14), and (2) shorter working capital cycle.
We sense that the company has been disciplined in maintaining attractive payment
terms with its suppliers, and has been prompt in collections from its clients. Picking
July 10, 2015
5
Initiating coverage | KNR Constructions
up large ticket projects from bigger players, which have all clearances in place, at
attractive margins, has helped the company report positive cash flows and shorter
working capital.
KNR is vying to enter the bigger league, where it intends to bid directly for State
PWDs and NHAI based road projects as against it earlier bidding for larger ticket
EPC road projects from larger construction players. This would result in the order
book mix shifting towards State PWDs and NHAI based road projects. On this
account, we now expect stretch in Receivables cycle (to increase from 74 days in
FY2015 to 99 days in FY2017E), which in turn should lead to stretch in the
working capital cycle. Accordingly, we expect the working capital days to increase
from 59 days in FY2015 to 80 days in FY2017E.
Considering strong profitability growth, despite stretch in the WC cycle, we expect
KNR to report positive cash flow from operations to the tune of `118cr during
FY2015-17E and maintain its D/E ratio at 0.2x by FY2017E.
Exhibit 9: Standalone Debt and D/E ratio
Exhibit 10: Standalone Interest Coverage ratio (x)
180
0.4x
7.5x
7.0x
6.9x
160
6.8x
7.0x
140
6.5x
120
6.0x
100
0.2x
0.2x
80
0.2x
0.2x
5.5x
4.9x
60
4.8x
5.0x
0.1x
0.1x
40
4.5x
20
4.0x
0
0.0x
FY13
FY14
FY15
FY16E
FY17E
3.5x
Std. Debt (` cr)
D/E ratio (x)
FY13
FY14
FY15
FY16E
FY17E
Source: Company, Angel Research
Source: Company, Angel Research
Prudent BOT bidding, Kerala BOT to commence in FY2016E
KNR is one of the few listed players in the infra space, which has stayed away from
the BOT space. It started a few years ago with 2 BOT Annuity projects as minority
partner (40% stake) in a JV (partnering Patel Engineering). On commencement of
Annuity receipts, KNR, along with its JV partner, went ahead and raised `900cr as
securitization proceeds, thereby almost freeing its equity from these 2 projects.
KNR, during the down-cycle, pursued 1 BOT project in order to maintain its
business. In FY2013, KNR won its first 100% BOT-Toll project across the 54km
Walayar-Vadakkancheery stretch (in Kerala). KNR is expected to finish EPC works
by Sep-2015 (vs scheduled completion date in Dec-2015). This project is already
partially operational, with tolling across entire stretch to start in 2HFY2016E.
At the backdrop of recent order wins, Management indicated that the company is
not interested in adding any further BOT projects to its portfolio, unless the BOT
project conservatively generates internal threshold IRR of 18-20%.
July 10, 2015
6
Initiating coverage | KNR Constructions
Update on BOT Projects
KNR has a portfolio of 3 BOT Road projects, with 2 of them operational and the
3rd being partially operational (to be fully operational by Sep-15).
Exhibit 11: Details of the 3 BOT Projects
Particulars
PKIL
PKHIL
KNRWTPL
Islamnagar-
Stretch
AP/Karnataka border-Avathi
Walayar-Vadakkancheery
Nagpur-Hyderabad section
Project Type
BOT- Annuity
BOT- Annuity
BOT- Toll
State
Karnataka
Telangana
Kerala
Length (kms)
60
53
54
Status
Operational
Operational
Partly Operational
Concession Period
20 years
20 years
20 years
KNR's stake
40%
40%
100%
Concession Agreement Date
Apr-06
Mar-07
May-13
TPC (` in cr)
442
592
900
EPC (` in cr)
350
518
790
Debt (` in cr)
334
484
500
Equity (` in cr)
37
49
135
Grant (` in cr)
0
0
265
Traffic Growth Assumption:
1-5 years
NA
NA
7%
6-10 years
NA
NA
5%
10 years and there-after
NA
NA
0%
Source: Company, Angel Research; Note: NA- Not Applicable
Patel Infra led JV has securitized both the Annuity projects. As a result, we sense
that value for equity shareholders post securitization from these BOT projects is not
material, hence, we excluded these 2 BOT projects from our valuation exercise.
The 3rd BOT-Toll project across Walayar-Vadakkancheery is partly operational
(93% of EPC work is complete). The Management expects the remaining 7% of the
stretch to be complete by Sep-2015. KNR is currently doing `11lakh/day of tolling
vs the Management’s expectation of `14lakh/day (for the partly operating stretch).
