Result Update

Institutional Research
India I Infrastructure
13 November, 2024

KNR Constructions SELL

Price: Rs284
Weak Order inflow and increasing irrigation receivables key concerns Target Price: Rs250
Forecast return: -13%
KNR Construction Ltd (KNR) reported relatively better results as adjusted PAT came in 5% Market Data
ahead of our estimate driven by better execution. Despite decent performance in 1HFY25, Bloomberg: KNRC IN
compared to peers, key concern of dwindling orderbook, failure to diversify across other 52 week H/L: 415/237
infra segments and higher receivables from Telangana government remain key concerns. Market cap: Rs80.0bn
KNR’s orderbook remains at critically low levels with current OB of Rs56bn (including L1 Shares Outstanding: 281.2mn
orders of Rs12bn) which is at 1.5x of TTM revenue. Better order inflow this year is key to Free float: 51.2%
revenue visibility beyond FY25 and the management is exploring all options for
Avg. daily vol. 3mth: 9,39,133
diversification through rail, metro, solar and water projects but has not bagged any project
Source: Bloomberg
yet. On the positive side, the company has signed settlement agreement with NHAI for its
Muzaffarpur – Barauni BOT project and has received arbitration claim for Odisha project Changes in the report
which has resulted in higher other income. We have cut our revenue/PAT estimates for Rating: Sell, unchanged
FY25 and FY26 to factor in weak order inflow. We have also moved our valuation forward Target price: -7%; from Rs266 to Rs247
to Sep26 to arrive at our revised TP of Rs250 based on SOTP method. Maintain Sell. EPS: FY25: -25%; FY26: -20%
2QFY25 result highlights Source: Centrum Broking
KNR reported decent set of results for 2QFY25 with revenue of Rs8.6bn, down 9% YoY but 7% Shareholding pattern
ahead of our estimate. EBITDA came in at Rs1.38bn, down 17% YoY while margins came in at Sep-24 Jun-24 Mar-24 Dec-23
16.1% against our estimate of 16.5%. Adjusted PAT at Rs934mn is down 6% YoY and 5% ahead Promoter 48.8 48.8 51.1 51.1
of our estimate. Key adjustments to revenue, other income, other expense and tax include 1) FIIs 6.7 8.2 7.1 7.6
Receipt of arbitration claim for Odisha project and 2) Settlement agreement with NHAI for DIIs 30.5 30.8 30.5 29.3
KNR Muzaffarpur Barauni project wherein the company has received interest on unsecured
Public/other 14.1 12.3 11.3 12.0
loan and reversed the provision made in earlier years towards impairment of equity, doubtful
Source: BSE
advances and receivables.
Executable orderbook at Rs44bn with 23% exposure to irrigation Centrum estimates vs Actual results
Current OB stands at Rs44bn excluding recently awarded projects worth Rs12bn. OB including YE Mar Centrum Actual Variance
(Rs mn) Q2FY25 Q2FY25 (%)
L1 projects is Rs56bn translating to book to bill ratio of just 1.5x. If we adjust the irrigation
orders from OB, the book to bill fall to 0.9x. The management is targeting inflows of Rs50- Revenue 8,003 8,560 7.0
60bn in FY25 but hasn’t won any project so far in this year. The company has signed MoU EBITDA 1,320 1,380 4.5
with Adani road transport and Cube highways for subcontracting of BOT projects. Also, the EBITDA margin 16.5 16.1 -38bps
company has signed sub-contracting agreement with Navyuga Engineering for execution of Rep. PAT 888 934 5.2
its MSRDC contract worth ~Rs20bn. Adj. PAT 888 3,344 276.4
Receivables from irrigation segment a key concern Source: Bloomberg, Centrum Broking

