Narnolia Financial
KNR Constructions (Buy)
CMP: ₹235.45
Target: ₹327
Post the strong order inflow of ₹4,500 crore in Q4FY18 order book of KNR Constructions is standing at ₹6,793 crore which is 3.5x of TTM EPC revenue. Despite the strong order book, revenue growth may see a dip in H1FY19 due to couple of slow moving projects and new orders which will take time to translate into revenues. However, we believe strong revenue growth in FY20 as the execution of newly won HAM projects will pick up. We have estimated 30/9 per cent CAGR growth in Revenue/EBITDA over FY18-20.
NHAI has slow down its awarding activity in order to focus more on execution of projects which was awarded in FY18. This has resulted into low order inflow for the industry including KNR Constructions in Q1FY19. Post the quarterly result the stock of KNR has corrected 15 per cent and we believe it as buying opportunity.
Considering the slowdown in new project, we have reduce PE multiple to 15x and value KNR EPC business at ₹274 and ₹53 a share for BoT/HAM projects and arrived at target price of ₹327. Hence, we upgrade our rating to ‘Buy’ from ‘Accumulate’.
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