KNR Constructions -...

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Industry Overview The Indian Road and Highway sector is expected to grow at 36.0% CAGR. The Government encouraged foreign portfolio investors to invest in infrastructure debt funds, introduced credit default swaps for the infrastructure sector to provide a boost to the industry. The EPC segment regained its growth momentum in 2018 due to positive developments in the economy, investments in transport infrastructure, energy and housing projects as stated in ‘Construction in India’ by Global Data. The industry is expected to grow at 5.6% from 2016-20 due to an increase in the demand for commercial spaces and the emergence of new industrial corridors and infrastructure. The upcoming river linking projects in various states will provide enormous opportunities to construction companies and EPC contractors.

MD&A Overview KNR is focused on securing EPC contracts and HAM projects from NHAI and other State Governments. The Company is equipped with state-of-the-art technology and equipment, which was developed in-house. With constant government support and healthy infrastructure industry prospects, the Company expects its revenues to grow at a CAGR of 15.0% between FY18-20. It has an order book worth `65.0 billion leading to a book-to-bill ratio of 3x LTM Revenue. Backed by a gross asset base of over `10.0 billion, the company is well positioned to bid competitively bid for several projects. KNR plans to capitalize on opportunities like building flyovers, metro-rails and railways to diversify its order book. It also plans to explore growth opportunities by forming strategic joint ventures.

Financial Snapshot KNR reported a revenue of `21.4 billion due to increase in the works contract. In FY19 the sub contract expenses declined by 57.7% resulting in increase in EBITDA. KNR reported an EBITDA of `4.3 billion. The year marked an improvement in PAT by 6.9% to `2.7 billion due to increase in the other income. The order book registered a growth of 72.6% to `40.2 billion. The same does not include projects worth `18.8 billion which they have won after FY19. KNR declared a dividend of `0.4 per share. The net worth crossed `14.1 billion which is a clear indication of KNR strong fiscal prudence and sound fiscal strategy.

DART View We estimate a revenue/ PAT CAGR of 26.3%/ 6.3% for FY19-FY21E. Our revenue estimates of `24.9 bn/ `34 bn for FY20E/ FY21E are same/ higher than the management guidance of `25 bn/ `30 bn, respectively. We factor EBITDA margins of 17.8%/ 17.0% for FY20E/ FY21E. KNR has entered into share purchase agreement with Cube highways for 4 HAM projects wherein KNR will receive `3.58 bn against its equity investment of `2.0 bn (51% share). The average deal valuation works out at 1.8x P/B. Cube Highways will be investing 49% equity (₹1.9 bn) out of total requirement of ₹3.9 bn during construction period. On achieving CoD, Cube Highways will acquire 25% equity stake out of 51% from KNR and will acquire remaining 26% after expiry of lock in period (~2 years) post CoD. Thus, acquiring 100% stake from KNR. 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 `369.

CMP ` 220

Target / Upside ` 369 / 68%

BSE Sensex 37,112

NSE Nifty 11,004

Scrip Details

Equity / FV ` 281mn / ` 2

Market Cap ` 31bn

US$ 433mn

52-week High/Low ` 303/` 165

Avg. Volume (no) 96,190

NSE Symbol KNRCON

Bloomberg Code KNRC IN

Shareholding Pattern Jun'19(%)

Promoters 55.2

MF/Banks/FIs 30.2

FIIs 3.2

Public / Others 11.5

KNRC Relative to Sensex

VP Research: Shravan Shah Tel: +91 22 40969749

E-mail: [email protected]

Associate: Maulik Shah Tel: +91 22 40969775

E-mail: [email protected]

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KNRC SENSEX

KNR Constructions

Buy

September 18, 2019

September 18, 2019 2

Annual Report Macro View

Particulars

Key Management Changes No changes in Management.

Board of Directors The following people were added to the Board: Smt. G C Rekha appointed as Independent Non-Executive Director w.e.f 30.05.2019. She worked as billing and coding specialist and administrator in the health sector.

