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Motilal Oswal
KNR Construction (Buy)
Target: ₹295
CMP: ₹252.75
KNR Construction (KNR) outperformed in terms of execution by reporting revenue growth v/s our expectation of 35 per cent y-o-y decline. The EBITDA margin expanded y-o-y on account of the rising share of higher margin irrigation projects, resulting in a strong beat on earnings. Including L1 orders, the order book (OB) stood strong at INR 7,850 crore, implying OB/rev at 3.5x and providing healthy revenue visibility.
KNR continues to surprise with its steady performance. However, the working capital cycle has witnessed marginal deterioration. This is primarily on account of pending dues from the Telangana government, which have been stalled since Feb’20 and currently stand at ₹680 crore. The management hopes to receive ₹440 crore within the next few weeks.
Factoring the strong performance in Q1-FY21, we increase our FY21/FY22 EPS by 28 per cent/7 per cent. We maintain our Buy rating, with target price of ₹295 (prior: ₹280) based on: unchanged 12x Mar’22E EPS to the EPC business; and the book value of road assets.
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