KNR Constructions Robust Performance on Execution Ramp-up

Transcription

1 Market Cap. (Rs bn) 18 Free Float (%) 39 Shares O/S (mn) 28 KNR Constructions Robust Performance on Execution Ramp-up KNR Constructions (KNRC) has reported a better-than-expected performance in 1QFY17, as healthy inflow seen over last 12-months and execution ramp-up from new projects led to robust ~74% yoy growth in revenue to Rs3.06bn way ahead our estimate. EBITDA stood strongly at Rs442mn (+58% yoy) and EBITDA margin continued to remain healthy at ~14.5% (flat on adjusted last year s margins). Reported PAT surged by 101% yoy to Rs302mn vs. our estimate of Rs279mn mainly owing to better top-line growth and lower-than-anticipated tax rate. We continue to maintain our positive stance on KNRC mainly on account of healthy order book (4.9x TTM revenue), strong balance sheet (0.1x net D/E) and sound execution credentials well-proved by track record of early completions, which we believe would boost to growth, going forward. Hence, we reiterate our recommendation on the stock with a revised SOTP-based Target Price of Rs770. Strong show led by healthy inflows Revenue booking remained robust as revenue grew 74% yoy & 3% qoq to Rs3.03bn in 1QFY17 primarily owing to execution ramp-up from fresh projects (secured Rs29bn orders in FY16 & Rs17.5bn till date in FY17E). EBITDA margin continued to remain healthy and stood at strong ~14.5%. PAT came in at Rs302mn (+101% yoy) ahead of the expectations. Robust Order Backlog oers Growth Visibility KNRC s current order backlog at Rs49.2bn (Rs42.6bn as on June 30, 2016), which is ~4.9x TTM revenue, lends sound visibility of future growth. It bagged orders worth Rs29bn in FY16 and has further secured orders over Rs17.5bn in FY17E till date. Further, 93% of its total order book is from the government while 6% orders are from international clients. Share price (%) 1 mth 3 mth 12 mth Absolute performance Relative to Nifty Shareholding Pattern (%) Mar 16 Jun 16 Promoter Public Year Stock Price Performance Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Note: *CMP as on August 16, 2016 Outlook and Valuation In our view, strong show in order-inflow in FY16 and 1QFY17 ytd coupled with execution ramp-up from new projects will aid KNRC to witness a healthy growth, going ahead. Healthy order book, sound execution credentials and light balance-sheet are expected to fuel growth of 43% & 31% CAGR in Revenue & APAT over FY16- FY18E. Hence, we maintain our recommendation on the stock with a revised SOTP-based Target Price of Rs770, valuing KNRC s standalone business at Rs696/ share based on 11x FY18E earnings and Kerala & Bihar BOT at Rs74 (at 1x P/BV). Key Financials (Rs mn) FY15 FY16P FY17E FY18E Sales 8,761 8,851 13,043 18,167 EBITDA 1,261 1,380 1,865 2,634 Net Profit 785 1,036 1,392 1,774 EPS (Rs) DPS (Rs) P/E (x) P/B (x) EV/EBITDA RoE (%) Divi. Yield (%) Research Analyst: Binod Modi Contact: (22) binod.modi@relianceada.com 1