Auditors No change in Auditors. M/s. K P Rao & Co. continue to be the auditors of the Company

Pledged Shares FY2019 FY2018

Pledged Shares - -

Credit Ratings

Ratings FY2019 FY2018

Bank facilities CRISIL and India Ratings

AA- Stable CRISIL and India Ratings

A+

Insider Holdings

Number of securities acquired/disposed/pledged during the year:

FY2019 FY2018

Acquired - -

Disposed 300,000 3,600,000

Pledged - -

Pledge revoked - -

Macroeconomic Factors

There was a global slowdown due to trade disputes between US and China, uncertainty over Brexit and financial tightening across developed economies. The Indian economy’s growth was affected by depreciating rupee, rising crude oil prices, contracting IIP, NBFC liquidity stress and after effects of the global slowdown.

Key Holders

Category of Shareholder (%) FY2019 FY2018

Promoter Holding 55.17 55.38

Public

i) Mutual Funds/UTI 29.60 28.06

ii) Foreign Portfolio Investors 3.04 3.77

iii) Banks/Financial Institution 0.06 0.02

iv) Central Government/ State Government 0.00 0.02

v) Non-Institution 12.13 12.75

Total 100.00 100.00

Source: Company, DART


Industry Dynamics

Indian Infrastructure Sector

The Government has planned an investment of `100.0 trillion in the infrastructure segment, over the next five years

Backed by private players and the Government, road construction improved from 12 km/day in 2014-15 to 30 km/day in 2018-19

The Government has launched various initiatives like DFC, Bharatmala, Sagarmala and UDAN schemes to give a boost to the infrastructure sector

Private equity and venture capital funds have invested ~$2.0 billion in the infrastructure sector

Asian Infrastructure Investment Bank (AIIB) has announced an investment of $200 million into the National Investment and Infrastructure Fund (NIIF)

Indian Road Construction Sector

In the Union Budget 2019-20, `1.1 trillion was allocated to Ministry of Road Transport and Highways

The Indian Road and Highway Sector is expected to grow at a CAGR of 36.0% till 2025

Trend of road building (kms)


With support from the Government and private sector, investments in the road sector tripled to `1.6 trillion in FY2019

The target of constructing 15,000 km road was not achieved on account of land acquisition delays and lack of fund availability

In FY19, 10,800 km road was constructed, achieving 72.0% of the target

Under the Bharatmala Pariyojana Phase-I, a total of 34,800 kms of NH length was approved at a cost of `5.4 trillion

Also, a total of 225 projects with an aggregate length of ~9,613 kms was appraised and approved under the Bharatmala Pariyojana Phase-I

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8,231

9,828 10,800

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FY15 FY16 FY17 FY18 FY19

Road Building (Kms)


With an investment target of `802.5 billion for Phase-III of the Pradhan Mantri Gram Sadak Yojana, the Government aspires to construct 125,000 km of village roads

The Government expenditure in the highway sector doubled from `343.5 billion in FY15 to `786.3 billion in FY19

In FY19, the construction and expansion of highways reached to 10,800 km

Road construction target per day has doubled in the last five years. The target for the next year has been set at 40 km/day

Trend of road development per day (kms)


Project worth `3.0 trillion was awarded by both NHAI and MORTH and the state invested `1.7 trillion in the last 5 years

In FY19, NHAI awarded ~2,500 km of roads

NHAI is expected to award 32,300 km of roads by 2023-24. 60.0% of the order book will be Engineering Procurement Construction (EPC) segment while the remaining order book will comprise of the Hybrid Annuity Model (HAM) segment

NHAI acquired ~8,500 hectares of land in FY19 and aims to acquire 90,000 hectares of land in the coming five years

In FY20, 6,000 kms of highway projects will be awarded by NHAI with a road construction target of 4,500 km where most of the projects will be under the HAM segment

Under the Bharatmala Pariyojana Phase-I and Phase II, the Government plans to roll out tenders for awarding 40,000 kms of road construction

Targets vs achievements for road construction (National Highways)