Protests by locals, to address local infrastructure surrounding the road stretch,
disrupted operations for a few days and thereafter rains contributed to lower toll.
Post the rainy season, once the entire stretch gets operational, the Management
expects daily toll collection to catch-up and reach expected levels of ~`14lakh/day
(for already operational stretch). On a whole, once the entire road stretch gets fully
operational, we model `75cr of toll vs the Management’s guidance of `78cr for
FY2017E.
July 10, 2015
7
Initiating coverage | KNR Constructions
Outlook & Valuation
Outlook
KNR in our view enjoys (1) strong execution track record, (2) better cost structure
(reflected in the form of better EBITDA & PAT margins in comparison to its peers),
(3) shorter working capital cycle, (4) low leverage (since FY2011, D/E ratio has
been ~0.2x), (5) ability to generate positive cash flow from operations (generated
avg. cash flow from operations to the tune of `87cr during FY2011-14), and
(6) superior RoEs (12.1-17.1% range during FY2011-14). All these indicators point
at KNR’s superior earnings quality and strengthen our view that KNR would
continue to trade at rich valuations.
For valuation purposes, we have valued KNR using Sum-Of-The-Parts method.
KNR’s EPC business (standalone entity) is valued at FY2017E P/E multiple, whereas
only 1 of the 3 BOT projects has been valued using “Free Cash flow to Equity
holders” method. We have excluded 2 Annuity BOT projects, where KNR has 40%
stake in the JVs with Patel Engineering, as both these projects are securitized.
Value of Core EPC business
Considering (1) 3.3x order backlog of `3,356cr (at 1QFY2016-end), which gives
revenue visibility for 24+ months, (2) strong balance sheet (FY2015 D/E at 0.2x),
(3) strong 20% earnings CAGR during FY2015-17E, and (4) RoE expansion
scenario (from 13.5% in FY2015 to 15.6% by FY2017E), we assign 14.0x P/E
multiple to our FY2017E EPS estimate of `37/share, arrive at standalone business
value of `521/share.
Exhibit 12: Sum-of-the-Parts based Valuation Table
FY17E Std. PAT
Target
Target Value
Value/ share
% of
Particulars
Segment
Basis
(` cr)
Multiple
(` cr)
(`)
SoTP
KNR's EPC business
Construction
105
14.0
1,464
521
90
P/E of 14x
Total
105
1,464
521
90
Disounted FCFE
Project
Adj. FCFE
Value/ share
% of
Particulars
Proj. Type
Basis
(` cr)
Stake
Value (` cr)
(`)
SoTP
Road BOT projects
Walayar-Vadakkancheery BOT Proj.
Toll
171
100%
171
61
10
Ke of 16%
Total
171
171
61
10
Grand Total
1,800
582
100
Upside/ (Downside)
(2%)
CMP
593
Source: Company, Angel Research
July 10, 2015
8
Initiating coverage | KNR Constructions
Value of BOT projects
BOT projects have been valued using “Free Cash flow to Equity holders” method.
The Walayar-Vadakkancheery BOT Project is partly operational and expected to be
fully operational by Sep-2015. We have valued this BOT projects using 16%
discounting rate to arrive at FCFE per share value of `61/share (10% of SOTP
value of the company).
Business Value
On combining the value of EPC business and BOT projects, we arrive at a
combined business value of `582/share, reflecting all positives being captured in
the stock price. We initiate coverage on KNR Constructions with a Neutral rating
and price target of `582/share.
Risks to our Estimates
Any change in KNR’s taxation policy or adverse ruling by Tax department could act
as risk to our TP and rating.
KNR is highly dependent on roads vertical (accounts for ~95% of the order book).
Delays in award activity, unfavorable changes in the policy framework, could affect
our outlook on KNR.
Delays in execution (vs our estimates) could be a risk to our rating.
July 10, 2015
9
Initiating coverage | KNR Constructions
Company Overview
About the company
KNR is a Hyderabad based 20+ year old company having executed ~5,888kms
of road projects across 12+ states in India. Over the years, KNR has executed
Roads & Highways, Irrigation, and Bridges & Flyover projects. KNR also has a
quarrying division, which ensures timely supply of stone aggregates at project
locations. KNR over the years has evolved from a smaller sized Roads & Highways-
Engineering Procurement and Construction (EPC) player to a large one by
executing projects timely and building its qualification criterion. As of now, KNR
has executed projects for a diversified range of clients namely, NHAI, KSHIP,
MPRDCL, UPSHA, EIL, Sadbhav Engineering and GMR, amongst others.