2 Risks to the view Delay in execution Geographical diversification may put pressure on margins Conference Call Key Highlights Roads Projects: Road projects over 10,000kms were awarded and over 6,000kms were constructed in FY16. Further, the Government targets to award 25,000kms in FY17E (2.5x FY16) and intends to construct 15,000kms (including 8,000kms NHAI roads) in FY17E. Adoption of land acquisition act by several states is helping the overall roads and highway sector. Order-inflow Guidance: KNRC added orders worth >Rs17.5bn till date in FY17E in roads and irrigation segment. It expects further to add orders to the tune of ~Rs10-15bn during FY17E. Thus it is likely to exceed its earlier inflow guidance of Rs20-25bn for FY17E. Though KNRC s current bidding pipeline is less than Rs5.0bn, it expects several tenders to come-up post monsoon. KNRC envisages many roads projects to come up especially from Uttar Pradesh & Bihar. Further, lots of irrigation projects are also expected to come up from Talangana. Revenue & Margin Guidance: It has guided for revenue of Rs12.0bn in FY17E and Rs17.0bn in FY18E with an average EBITDA margin of %. Tax rate for FY17E is guided at 8-10% and 12% for FY18E based on current order book. KNRC intends to double its revenue by FY20E. Capex: Given the significant spike in order inflow, it has increased its capex guidance to Rs mn from Rs mn for FY17E, while the capex for FY18E is also expected to be in the same range. BOT Project (Walayar Toll-ways): KNRC s toll collection stood at Rs95.8mn in 1QFY17, which is way below considering the revenue expectations of Rs500mn for FY17E. Management cited that non-completion of a stretch at one-end (being executed by other contractor) is hurting traic as of now. KNRC is expected to infuse additional equity of ~Rs800mn for this project. Muzaarpur-Barauni BOT Project: Provisional Completion Certificate for 75% of project length has been issued on June 03, Toll collection from the project recorded at Rs12.2mn in 1QFY17. Working Capital Cycle: Working capital cycle stands at 45 days. Debtors & Inventory levels stand at Rs1.38bn & Rs400mn, respectively while payable stands at Rs1.4bn. Gross standalone and consolidated debt stands at Rs1.0bn & Rs7.5bn, respectively. Loans and advances to subsidiary reached at Rs2.5bn. 2

3 Market Cap. (Rs bn) 18 Free Float (%) 39 Shares O/S (mn) 28 Exhibit 1: Result Summary (Rs mn) 1QFY17 1QFY16 % yoy chg 4QFY16 % qoq. chg FY16 FY15 % yoy chg Net Sales 3,036 1, , ,851 8, Expenses Cost of materials consumed (5.5) ,792 3,370 (17.2) Changes in WIP 0 0 % sales Employee Costs % sales Spreading & Assortment Exps (20.1) 1, % sales Sub-contract exps ,684 1, % sales Other Exps (18.8) 973 1,154 (15.6) % sales Total Exps. 2,595 1, , ,471 7,500 (0.4) EBITDA ,380 1, EBITDA margins (%) (148.6) 14.8 (1.9) Depreciation (20.2) Finance Costs Other Income (68.1) PBT (29.4) 1, Tax Exps (8.8) (125) (310) (7) % PBT PAT (47.9) 1, APAT (21.4) 1, Net Margins (%) Exhibit 2: Revised v/s Old estimates FY17E FY18E Old Revised % change Old Revised % change Sales 12,435 13, ,403 18, EBITDA 1,840 1, ,610 2, EBITDA margins (%) PAT 1,371 1, ,732 1, EPS (Rs) Source: RSec Research 3

4 Exhibit 3: A snapshot of key orders Key Projects Rs bn Madurai Ramanathpuram Project 7.45 Thiruvananthapuram Bypass from Kazhakkoottam to Mukkola Junction 5.71 Upgrading Arcot Villupuram Road 3.06 Rehabilitation and upgradation of Dindigul-Bangalore Road (Pollachi to Coimbatore Section) 4.15 Flyover in Salem- TN 2.87 Top 5 Road Projects Other Road Projects Irrigation Projects 7.3 Total Order Book Exhibit 4: Segmental Order Break-up (%) Exhibit 5: Geographical Break-up (%) Road (Third Parties) Irrigation South East Central International 4