Target (Km) 6,300 10,950 15,000 15,000 15,000

Total Constructed (Km) 4,410 6,061 8,231 9,829 10,824

Constructed under NHAI 1,500 2,017 2,562 3,071 3,320

Constructed under MORTH 2,910 4,044 5,669 6,758 7,504

% Achieved 70 55 55 66 72


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Road development in a day (Km)


Key Takeaways from the MD&A

Company Overview

KNR’s guiding principle has been to quote projects with reasonable EBITDAs and limiting the number of projects to an extent that monitoring and execution can be completed in a timely manner

The Company attained leadership in the EPC segment

KNR’s total order book stood at `40.2 billion including an EPC value of `26.6 billion of 3 HAM projects, Central Government projects worth `6.7 billion and State Government projects worth `6.8 billion

The order book for EPC segment increased by `16.9 billion YoY

KNR are JV partners for EPC and BOT contracts

The Company’s clientele includes NHAI, MORTH and various State Highway and Road Development Corporations and State Governments

KNR expects its revenues to grow at a 15.0% CAGR between 2018-2020 on account of healthy infrastructure industry prospects and timely order execution

The company, in a bid to diversify its order book, is focused on foraying into building flyovers, metro rails and railways.

Schedule Completion days vs Actual Completion days of different projects:

Schedule vs Actual completion days


Cube Highways and Infrastructure Pte III Limited, Singapore agreed to participate in HAM projects to the extent of 49.0%

Both the companies agreed to buyback all the 4 HAM projects in a phased manner. The investment is expected to provide a return of 1.8x of the investment

The agreement will help the Company to monetise the assets and re-invest the capital in future

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Scheduled completion (days) Actual Completion (days)


Major Projects

KNR has a portfolio of 10 projects, out of which 6 are HAM projects worth `65.3 billion (BPC)

778 lane km projects in the state of Telangana, Karnataka, Kerala and Bihar

Won an NHAI HAM project worth `9,200 million in the state of Tamil Nadu

2 Annuity based projects

2 BOT Toll based projects

Achieved financial closure for 4 NHAI HAM projects

Work started on 3 HAM projects with appointed date declared by NHAI

Construction of Flyover at Ramanathapuram and Sungam junctions with a project cost of `2.1 billion

Four Laning of Oddanchatram-Madathukulam section of NH-209 in Tamil Nadu at a Bid-Project of `9.2 billion

Awards and Recognition

The Company was ranked 486 among Fortune 500 Companies by Fortune India Magazine 2018.

During the year, the Company was honored with “2nd Fastest Growing Construction Company (Medium Category)” and “India’s Top Challengers” of 2017-18 at the 16th Construction World Global Awards, 2018 held at New Delhi

KNR was honored with an award for “Best Executed Irrigation Project of the Year 2018-Kaleshwaram Project” by Construction Times Awards 2018


Details of Board Meetings and Directors

Board Meeting Trend

Particulars FY17 FY18 FY19

No. of meetings held 7 6 7

No. of Director's strength 5 5 5

Avg No. of Directors Present 4 4 5

Average % attendance of directors 83.33% 80% 90%


Board and Committee Composition

Name of Directors Board Audit Nomination & Remuneration

Stakeholders Relationship

Shri K Narsimha Reddy • - - -

Shri K Jalandhar Reddy • • - •

Shri B V Rama Rao • • -

Shri L B Reddy • -

Smt. K Yashoda • - •

Smt. G C Rekha • - - -

Source: Company, DART, Chairperson • Member

Trend of Remuneration (` mn)

Name Position FY17 FY18 FY19

Independent Directors / Non-Executive Directors

Shri B. V. Rama Rao Chairman/Director 1.12 1.4 1.55

Shri L. B. Reddy Director

1.12 1.4 1.55

Smt. K Yashoda 0.32 0.5 0.6

WHOLE TIME DIRECTORS

Shri K. Narsimha Reddy Managing Director 36 50.4 55.8

Shri K. Jalandhar Reddy Executive Director 24.08 35.12 37.2


Details of Committee Chairmanship and Committee memberships held by the directors

Name of Director Designation No. of other directorships

Number of Membership / Chairmanship of other companies

Member Chairperson

Shri B. V. Rama Rao Chairman - - -

Shri L. B. Reddy Director 1 - -

Smt. K Yashoda Director 1 - -

Shri K. Narsimha Reddy Managing Director 2 - -

Shri K. Jalandhar Reddy Executive Director 1 - -



BOT Portfolio - Toll Projects

Particulars KNR Walayar Tollways Pvt. Ltd. KNR Muzaffarpur Barauni Tollway Pvt. Ltd.

