KNR has track record of generating operating cash flows which will help it in meeting capital for future growth. We believe that strong cash flows, deal with Cube Highways and monetization of BOT assets will help the company in meeting upfront equity commitment in the balance two HAM projects. Further, the company has track record of beating its revenue guidance and margin guidance, and we believe that the trend will continue in FY20/FY21. We have maintained our estimates for FY20E/21E. The EPC business (adjusted for BOT/HAM value Rs 47/share) is available at a PE of 11x/8.8x based on FY20E/FY21E EPS of Rs 17.1/21.5, respectively. We maintain our BUY rating on the stock with SOTP based target price of Rs 305.
Going forward, execution to pick up as projects are getting financial closure and appointed date. While healthy balance sheet, strong execution capability with better operational margin to support valuation. We value standalone business at a P/E of 13x FY21E EPS and BOT/HAM projects at 1xP/B to arrive at SOTP target price Rs295 & revise our rating to Buy.
Though stock has fallen ~5% post our Q1FY20 update note, considering pick up in execution from H2FY20E, healthy return ratios, a well-managed balance sheet, comfortable working capital, low D:E, and quality management, we maintain BUY with a SOTP-based TP to Rs 369.
At CMP of Rs. 245, KNR Construction is trading at 12.7x to FY21E standalone EPS. Considering the order book and execution rates, we value the EPC businessat 12.5x to its FY21E EPS to arrive at the value of Rs. 240 per share. We also value the BOT assets at 1x BV & HAM opportunity at 1x BV of the equity investment andarriving at a value of Rs. 290.
We maintain BUY on KNR with an increased SOTP-based TP of Rs 375/sh (valuing core EPC business 18x FY21EPS at Rs 315/sh, Subsidiaries Rs 60/sh) vs. Rs 363/sh earlier. KNR delivered Revenue/EBIDTA/APAT beat of 11/(2)/5%.
The company expects higher growth in FY21E. H1FY20 is expected to be slower largely on account of delay in appointed date in NHAI HAM projects, which the company expects to receive in coming quarters. We have revised our EPS estimates based on Q1FY20 execution and tax rates. The EPC business (adjusted for BOT/HAM value Rs 48/share) is available at a PE of 11.4x/9.2x based on FY20E/FY21E revised EPS of Rs 16.2/19.4 (Vs 18.1/Rs 20.8 earlier), respectively. We upgrade our rating on the stock to BUY (from ADD earlier), post correction in the share price with revised SOTP based target price of Rs 300 (Vs Rs 312 earlier).
EBITDA margins are on the higher side led by lower sub contraction cost and various irrigation projects are on the verge of completion. The reported PAT down 35.5% YoY to 477 mn (31.3% below estimates), due to a muted operating performance coupled with higher depreciation, higher finance cost, lower other income and higher tax rate of 19.0% vs. 12.3% (Q1FY19).
The Company is targeting order inflow to the tune of ~Rs.15 bn during the remaining period of FY20. With projects coming under-execution, we expect company to clock ~17% yoy topline CAGR during FY19-21E. Earnings growth is likely remain healthy backed by high margin order book in hand. Also, Share Purchase Agreement (SPA) with Cube Highways to sell its entire stake in 4 HAM projects in a phased manner will allow KNR to focus on its core expertise of EPC. The stock is currently trading at 13.9x FY21E P/E. With recent correction in stock price, we upgrade the stock to a BUY for target price of Rs.293 (based on SOTP valuation).
KNR has track record of generating positive operating cash flows which would help it in meeting capital for future growth. We have maintained our estimates for FY20E and FY21E. The EPC business (adjusted for BOT/HAM value Rs 42/share) is available at a PE of 13.2x/11.5x based on FY20E/FY21E EPS of Rs 18.1/Rs 20.8, respectively. We maintain ADD on the stock with SOTP based target price of Rs 312, valuing standalone business at 13xFY21E EPS.
Our preference for KNRC stems from its robust execution track record, driven by backward integration, strong balance sheet with net debt-equity of -0.1x, and consistent operating margins. We value the company on an SOTP basis: INR290/share for the standalone EPC business (15x FY21E EPS of INR18.5) and INR45/share for investments in BOT projects and land parcels (1x FY21E BV). Maintain Buy with a target price of INR335.
Going forward, execution to pick up as projects are getting financial closure and appointed date. While healthy balance sheet, strong execution capability with better operational margin to support valuation. We value standalone business at a P/E of 15x FY21E EPS and BOT/HAM projects at 1xP/B to arrive at SOTP target price Rs324 & revise our rating to Accumulate.
We have upgraded our EPS estimates for FY20E and FY21E by 7-10% based on strong pace of execution and robust order book and pipeline. The EPC business (adjusted for BOT/HAM value Rs 42/share) is available at a PE of 13.1x/11.5x based on FY20E/FY21E revised EPS of Rs 18.1/Rs 20.8, respectively. We maintain ADD on the stock with revised SOTP based target price of Rs 312 (Vs Rs 282 earlier), as we roll forward our valuations to FY21E.
We maintain our positive view on KNRC mainly owing to strong balance sheet (0.2x of net D/E), the best working capital cycle and sound execution credentials. Going forward, we expect KNRC’s revenue to clock 18% CAGR through FY19-21, while PAT is expected to witness 1% negative CAGR mainly led by higher tax rate. Rolling over our valuations to FY21E, we maintain our BUY recommendation on the stock with a revised SOTP-based Target Price of Rs315.
The company management had guided for over Rs18bn revenue in FY19E and Rs 23-24 bn revenue in FY20E with EBITDA margins of 14-15%. We have upgraded our EPS estimates for FY19E based on strong execution in old orders and company’s confidence of exceeding its guidance. The EPC business (adjusted for Rs 35 per share revised value of BOT) is available at a PE of 15.4x/14.2/12.1x based on FY19E/FY20E/FY21E revised EPS of Rs 15.2/16.5/19.4 per share, respectively. We downgrade our rating on the stock to Add (Vs Buy earlier) with revised SOTP based target price of Rs 282 (Vs Rs 239 earlier), as we see limited upside over our revised target price.