KNR Constructions (KNR) reported strong set of 2QFY2016 numbers. On the
top-line (standalone) front, it reported 24.9% yoy increase to Rs213cr (ahead of
our estimate of Rs189cr). EBITDA and PAT numbers were ahead of our estimate at
Rs35cr and Rs22cr, respectively (v/s our estimate of Rs27cr and Rs11cr, respectively).
PAT numbers during the quarter benefitted from prior period tax refunds and
interest on such tax refunds to the tune of Rs33cr. On adjusting for the same, Adj.
PAT of KNR was at Rs22cr, reflecting an impressive 10.5% Adj. PAT margin.
KNR’s order book as of 2QFY2016 stands at ~Rs3,665cr, which gives strong
revenue visibility for over the next few quarters.
Valuation: Improved order book, ramp-up in recently won projects, strong
earnings growth potential, and comfortable Balance Sheet, strengthen our view
that KNR would continue to trade at rich valuations. On valuing the standalone
entity at 15.0x our FY2017E EPS of Rs38.6, and adding value for its Kerala &
Muzaffarpur BOT projects, we arrive at FY2017E sum-of-the-parts (SoTP) based
price target of Rs673/share, implying 16% upside from the current levels. Given
the upside in the stock, we upgrade our rating to Buy.

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