KNR Constructions - Order Inflows Remains Muted: Motilal Oswal

Motilal Oswal Report

In Q3 FY24, KNR Construction Ltd. did not secure any major orders. As of December 2023, the order book stands at ~Rs 66 billion (considering order inflows post Q2 FY24 and expected execution in Q3 FY24). KNR Construction is expecting Rs 20-30 billion in new project wins in FY24 (earlier guidance of Rs 40-50 billion) as order inflows may be slower than initially expected due to upcoming elections.

KNR Construction is exploring opportunities in various states for project bidding and is also considering selective bidding across infrastructure verticals.

The company expects improvements in project execution within the irrigation order book in the coming months. Despite facing challenges in the execution of irrigation projects, the company foresees a potential improvement in project execution in the upcoming months. 

Management is expecting improved execution in H2 FY24, driven by the Road segment. KNR Construction is targeting to clock a revenue of Rs 40 billion in FY24E with margins in the range of 18-19%.

The order inflows have been weak so far in FY24; however, the tender pipeline remains robust and KNR Construction expects some order inflows to materialize soon.

In line with muted awarding activity by National Highway Authority of India in year-to-date-FY24, KNR Construction has reduced its order inflow guidance for FY24 to Rs 20-30 billion.

With the existing order book of ~Rs 66 billion, we expect a 10% revenue compound annual growth rate over FY23-26. Ebitda margin is expected to be ~18-19%.

We reiterate our 'Buy' rating with a target price of Rs 325 (SoTP-based valuation). We value the engineering, procurement and construction business at price/earning of 14 times on FY26E EPS and built-operate-transfer assets at one time Investment value.

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