KNR currently has Rs9.9bn of outstanding irrigation orderbook. The work on irrigation
projects is continuing at slow pace owing to delay in getting payments post state election in
Telangana. Current receivables from irrigation segment stands at Rs9bn. The company has
now approached courts to receive the pending amounts and continuing with the work.
Receivables from Telangana remains key monitorable for the company.
Maintain Sell with revised TP of Rs250
We maintain our Sell rating on the stock as we believe that critically low orderbook poses
revenue visibility risk. We have cut our FY25/FY26 revenue and PAT estimates by 12%/10%
and 25%/20% respectively. Our base case assumption includes pickup in order inflow in FY25
and better execution in FY26 and FY27. We value the stock based on SOTP method wherein
we have valued EPC business at 13x Sep26E EPS (unchanged) and add the value of equity
investment in BOT/HAM projects at 0.8-1x P/B. We maintain our Sell rating on the stock. Key
risk to our negative call include higher order inflows in FY25, recovery of debtors in irrigation
segment and new orders from non-road segment
Financial and valuation summary
YE Mar (Rs mn) 2QFY25A 2QFY24A YoY (%) 1QFY25A QoQ (%) FY25E FY26E FY27E
Mangesh Bhadang
Revenues 8,193 9,415 (13.0) 39,558 (79.3) 36,522 42,961 51,389
Infrastructure

Research Analyst, Infrastructure

EBITDA 1,356 1,663 (18.5) 6,902 (80.4) 5,491 6,512 8,152 +91-22 4215 9053
EBITDA margin (%) 16.5 17.7 (6.3) 17.4 (5.2) 15.0 15.2 15.9 [email protected]
Adj. Net profit 916 999 (8.2) 4,290 (78.6) 3,238 4,011 5,165
Adj. EPS (Rs) 3.3 3.6 (8.2) 15.3 (78.6) 11.5 14.3 18.4
EPS growth (%) (24.5) 23.9 28.8
PE (x) 26.5 21.4 16.6
EV/EBITDA (x) 14.6 12.0 9.4
PBV (x) 2.2 2.0 1.8
Sanjit Tambe
Research Associate, Infrastructure
RoE (%) 9.2 10.0 11.5
+91-22 4215 9201
RoCE (%) 9.4 10.1 11.6 [email protected]
Source: Company, Centrum Broking

Please see Disclaimer for analyst certifications and all other important disclosures.
KNR Constructions 13 November, 2024

Thesis Snapshot
Estimate revision Valuations
FY25E FY25E FY26E FY26E We value the stock based on SOTP method wherein we have valued EPC
YE Mar (Rsm) % chg % chg
New Old New Old business at 13x Sep26E EPS (unchanged) and add the value of equity
Net Sales 36,522 41,529 (12.1) 42,961 47,696 (9.9) investment in BOT/HAM projects at 0.8-1x P/B. We maintain our Sell
rating on the stock. Key risk to our negative call include higher order
EBITDA 5,491 6,784 (19.1) 6,512 7,740 (15.9)
inflows in FY25, recovery of debtors in irrigation segment and new orders
EBITDA margin % 15.0 16.3 15.2 16.2 from non-road segment
Adj. PAT 3,238 4,328 (25.2) 4,011 5,005 (19.9)
Particulars Rs mn
Source: Centrum Broking
Sep26E Pat of EPC business 4,588
KNRC versus NSE Midcap 100 P/E Multiple (x) 13.0
1m 6m 1 year Equity value of EPC business 59,644
KNRC IN (3.4) 25.2 17.0 Equity investments mad in BOT/HAM 7,095
NSE Midcap 100 (9.5) 7.1 31.2 P/B multiple (x) 1.0
Source: Bloomberg, NSE Pending equity over next 2 years 4,320
P/B multiple (x) 0.8
Key assumptions Value of BOT/HAM projects 10,551
YE Mar FY25E FY26E Total Equity value 70,196
Order backlog (Rsm) 67,565 1,00,694 No of shares 281
Order backlog to revenue (x) 1.9 2.4 Target price (Rs) 250
Order inflows (Rsm) 50,000 75,000
EBITDA Margins (%) 15.0 15.2
Effective tax rate (%) 25.2 25.2 P/E mean and standard deviation
Net WC days 162 142
40
Capex (Rsm) 1,700 2,000
35
Investments (Rsm) 3,484 1,035
30
Source: Centrum Broking
25
20
15
10
5
Nov-21
Nov-19