Stake 100% 51%

Project type Road-Toll Road-Toll

State Kerala Bihar

JV Partner - JKM Infra Project Ltd

Client NHAI NHAI

No of lanes Two to Four Two

Length (KM) 54 108

Concession Start Date 18th May 2013 8th July 2012

Concession Period 20 years 21 years

Scheduled COD 15th Nov. 2015 9th July 2014

Actual Scheduled COD 31st Oct. 2015 3rd June 2016

Revenue Sharing Grant Premium

Project Cost (` mn) 9005.1 3596.8 / (Revised : 4588.6)

Equity (30.06.2019) (` mn) 3974.1* 1771.5

Debt (30.06.2019) (` mn) 1521.1 3063.1

Status 100% COD issued on 31st Oct. 2015 100% COD issued on 24th August 2017

Toll Revenue – Q1FY20 & FY19 (` mn) Q1FY20: 170.8 Q1FY20: 254.5

FY19: 615 FY19 : 753


BOT Portfolio- Annuity Projects

Particulars Patel KNR Infrastructures limited (PKIL) Patel KNR Heavy Infrastructures Limited (PKHIL)

Stake 40% 40%

Project Type Road-Annuity Road-Annuity

State Karnataka Telangana

JV Partner PEL PEIL

Client NHAI NHAI

Length (KM) 60 53

Concession Start Date 26th March 2007 2nd March 2008

Concession Period 20 years 20 years

COD 21st December 2009 11th June 2010

Project Cost (` mn) 4420 5920

Equity (30.06.2019) (`mn) 370 648.7

Debt (30.06.2019) (`mn) 2396.1 3870.2

Securitizied Yes Yes

Semi-Annuity - 36 Instalments (`mn) 329.4 443.7



HAM Portfolio

Particulars Trichy to Kallagam

Meensurutti to Chidambaram

Chittor to Mallavaram

Ramsanpalle to Mangloor

Magadi to Somwarpeth

Oddanchatram to Madathukulam

Stake 100% 100% 100% 100% 100% 100%

State Tamil Nadu Tamil Nadu Andhra Pradesh Telangana Karnataka Tamil Nadu

Client NHAI NHAI NHAI NHAI KSHIP NHAI

No.of Lanes Four Two Six Four Two Four

Length (KM) 38.7 31.5 61.1 46.8 166 45.4

Concession Period 17 Years 17 Years 17.5 Years 17 Years 9 Years 17 Years

Bid Project Cost (` mn) 10206 4820.4 17300.7 12340 11445 9200

Estimated Equity (` mn)

962.3 455 1432.5 1042.3 1221 Received LOA on 7th March 2019

Estimated Debt (` mn)

3820 1820 5730 4169 2570 Received LOA on 7th March 2019

Status AD received on 1st Mar 2019

FC Achieved on 7th Sept 2018

AD received on 4th Jan 2019

AD received on 2nd May 2019

Financial Closure Documents have

been submitted to the Authority



Financial Analysis

Revenues

KNR’s revenues surged by 10.6% YoY to `21.4 billion in FY19 from `19.3 billion in FY18 driven by increase in total work contract receipts. Increase in cost of sales was in line with increase in sales at 10.5%.

Revenue and Revenue growth (%)


Expenses

Cost of materials consumed increased by 27.2% to `6.4 billion. Sub-contractors work-bills reduced by 57.7% to `1.8 billion while the spreading and assortment expenses increased by 56.0% to `5.7 billion. Employee cost rose by 28.8% driven by increase in salaries, wages and other benefits. Other expenses increased by 20.6% YoY to `2.3 billion in FY19 from `1.9 billion in FY18.

