KNR Constructions (KNR) reported strong set of 1QFY2017 numbers. On the
top-line (standalone) front, it reported 73.9% yoy increase to Rs304cr (ahead of
our estimate of Rs249cr). 48% of 1QFY2017 revenues were from (1) Madurai-
Ramanathapuram project (Rs68cr), (2) Trivandrum bypass project (Rs44cr) and
(3) Penchalakona-Yerpedu project (Rs35cr). EBITDA and PAT numbers were ahead
of our estimate at Rs44cr and Rs30cr, respectively (v/s our estimate of Rs37cr and
Rs25cr, respectively).
KNR’s order book as of now stands at ~Rs4,925cr, which gives strong revenue
visibility for over the next 3 years.
Valuation: KNR in our view enjoys (1) strong execution track record, (2) better
cost structure (reflected in better EBITDA & PAT margins vs some of its peers),
(3) shorter working capital cycle, (4) low leverage (since FY2011, D/E ratio has
been ~0.2x), and (5) impressive RoEs (12.1-24.9% range during FY2011-16). All
these factors indicate KNR’s superior earnings quality, and strengthen our view
that KNR would continue to trade at premium valuations. On valuing standalone
entity at 15.0x to our FY2018E EPS of Rs48.5, and adding value for its Kerala &
Muzaffarpur BOT projects, we arrive at FY2018E sum-of-the-parts (SoTP) based
price target of Rs802/share, implying 15% upside from current levels. Given the
upside in the stock, we maintain our Buy rating on the stock.

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