Nov-20

Nov-22

Nov-23

Nov-24
May-21
May-20

May-22

May-23

May-24
P/E Mean
Mean + Std Dev Mean - Std Dev

Source: Bloomberg, Centrum Broking

Centrum Institutional Research 2

KNR Constructions 13 November, 2024

Exhibit 1: Financial Summary

In Rsmn 2Q24 1Q25 2Q25 YoY QoQ
Net Sales 9,415 8,193 8,560 (9.1) 4.5
EBIDTA 1,663 1,356 1,380 (17.0) 1.8
EBIDTA margin (%) 17.7 16.5 16.1 -154bps -43bps
Other income 50 196 145 189.7 (25.8)
Depreciation 311 225 226 (27.2) 0.4
Interest 58 41 20 (64.7) (49.7)
PBT 1,344 1,286 1,279 (4.9) (0.6)
Tax 346 370 344 (0.4) (6.9)
Effective tax rate (%) 25.7 28.7 26.9 121bps -182bps
PAT 999 916 934 (6.4) 2.0
Extra-ordinary items - 423 2,410
Reported PAT 999 1,339 3,344 234.9 149.8
NPM 10.6 11.2 10.9 31bps -27bps
EPS 3.6 3.3 3.3 (6.4) 2.0
Source: Centrum Broking, Company Data

Exhibit 2: OB atRs44bn (1.2x TTM revenue) ex. 2 HAM projects that are awaiting AD
Orderbook (Rs bn) Book to Bill Ratio (x)
100 2.6
88 89
90 2.4
81 80
80 75
67 2.2
70 65
61
60 56 2.0

50 1.8
40 1.6
30
1.4
20
10 1.2

0 1.0
2Q23 3Q23 4Q23 1Q24 2Q24 3Q24 4Q24 1Q25 2Q25
Source: Centrum Broking, Company Data

Exhibit 3: HAM projects portfolio

Mysore- Mysore-
Magadi - Oddanchatram - Ramanattukara - Valanchery - Chittor - Marripudi to
Project Kushalnagara Kushalnagara
Somwarpet Madathukulam Valanchery Kappirikkad Thatchur Somvarappadu
(Pkg V) (Pkg IV)
State Karnataka Tamil Nadu Kerala Kerala Andhra Pradesh Karnataka Karnataka Andhra Pradesh
Client KSHIP NHAI NHAI NHAI NHAI NHAI NHAI NHAI
Bid Project Cost (Rs mn) 11,445 9,200 23,675 21,400 10,415 6,903 6,500 6,650
Total Project Cost (Rs mn) 11,276 7,920 21,500 19,594 9,309 7,981 7,387 7,717
Estimated Debt (Rs mn) 2,570 3,170 9,000 8,260 3,846 3,580 3,269 3,470
Appointed Date 5th Oct. 2020 5th Oct. 2020 21st Jan. 2022 21st Jan. 2022 25th Jan. 2023 FC achieved FC achieved 10th Feb 2024
PCOD / COD 27th june 2023 2nd Sept. 2022 - - - - - -
% Physical Progress 87.2 100 81.5 84.1 76.5 0 0 12
Equity Invested (Rs mn) 1,124 644 1,516 1,479 793.7 1 1 1
Grant Received (Rs mn) 6,950 4,387 8,688 9,002 3878.6 0 0 656
Debt Already Drawn (Rs mn) 1200 2,450.00 4500 4500 1500 0 0 0
Source: Centrum Broking, Company Data