Expenses as a % of Revenue


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Revenue (Rs bn) Revenue Growth (%)

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Material consumed Sub-contractors work bills

Spreading & Assortment Expenses Employee cost


Depreciation Expense

Depreciation for the year has increased to `1.7 billion from `1.3 billion in FY18 on account of higher depreciation on irrigation projects.

Depreciation Expense


EBITDA

KNR reported an EBIDTA of ̀ 4.3 billion in FY19 as against `3.8 billion in FY18. EBITDA on turnover stabilized at 20.0% due to reduction of back to back sub-contracting costs.

EBITDA and EBITDA margin


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EBITDA (` bn) EBITDA Margin (%)


Profit after Tax

PAT increased by 6.9% YoY to `2.7 billion in FY19 driven by increase in other income. The PAT margin has declined slightly from 12.6% in FY18 to 12.1%.

PAT and PAT margins


Finance Cost

Finance cost during the year increased by 39.1% from `209.0 million to `291.0 million. The same was driven by increase in loans from Directors from `125.0 million to `182.3 million.

Effective Tax Rate

Total effective tax rate for FY19 increased to 9.2% in the current year from negative 1.4% in FY18 driven by decrease in MAT credit entitlement. The Company reported current taxes of `605.0 million in FY19 as against `552.0 million in FY18.

Dividend and Earnings Per Share

The Board of Directors of the Company recommended a payment of Equity Dividend of `0.4 per share. Earnings per share for FY19 increased by 6.9% YoY to `18.9 from `17.7 in FY18.

EPS and DPS trend


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Adj. PAT (` bn) PAT Margins (%)

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Basic Earnings per share (`) Dividend per share (`)


Borrowings

Long term borrowings increased by 4.4% to `2.2 billion in FY19 from `2.1 billion in FY18 due to secured loans taken from banks for the Equipment and Vehicle. The Company has taken new short-term borrowings from banks of `169.4 million. Net Debt to equity ratio increased from 0.15 to 0.18 in FY19 driven by increase in reserve and surplus by 22.7%.

Net D:E trend


Impact of IND AS

As per the requirement of Ind AS 115 contract balances on receivables `2.3 billion. Contract assets increased by 38.0% to `3.7 billion. While the Contract liabilities decreased by 17.5% to `1.7 billion.

Net Worth

The Company’s net worth increased from ̀ 11.6 billion in FY18 to ̀ 14.1 billion in FY19 driven by increase in Reserves and surplus increased by 22.7% to `13.8 billion in FY19. The increased net worth is a clear indication of KNR strong fiscal prudence.

Networth trend (` mn)


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Net Debt (̀ bn) Net Debt to Equity (x)

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Gross Block

Gross block increased by 23.8% to `10.1 billion in FY19 from `8.2 billion in FY18 driven by significant increase in capex for plant and equipment. Capex incurred for the year was `1.9 billion. The fixed asset turnover ratio decreased from 2.4x to 2.1x in FY19.

Gross Block trend


Inventories

Inventories increased to `950.9 million in FY19 from `711.8 million in FY18, registering a growth of 33.6%. The same was driven by increase in raw material and stores & spare inventories.

Other Current assets

Other current assets increased to `3.5 billion in FY19 from `2.7 billion in FY18. The increase represents advances to sub-contractors, due from customers and advance from suppliers. Prepaid expenses grew by 78.4% to `46.9 billion in FY19.

Loans and Advances

Long term loans and advances increased to `26.0 million in FY19 from `16.2 million in FY18, clocking a growth of 59.9%. Short term loans and advances decreased by 83.9% from `245.4 million in FY18 to `39.4 million in FY19.

Loans and investments in subsidiaries, associates and JVs

Total non-current investments in subsidiaries increased to `1.1 billion from `41.8 million, while investments in associates remained unchanged. A majority of KNR’s investment in these subsidiaries have been used as pledges to avail term loans from banks. Inter corporate loans also increased to `5.0 billion from `4.9 billion in FY19 due to increase in inter corporate loans in KNRC Holdings and Investments Pvt Ltd. and KNR Tirumala Pvt Ltd.