5 Profit & Loss Statement Y/E March (Rs mn) FY15 FY16 FY17E FY18E Income 8,761 8,851 13,043 18,167 % yoy growth Operting Expenses 7,500 7,471 11,178 15,533 EBITDA 1,261 1,380 1,865 2,634 EBITDA Margin (%) Depreciation & Amortization Interest Other Income PBT 723 1,301 1,637 2,366 Tax (7) (310) % Tax (1.0) (23.8) Net Profit- Reported 730 1,611 1,392 1,774 YoY Growth (%) (13.6) 27.5 Net Profit- Adjusted 785 1,036 1,392 1,774 Net Profit Margin (%) Balance Sheet Y/E March (Rs mn) FY15 FY16P FY17E FY18E Sources of Funds Share Capital Reserves & Surplus 5,412 6,991 8,350 10,091 Total Shareholder's funds 5,693 7,272 8,631 10,372 Loans 964 1,171 1,125 1,276 Deferred Tax Liability (net) (239) (276) (276) (276) Total Liabilities 6,418 8,167 9,480 11,372 Application of Funds Gross Fixed Assets 5,509 6,056 6,856 7,656 Less: Acc. Depreciation 3,156 3,587 3,997 4,386 Net Fixed Assets 2,353 2,468 2,858 3,269 Investments Inventories Sundry Debtors 1,765 1,294 1,799 2,565 Other Current Assets 1,638 1,617 2,348 3,452 Cash & Bank Balances Loans & Advances 3,542 6,178 7,043 8,175 Toal Current Assets 7,522 9,604 12,008 15,690 Current Liabilities 3,463 3,807 5,404 7,465 Provisions Total Current Liabilities 3,772 4,340 5,860 8,101 Net Current Assets 3,749 5,265 6,148 7,589 Misc. Expenditure Total Assets 6,418 8,167 9,480 11,372 5

6 Cash Flow Statement Y/E March (Rs mn) FY15 FY16E FY17E FY18E PBT 723 1,301 1,637 2,366 Depreciation Tax Paid (114) (209) (246) (591) Net Change in Working Capital (358) 1, Others Net Cash from Oper. Activities 914 2,777 2,064 2,475 Capex (390) (547) (800) (800) Sale / (Purchase) of Investments (379) (2,272) (905) (1,172) Net Cash used in Invest Activities (769) (2,819) (1,705) (1,972) Finance cost (155) (159) (186) (180) Proceeds from Equity Proceeds from Debt (46) 150 Others Net Cash used in Fin. Activities (99) 49 (232) (30) Net Increase/ (Decrease) in Cash Cash at Beginning of the Year Cash at End of the Year Key Ratios Y/E March FY15 FY16E FY17E FY18E Valuation Ratio (x) P/E P/CEPS P/BV EV/EBITDA EV/Sales Dividend Payout (%) Dividend Yield (%) Per Share Data (Rs) EPS (Basic) EPS (Diluted) CEPS DPS Book Value Returns (%) RoCE RoE Turnover ratios (x) Asset Turnover Inventory (days) Receivables (days) Payables (days) WCC (days) Solvency ratios (x) D/E (x) Current Ratio (x)