In addition to the EPC business, KNR has 3 Build Operate Transfer (BOT) projects
in its kitty, with 2 of them operational and the 3rd one partly operational (to be fully
operational by Sep-15).
As of 1QFY2015-end, KNR had an order book of ~`3,356cr, which gives revenue
visibility for 24+ months. The Roads & Highways vertical accounts for ~95% of the
order book. The order book is currently being executed across 7 states.
Employees
KNR has strength of 700+ employees, led by proven Management team. Majorly,
150+ of them are experienced engineers; ~250 are equipment operators and
~175 Admin and Office staff.
The company follows a lean team structure while executing its projects across
different locations, thereby leading to quicker decision making and execution. This
can be seen from their better margin profile.
Exhibit 13: Employee Split (functionality-wise)
Project Eng., 13%
Admin. & Office
Site Supervision,
staff, 25%
5%
Site Engineers,
22%
Equipment
Operators, 35%
Source: Company, Angel Research
July 10, 2015
10
Initiating coverage | KNR Constructions
Exhibits
Exhibit 14: Order Book split- Vertical-wise
Exhibit 15: Order Book split- Region-wise
Roads &
Irrigation,
5%
Highways
(non-Captive),
4%
International,
20%
North, 10%
South, 65%
Roads &
Highways
East, 5%
(Captive), 91%
Source: Company, Angel Research
Source: Company, Angel Research
Exhibit 16: Order Book split- Client-wise
Exhibit 17: 30% Revenue CAGR during FY2015-17E
1,600
70
Captive, 4%
61.6
1,400
60
50
1,200
Central Govt.,
40
International,
20%
1,000
20%
30
800
21.5
20
Pvt. Co's, 9%
600
10
4.7
4.5
400
0
(8.1)
State Govt.,
200
(10)
47%
0
(20)
FY13
FY14
FY15
FY16E
FY17E
Revenues (` cr)
yoy growth (%)
Source: Company, Angel Research
Source: Company, Angel Research
Exhibit 18: 28% EBITDA CAGR during FY2015-17E
Exhibit 19: 20% PAT CAGR during FY2015-17E
250
70.0
120
100.0
82.9
56.7
60.0
80.0
100
200
50.0
60.0
40.0
80
150
30.0
40.0
60
20.0
19.7
20.0
100
13.3
17.0
10.0
40
3.9
(1.2)
0.0
(1.6)
50
0.0
20
(20.0)
(10.0)
(21.9)
(14.9)
0
(20.0)
0
(40.0)
FY13
FY14
FY15
FY16E
FY17E
FY13
FY14
FY15
FY16E
FY17E
EBITDA (` cr)
yoy growth (%)
PAT (` cr)
yoy growth (%)
Source: Company, Angel Research
Source: Company, Angel Research
July 10, 2015
11
Initiating coverage | KNR Constructions
Exhibit 20: Return on Equity (%)
Exhibit 21: Return on Capital Employed (%)
16.0
15.6
20.0
19.3
19.0
18.0
14.0
13.5
17.0
16.0
12.6
12.1
16.0
15.4
12.0
15.0
13.8
14.0
13.0
12.2
9.6
10.0
12.0
11.0
8.0
10.0
FY13
FY14
FY15
FY16E
FY17E
FY13
FY14
FY15
FY16E
FY17E
Source: Company, Angel Research
Source: Company, Angel Research
Exhibit 22: List of Ongoing projects
KNR share-
Unexecuted
Project details
Contract Val.
Val. (` in cr)
(` in cr)
3 road stretches across M.P.