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Gross Block (` bn) Capex (̀ bn) Asset Turnover (x)


Investments in subsidiaries

New Investments in Subsidiaries (` mn) FY18 FY19

KNR Chidambaram Infra Pvt Ltd 1.0 83.5

KNR Srirangam Infra Pvt Ltd 1.0 110.0

KNR Shankarmpet Projects Pvt Ltd - 130.9

KNR Tirumala Infra Pvt Ltd - 725.2

KNR Somwarpet Infra Project Pvt Ltd - 1.0

KNR Palani Infra Pvt Ltd. - 1.0


Pledged shares of subsidiaries

Pledged Shares of Subsidiaries (Number of shares) FY18 FY19

KNR Chidambaram Infra Pvt Ltd - 300

KNR Walayar Tollways Pvt Ltd 459,000 459,000

KNR Muzaffarpur Barauni Tollway Pvt Ltd. 144,000 144,000

KNR Srirangam Infra Pvt Ltd - 300

KNR Shankarmpet Projects Pvt Ltd - 300

KNR Tirumala Infra Pvt Ltd - 300


Working Capital Working capital increased by 38.5% to `4.3 billion in FY19, due to a 13.6% increase in current assets whereas current liabilities increased by only 0.4%. Trade receivables increased by 1% to `2.3 billion in FY19, whereas debtor days decreased to 40 days vs. 44 days. Inventories increased to `951.0 million in FY19, a growth of 33.6% resulting in increased inventory days of 16 vs. 13 days. Current trade payables decreased by 6.4% and trade payable days decreased from 40 days to 38 days. Net working capital as a percentage of sales increased to 19.5% in FY19 from 13.8% in FY18. Core working capital days was unchanged at 18 days. Total working capital days increased to 73 days vs. 59 days.

Cash conversion cycle days


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Total working capital days


Cash Flow Analysis

Free cash flow increased significantly to `442.0 million in FY19 due to an increase of 62.0% in cash flow from operations, because of higher finance cost and depreciation expense. The cash flow from operations stood at `2.5 billion in FY19 as against `1.5 billion

The Company reported a net cash inflow from financing activity of `71.7 million compared to inflow of `512 million in FY18 driven majorly by decrease in long term borrowings.

The Company reported a net cash outflow from investing activity of `2.9 billion as compared to `1.8 billion in FY18 due to increase in investments in Subsidiaries, Associates and others.

Cash flow trend OCF/FCFF conversion (%)

Source: Company, DART Source: Company, DART

Order Book

The Company’s order book increased from `23.3 billion to `40.2 billion, registering a growth of 72.6% in the order book. The composition of order book was ̀ 38.4 billion of road sector, `1.7 billion of irrigation sector and `14.0 million in others. KNR is now focusing on foraying into areas such as buildings, metro-rails and railways to diversify the order book and widen opportunities.

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CFO (` bn) Capex (` bn) FCFF (` bn)

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OCF/FCFF conversion (%)


Order Book Segment Wise Order Book Break-up


Order-Book State-Wise Geography-Wise Order Book


Order book trend


Roads-Non-Captive

96%

Irrigation4%

Others0%

Captive(HAM Projects)

66.0% State Govt.17.0%

Central Govt.17.0%

Other34.0%

Karnataka

13% Kera la3%

Arunachal Pradesh

3%

AP & Telangana

52%

Tami l Nadu29%

South96%

East4%

Central0%

13.2 34.6 37.7 23.3 40.2

1.5

3.8

2.4

1.2

1.9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0

5

10

15

20

25

30

35

40

45


Order Book (̀ bn) Order Book/Sales


Contingent Liabilities

Contingent Liabilities increased from `0.6 billion in FY18 to `1.3 billion in FY19 due to increase in guarantees for subsidiaries. Moreover, the disputed service tax also increased from `3.0 million to `33.3 million in FY19. Commitments increased from `4.4 billion in FY18 to `5.1 billion in FY19.