7 Rating Guides Rating Expected absolute returns (%) over 12 months >10% HOLD -5% to 10% REDUCE >-5% Reliance Securities Limited (RSL), the broking arm of Reliance Capital is one of the India s leading retail broking houses. Reliance Capital is amongst India s leading and most valuable financial services companies in the private sector. Reliance Capital has interests in asset management and mutual funds, life and general insurance, commercial finance, equities and commodities broking, wealth management services, distribution of financial products, private equity, asset reconstruction, proprietary investments and other activities in financial services. The list of associates of RSL is available on the website RSL is registered as a Research Analyst under SEBI (Research Analyst) Regulations, 2014 General Disclaimers: This Research Report (hereinafter called Report ) is prepared and distributed by RSL for information purposes only. The recommendations, if any, made herein are expression of views and/or opinions and should not be deemed or construed to be neither advice for the purpose of purchase or sale of any security, derivatives or any other security through RSL nor any solicitation or oering of any investment /trading opportunity on behalf of the issuer(s) of the respective security(ies) referred to herein. These information / opinions / views are not meant to serve as a professional investment guide for the readers. No action is solicited based upon the information provided herein. Recipients of this Report should rely on information/data arising out of their own investigations. Readers are advised to seek independent professional advice and arrive at an informed trading/investment decision before executing any trades or making any investments. This Report has been prepared on the basis of publicly available information, internally developed data and other sources believed by RSL to be reliable. RSL or its directors, employees, ailiates or representatives do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information / opinions / views. While due care has been taken to ensure that the disclosures and opinions given are fair and reasonable, none of the directors, employees, ailiates or representatives of RSL shall be liable for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including lost profits arising in any way whatsoever from the information / opinions / views contained in this Report. Risks: Trading and investment in securities are subject to market risks. There are no assurances or guarantees that the objectives of any of trading / investment in securities will be achieved. The trades/ investments referred to herein may not be suitable to all categories of traders/investors. The names of securities mentioned herein do not in any manner indicate their prospects or returns. The value of securities referred to herein may be adversely aected by the performance or otherwise of the respective issuer companies, changes in the market conditions, micro and macro factors and forces aecting capital markets like interest rate risk, credit risk, liquidity risk and reinvestment risk. Derivative products may also be aected by various risks including but not limited to counter party risk, market risk, valuation risk, liquidity risk and other risks. Besides the price of the underlying asset, volatility, tenor and interest rates may aect the pricing of derivatives. Disclaimers in respect of jurisdiction: The possession, circulation and/or distribution of this Report may be restricted or regulated in certain jurisdictions by appropriate laws. No action has been or will be taken by RSL in any jurisdiction (other than India), where any action for such purpose(s) is required. Accordingly, this Report shall not be possessed, circulated and/or distributed in any such country or jurisdiction unless such action is in compliance with all applicable laws and regulations of such country or jurisdiction. RSL requires such recipient to inform himself about and to observe any restrictions at his own expense, without any liability to RSL. Any dispute arising out of this Report shall be subject to the exclusive jurisdiction of the Courts in India. Disclosure of Interest: The research analysts who have prepared this Report hereby certify that the views /opinions expressed in this Report are their personal independent views/opinions in respect of the securities and their respective issuers. None of RSL, research analysts, or their relatives had any known direct /indirect material conflict of interest including any long/short position(s) in any specific security on which views/opinions have been made in this Report, during its preparation. RSL s Associates may have other potential/material conflict of interest with respect to any recommendation and related information and opinions at the time of publication of research report. RSL, its Associates, the research analysts, or their relatives might have financial interest in the issuer company(ies) of the said securities. RSL or its Associates may have received a compensation from the said issuer company(ies) in last 12 months for the brokerage or non brokerage services.rsl, its Associates, the research analysts or their relatives have not received any compensation or other benefits directly or indirectly from the said issuer company(ies) or any third party in last 12 months in any respect whatsoever for preparation of this report. The research analysts has served as an oicer, director or employee of the said issuer company(ies)?: No RSL, its Associates, the research analysts or their relatives holds ownership of 1% or more, in respect of the said issuer company(ies).?: No Copyright: The copyright in this Report belongs exclusively to RSL. This Report shall only be read by those persons to whom it has been delivered. No reprinting, reproduction, copying, distribution of this Report in any manner whatsoever, in whole or in part, is permitted without the prior express written consent of RSL. RSL s activities were neither suspended nor have defaulted with any stock exchange with whom RSL is registered. Further, there does not exist any material adverse order/judgments/strictures assessed by any regulatory, government or public authority or agency or any law enforcing agency in last three years. Further, there does not exist any material enquiry of whatsoever nature instituted or pending against RSL as on the date of this Report. Important These disclaimers, risks and other disclosures must be read in conjunction with the information / opinions / views of which they form part of. RSL CIN: U65990MH2005PLC SEBI registration no. ( Stock Brokers: NSE - INB / INF / INE ; BSE - INB / INF / INE , Depository Participants: CDSL IN-DP IN-DP-NSDL , Research Analyst: INH ); AMFI ARN No