Centrum Institutional Research 3

KNR Constructions 13 November, 2024

KNR construction - 2QFY25 conference call highlights

Orderbook– Current OB stands at RsRs44bn (1.2x TTM revenue) excluding 2 HAM projects
that are awaiting AD, worth Rs11.9bn. OB including these projects is Rs56bn (1.5x TTM
revenue). Captive HAM projects constitute 47% of OB and road projects including HAM
constitute total of 62%. Irrigation segment is 18% of orderbook. The management is
targeting inflows of Rs60-80bn Company is planning to bid for 80-85 tenders with contract
value ranging from Rs8-16bn.
Guidance– Company expects revenue of Rs35bn for FY25, 12% decline over last year.
EBITDA margins expected to hover at 13-4% on the conservative side. Company is in talks
with Navayuga engineering to work as a sub-contractor for one of the MSRDC projects. MoU
is in advanced stage with Adani and Cube for being a subcontractor for BoT projects.
Asset summary– Total equity requirement for HAM projects is Rs9.9bn, out of which
Rs5.5bn has already been invested. Equity requirement for FY25/FY26/FY27 stands at
Rs1bn/Rs1.2bn/Rs1.1bn respectively. Company expects to monetize its 4 HAM assets by
FY26.
Irrigation- Total outstanding receivables- Rs9bn out of which billed- Rs7.4bn. Company
expects to recover the entire pending amount in 2-3 months. Revenue this quarter was
Rs1.5bn. Balance OB- Rs9bn
Other- Company has pending claims of Rs1.3bn which will is expected in 3QFY25.
Standalone cash- Rs2.4bn, consol cash- Rs4.6bn
Exhibit 4: Valuation Summary
Particulars Rs mn
Sep26E Pat of EPC business 4,588
P/E Multiple (x) 13.0
Equity value of EPC business 59,644
Equity investments mad in BOT/HAM 7,095
P/B multiple (x) 1.0
Pending equity over next 2 years 4,320
P/B multiple (x) 0.8
Value of BOT/HAM projects 10,551
Total Equity value 70,196
No of shares 281
Target price (Rs) 250
Source: Centrum Broking, Company Data