256
256
4-laning of Kazhakkottam-Mukkola (NH-47)
669
669
2/4 laning of Madurai-Ramanathapuram (NH-49)
937
937
Upgrade Kanchipuram-Vandavasi Road & Upgrade Sdras-Chengalpattu-
185
185
Kancheeepuram-Arakonam-Thiruthani Road (SH-116)
Upgrade Arcot Villupuram (SH-4)
320
320
Upgrade Malliyakarai-Rasipuram-Thiruchengode-Erode Road (SH-79)
224
224
Chittagong Outer Ring Road
0
0
RoB at Davanagere-Channagiri Road
40
40
2 Flyovers at Dr. Nanjappa Road & Chinnaswamy Road, along with
146
106
pedestrian subway at Gandhipuram Area
2-laning of Penchalakona-Yerpedu section (NH-565)
201
173
4-laning of Walayar-Vadakkancheery (NH-47)
848
83
2-laning of Gobuk-Mariyang-Sijhon Nallah
99
64
Upgrade Magadi-Koratgere (NH-48/SH-3)
126
66
RoB at Gadag bypass between Benkanakatti-Gadag stations on Hubli-Gadag section
23
22
Upgrade Shelvadi-Mundargi (Dharwad & Gadag Districts)
136
39
Construct bridge across Tungabhadra River between
35
18
Kadebagilu Bukkasagar, Koppal District
RoB at Ramdurga-Badami Road
29
29
Construct bridge between Bhagyanagar-Yatnatti Road, Koppal District
84
32
Shankarasamudaram Balancing Resorvoir
156
62
Construct ROB at Battala Bazaar, Warangal
28
21
DLRB construction across Manjeera River, Medak District
21
8
2 to 4 laning of East Coast Road, in Chennai
46
41
Total Order Book
5,339
3,512
Source: Company, Angel Research; Note: OB numbers are unadjusted for works executed during 1QFY2016
July 10, 2015
12
Initiating coverage | KNR Constructions
Profit and Loss Statement (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16E
FY17E
Net Sales
689
837
876
915
1,479
% Chg
(8.1)
21.5
4.7
4.5
61.6
Total Expenditure
576
709
750
784
1,274
Cost of Raw Materials Consumed
202
291
337
353
564
Sub-Contracting Expenses
274
282
260
290
489
Employee benefits Expense
30
35
38
38
55
Other Expenses
70
101
115
104
167
EBITDA
113
128
126
131
205
% Chg
(14.9)
13.3
(1.6)
3.9
56.7
EBIDTA %
16.4
15.3
14.4
14.4
13.9
Depreciation
56
57
54
57
62
EBIT
57
71
72
74
143
% Chg
(29.6)
23.5
1.7
2.2
94.6
Interest and Financial Charges
11
17
12
18
23
Other Income
21
13
13
12
12
PBT
67
67
72
67
132
Tax
15
6
(1)
10
28
% of PBT
22.2
8.8
(1.0)
15.0
21.0
PAT before Exceptional item
52
61
73
57
105
Exceptional item
0
0
0
0
0
PAT
52
61
73
57
105
% Chg
(1.2)
17.0
19.7
(21.7)
82.9
PAT %
7.6
7.3
8.3
6.2
7.1
Basic EPS
18.5
21.7
26.0
20.3
37.2
Diluted EPS
18.5
21.7
26.0
20.3
37.2
% Chg
(1.2)
16.9
19.8
(21.7)
82.9
July 10, 2015
13
Initiating coverage | KNR Constructions
Balance Sheet (Standalone)
Y/E March (` cr)
FY13
FY14
FY15
FY16E
FY17E
Sources of Funds
Equity Capital
28
28
28
28
28
Reserves Total
428
485
541
594
691
Networth
456
513
569
622
719
Total Debt
67
58
88
117
154
Other Long-term Liabilities
138
100
69
85
95
Deferred Tax Liability
0
0
0
0
0
Total Liabilities
661
671
726
823
968
Application of Funds
Gross Block
508
525
543
577
616
Accumulated Depreciation
218
262
316
373
435
Net Block
290
264
227
204
181
Capital WIP
4
0
0
0
0
Investments
48
40
32
85
89
Current Assets
Inventories
30
34
36
36
60
Sundry Debtors
121
117
177
221
401
Cash and Bank Balance
7
11
16
6
9
Loans & Advances
328
229
241
334
527
Current Liabilities
293
283
277
349
588
Net Current Assets
194
108
192
248
410
Other Assets
125
259
276
285
287
Total Assets
661
671
726
823
968
July 10, 2015
14
Initiating coverage | KNR Constructions
Cash Flow Statement (Standalone)
Y/E March (` cr)
FY13
FY14
FY15P
FY16E
FY17E
Profit before tax
67
67
72
67
132
Depreciation
56
57
54
57
62
Change in Working Capital
(106)
16
(98)
(58)
(149)
Interest & Financial Charges
11
16
12
22
36
Direct taxes paid
(27)
(24)
(22)
(24)
(46)
Cash Flow from Operations
1
133
18
65
35
(Inc)/ Dec in Fixed Assets
(38)
(25)
(16)
(28)
(37)
(Inc)/ Dec in Investments & Int. recd.