Centrum Institutional Research 4

KNR Constructions 13 November, 2024

P&L Balance sheet

YE Mar (Rs mn) FY23A FY24A FY25E FY26E FY27E YE Mar (Rs mn) FY23A FY24A FY25E FY26E FY27E
Revenues 37,438 39,558 36,522 42,961 51,389 Equity share capital 562 562 562 562 562
Operating Expense 27,829 27,495 28,304 33,295 39,570 Reserves & surplus 26,780 31,694 37,727 41,678 46,771
Employee cost 1,710 1,735 1,996 2,295 2,639 Shareholders fund 27,343 32,257 38,290 42,241 47,333
Others 681 3,426 730 859 1,028 Minority Interest 0 0 0 0 0
EBITDA 7,217 6,902 5,491 6,512 8,152 Total debt 3 0 0 0 0
Depreciation & Amortisation 1,474 1,245 1,222 1,394 1,559 Non Current Liabilities 0 0 0 0 0
EBIT 5,743 5,657 4,269 5,118 6,593 Def tax liab. (net) 0 0 0 0 0
Interest expenses 393 250 255 267 307 Total liabilities 27,345 32,257 38,290 42,241 47,333
Other income 321 327 314 510 616 Gross block 17,120 17,921 19,621 21,621 23,621
PBT 5,671 5,733 4,327 5,361 6,902 Less: acc. Depreciation (12,307) (13,552) (14,774) (16,168) (17,727)
Taxes 2,062 1,443 1,089 1,349 1,737 Net block 4,813 4,369 4,847 5,453 5,894
Effective tax rate (%) 36.4 25.2 25.2 25.2 25.2 Capital WIP 25 22 22 22 22
PAT 3,609 4,290 3,238 4,011 5,165 Net fixed assets 4,838 4,391 4,869 5,475 5,916
Minority/Associates 0 0 0 0 0 Non Current Assets 0 0 0 0 0
Recurring PAT 3,609 4,290 3,238 4,011 5,165 Investments 5,244 6,620 10,104 11,138 11,656
Extraordinary items 1,380 648 2,850 0 0 Inventories 2,341 2,207 2,288 2,687 3,187
Reported PAT 4,988 4,938 6,088 4,011 5,165 Sundry debtors 10,130 14,059 13,981 14,092 15,449
Cash & Cash Equivalents 1,998 2,346 5,685 7,479 9,172
Ratios Loans & advances 34 53 53 53 53
YE Mar FY23A FY24A FY25E FY26E FY27E
Other current assets 11,182 11,333 10,464 12,308 14,723
Growth (%) Trade payables 3,760 2,739 2,839 3,335 3,469
Revenue 14.4 5.7 (7.7) 17.6 19.6 Other current liab. 5,630 7,236 7,547 8,866 10,531
EBITDA 6.5 (4.4) (20.4) 18.6 25.2
Provisions 261 146 135 159 190
Adj. EPS 0.1 18.9 (24.5) 23.9 28.8
Net current assets 16,034 19,878 21,950 24,260 28,394
Margins (%) Total assets 27,345 32,257 38,290 42,241 47,333
Gross 25.7 30.5 22.5 22.5 23.0
EBITDA 19.3 17.4 15.0 15.2 15.9 Cashflow
EBIT 15.3 14.3 11.7 11.9 12.8 YE Mar (Rs mn) FY23A FY24A FY25E FY26E FY27E
Adjusted PAT 13.3 12.5 16.7 9.3 10.1 Profit Before Tax 7,051 6,381 7,177 5,361 6,902
Returns (%) Depreciation & Amortisation 1,474 1,245 1,222 1,394 1,559
ROE 14.5 14.4 9.2 10.0 11.5 Net Interest 393 250 255 267 307
ROCE 14.6 14.4 9.4 10.1 11.6 Net Change – WC (4,460) (3,494) 1,337 (516) (2,441)
ROIC 18.7 18.3 13.3 15.7 18.5 Direct taxes (2,062) (1,443) (1,089) (1,349) (1,737)
Turnover (days) Net cash from operations 2,353 2,939 8,903 5,156 4,590
Gross block turnover ratio (x) 2.2 2.2 1.9 2.0 2.2 Capital expenditure (1,209) (798) (1,700) (2,000) (2,000)
Debtors 91 112 140 119 105 Acquisitions, net 0 0 0 0 0
Inventory 30 30 29 27 27 Investments (416) (1,376) (3,484) (1,035) (517)
Creditors 44 43 36 34 31 Others (2) (2) 0 0 0
Net working capital 156 183 219 206 202 Net cash from investing (1,627) (2,176) (5,184) (3,035) (2,517)
Solvency (x) FCF 726 763 3,719 2,121 2,073
Net debt-equity (0.1) (0.1) (0.1) (0.2) (0.2) Issue of share capital 0 0 0 0 0
Interest coverage ratio 18.4 27.6 21.5 24.4 26.5 Increase/(decrease) in debt 3 (3) 0 0 0
Net debt/EBITDA (0.3) (0.3) (1.0) (1.1) (1.1) Dividend paid (70) (70) (125) (60) (72)
Per share (Rs) Interest paid (393) (250) (255) (267) (307)
Adjusted EPS 12.8 15.3 11.5 14.3 18.4 Others 0 0 0 0 0
BVPS 97.2 114.7 136.1 150.2 168.3 Net cash from financing (460) (323) (381) (327) (379)
CEPS 18.1 19.7 15.9 19.2 23.9 Net change in Cash 265 440 3,339 1,794 1,693
DPS 0.3 0.3 0.2 0.2 0.3 Source: Company, Centrum Broking
Dividend payout (%) 1.4 1.4 0.9 1.5 1.4
Valuation (x)
P/E 19.6 20.0 26.5 21.4 16.6
P/BV 2.6 2.7 2.2 2.0 1.8
EV/EBITDA 9.5 12.1 14.6 12.0 9.4
Dividend yield (%) 0.1 0.1 0.1 0.1 0.1
Source: Company, Centrum Broking