(20)
(55)
(9)
(55)
(4)
Cash Flow from Investing
(58)
(80)
(25)
(82)
(42)
Issue/ (Buy Back) of Equity
0
0
0
0
0
Inc./ (Dec.) in Loans
71
(32)
36
30
41
Dividend Paid (Incl. Tax)
(3)
(3)
(6)
(4)
(8)
Interest Expenses
(11)
(17)
(12)
(18)
(23)
Cash Flow from Financing
57
(52)
18
8
10
Inc./(Dec.) in Cash
(0)
1
12
(10)
3
Opening Cash balances
4
3
4
16
6
Closing Cash balances
3
4
16
6
9
July 10, 2015
15
Initiating coverage | KNR Constructions
Key Ratios
Y/E March
FY13
FY14
FY15
FY16E
FY17E
Valuation Ratio (x)
P/E (on FDEPS)
32.0
27.4
22.8
29.2
15.9
P/CEPS
15.5
14.1
13.1
14.6
10.0
Dividend yield (%)
0.0
0.0
0.0
0.0
0.0
EV/Sales
2.5
2.1
2.0
1.9
1.2
EV/EBITDA
14.8
13.6
13.8
13.5
8.8
EV / Total Assets
3.3
2.6
2.6
2.4
2.2
Per Share Data (`)
EPS (Basic)
18.5
21.7
26.0
20.3
37.2
EPS (fully diluted)
18.5
21.7
26.0
20.3
37.2
Cash EPS
38.3
42.0
45.2
40.7
59.2
DPS
1.0
1.0
1.7
1.3
2.4
Book Value
162
183
202
221
256
Returns (%)
RoCE (Pre-tax)
16.0
15.4
13.8
12.2
19.3
Angel RoIC (Pre-tax)
15.0
14.7
12.9
11.5
17.8
RoE
12.1
12.6
13.5
9.6
15.6
Turnover ratios (x)
Asset Turnover (Gross Block) (x)
1.4
1.6
1.6
1.6
2.5
Inventory / Sales (days)
16
15
15
15
15
Receivables (days)
64
51
74
88
99
Payables (days)
56
34
29
31
34
WC days
24
32
59
72
80
Leverage Ratios (x)
D/E ratio (x)
0.1
0.1
0.2
0.2
0.2
Interest Coverage Ratio (x)
7.0
4.9
6.9
4.8
6.8
July 10, 2015
16
Initiating coverage | KNR Constructions
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
DISCLAIMER
Angel Broking Private Limited (hereinafter referred to as “Angel”) is a registered Member of National Stock Exchange of India Limited,
Bombay Stock Exchange Limited and MCX Stock Exchange Limited. It is also registered as a Depository Participant with CDSL and
Portfolio Manager with SEBI. It also has registration with AMFI as a Mutual Fund Distributor. Angel Broking Private Limited is a
registered entity with SEBI for Research Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number
INH000000164. Angel or its associates has not been debarred/ suspended by SEBI or any other regulatory authority for accessing
/dealing in securities Market. Angel or its associates including its relatives/analyst do not hold any financial interest/beneficial
ownership of more than 1% in the company covered by Analyst. Angel or its associates/analyst has not received any compensation /
managed or co-managed public offering of securities of the company covered by Analyst during the past twelve months. Angel/analyst
has not served as an officer, director or employee of company covered by Analyst and has not been engaged in market making activity
of the company covered by Analyst.
This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment
decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should
make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the
companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine
the merits and risks of such an investment.
Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and
trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's
fundamentals.
The information in this document has been printed on the basis of publicly available information, internal data and other reliable
sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this
document is for general guidance only. Angel Broking Pvt. Limited or any of its affiliates/ group companies shall not be in any way
responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report.
Angel Broking Pvt. Limited has not independently verified all the information contained within this document. Accordingly, we cannot
testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document.
While Angel Broking Pvt. Limited endeavors to update on a reasonable basis the information discussed in this material, there may be
regulatory, compliance, or other reasons that prevent us from doing so.
This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced,
redistributed or passed on, directly or indirectly.
Neither Angel Broking Pvt. Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from
or in connection with the use of this information.
Note: Please refer to the important ‘Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the
latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Pvt. Limited and its affiliates may
have investment positions in the stocks recommended in this report.
Disclosure of Interest Statement
KNR Constructions
1. Analyst ownership of the stock
No
2. Angel and its Group companies ownership of the stock
No
3. Angel and its Group companies' Directors ownership of the stock
No
4. Broking relationship with company covered
No
Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
July 10, 2015
17