Centrum Institutional Research 5

KNR Constructions 13 November, 2024

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Centrum Institutional Research 6

KNR Constructions 13 November, 2024

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doing so.
Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable
regulations and/or Centrum policies, in circumstances where Centrum is acting in an advisory capacity to this company, or any certain other circumstances.
This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state,
country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Centrum
Broking Limited or its group companies to any registration or licensing requirement within such jurisdiction. Specifically, this document does not constitute an
offer to or solicitation to any U.S. person for the purchase or sale of any financial instrument or as an official confirmation of any transaction to any U.S. person
unless otherwise stated, this message should not be construed as official confirmation of any transaction. No part of this document may be distributed in
Canada or used by private customers in United Kingdom. The information contained herein is not intended for publication or distribution or circulation in any
manner whatsoever and any unauthorized reading, dissemination, distribution or copying of this communication is prohibited unless otherwise expressly
authorized. Please ensure that you have read “Risk Disclosure Document for Capital Market and Derivatives Segments” as prescribed by Securities and
Exchange Board of India before investing in Indian Securities Market.

Ratings definitions
Our ratings denote the following 12-month forecast returns:
Buy – The stock is expected to return above 15%.
Add – The stock is expected to return 5-15%.
Reduce – The stock is expected to deliver -5-+5% returns.
Sell – The stock is expected to deliver <-5% returns.
KNR Constructions

Source: Bloomberg

Centrum Institutional Research 7

KNR Constructions 13 November, 2024

Disclosure of Interest Statement

1 Business activities of Centrum Broking Centrum Broking Limited (hereinafter referred to as “CBL”) is a registered member of NSE (Cash, F&O and Currency Derivatives
Limited (CBL) Segments), MCX-SX (Currency Derivatives Segment) and BSE (Cash segment), Depository Participant of CDSL and a SEBI registered
Portfolio Manager.
2 Details of Disciplinary History of CBL CBL has not been debarred/ suspended by SEBI or any other regulatory authority from accessing /dealing in securities market.

3 Registration status of CBL: CBL is registered with SEBI as a Research Analyst (SEBI Registration No. INH000001469)

KNR Constructions

4 Whether Research analyst’s or relatives’ have any financial interest in the subject company and nature of such financial interest No

5 Whether Research analyst or relatives have actual / beneficial ownership of 1% or more in securities of the subject company at the end of the month
No
immediately preceding the date of publication of the document.
6 Whether the research analyst or his relatives has any other material conflict of interest No

7 Whether research analyst has received any compensation from the subject company in the past 12 months and nature of products / services for which
No
such compensation is received
8 Whether the Research Analyst has received any compensation or any other benefits from the subject company or third party in connection with the
No
research report
9 Whether Research Analysts has served as an officer, director or employee of the subject company No

10 Whether the Research Analyst has been engaged in market making activity of the subject company. No

11 Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past twelve months; No

Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company
12 No
in the past twelve months;
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage
13 No
services from the subject company in the past twelve months;

Member (NSE and BSE). Member MSEI (Inactive)

Single SEBI Regn. No.: INZ000205331

Depository Participant (DP)

CDSL DP ID: 120 – 12200
Single SEBI Regn. No.: IN-DP-537-2020

PORTFOLIO MANAGER

SEBI REGN NO.: INP000004383

Research Analyst
SEBI Registration No. INH000001469

Mutual Fund Distributor

AMFI REGN No. ARN- 147569

Website: www.centrumbroking.com
Investor Grievance Email ID: [email protected]

Compliance Officer Details:

Ajay S Bendkhale
(022) 4215 9000/9023; Email ID: [email protected]

Centrum Broking Ltd. (CIN :U67120MH1994PLC078125)

Registered and Corporate Office:
Level -9, Centrum House, C.S.T. Road,
Vidyanagari Marg, Kalina,
Santacruz (East) Mumbai – 400098
Tel.: - +91 22 4215 9000

Centrum Institutional Research 8