Contingent Liabilities (%)


Return Ratios

ROACE declined to 21.7% in FY19 from 26.8% in FY18. ROANW decreased to 20.8% in FY19 from 24.4% in FY18.

RoANW and RoACE (%)


1.1

0.5 0.50.6

1.3

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4


13.515.1

21.3

24.4

20.813.7

24.9

22.1

26.8

21.7

0

5

10

15

20

25

30


RoANW (%) RoACE (%)


Subsidiary Financials

KNR Walayar Tollways Private Limited

In FY19, revenue increased by 19.1% to `615.6 million. The Company reported a net loss of `25.4 million in FY19 as compared to net loss of `142.0 million in FY18.

KNR Muzaffarpur-Barauni Tollway Private Limited

During the year, revenue increased by 26.2% to `753.4 million in FY19. The Company reported a net loss of `114.7 million in FY19 compared to net loss of `296.6 million in FY18.


4-Quarter ConCall Trend Analysis

Q1FY19 Q2FY19 Q3FY19 Q4FY19

Profitability and Margins

EBITDA for Q1FY19 grew by 30.0% to `1.1

billion with a margin of 19.7%, led by

unbilled quantity in substantially completed

projects and reduction of back-to-back

subcontracting turnover. Increased toll

collections.

EBITDA stood at `831.4 million with a

margin of 20.0%, above normal range on

account of more revenue from the irrigation

project. Standalone PBT stood at `452.7

million due to provisioning of higher

depreciation in the irrigation project and

increased interest cost due to increase in

unsecured loans to promoters.

EBITDA for Q3FY19 stood at `901.2 million

with a margin of 20.1%, higher than normal

range due to higher revenue from the

irrigation project and reduction of back-to-

back subcontracting. Standalone PBT stood at

`595.3 million in Q3FY19 as compared to

`624.3 million Q3FY18. PAT for Q3FY19 was

`521.1 million with a margin of 11.6%, lower

on YoY basis due to higher tax provision.

On a stand-alone basis revenue stood at `7.2

billion in Q4FY19 as compared to `6.2 billion

in Q4FY18, clocking a growth of 14.6%.

EBITDA for Q4FY19 was higher than the

normal range of 14.0-15.0% due to higher

revenue from the irrigation projects and

reduction in back-to-back subcontracting. Net

profit margin was lower on YoY basis due to

higher tax provisioning.

New Orders The Company bagged five HAM projects.

The Company bagged 6 HAM projects worth

`9.2 billion in Tamil Nadu. The Company won

2 EPC projects worth `2.3 billion and `1.4

billion from the state governments of Tamil

Nadu and Karnataka respectively. The

Company expected a new order which

delayed due to financial issues faced by

Government of Telangana.

Order Book Total order book position of EPC was around

`59.5 billion.

Total order book position was `58.7 billion

including five HAM projects. EPC order book

as on September 30, 2018 was `18.3 billion.

Total order book was `55.1 billion including

five HAM projects. EPC order book as on

December 31,2018 was `15.4 billion.

Total order book position stood at `59.0

billion.

Work Progress

Delay in highway projects because of delay in

land acquisition, utility shifting, environment

clearance and permission of cutting of trees.

Trichy to Kallagam, almost 50.0-60.0%

disbursement of land was done.

Chidambaram to Meensurutti project faced

land problem because the road was going

entirely through the bypass. Chittoor to

Mallavaram, the biggest project was on

schedule and 80.0% of land will be ready by

this month end. For Ramsanpalle to

Mangalore project, around 19.0% of the land

goes through reserve forest where there was

some forest issue. Magadi to Somwarpet,

agreement not yet concluded due to change

in government. Received sanctioned letter

from bank to fund 3 HAM projects and for the

other two, one is on track and for the other,

concession agreement is yet to be signed.

The Company received sanction letter from

bank to fund 4 NHAI HAM projects and the

Company executed and submitted the

required documents to NHAI for financial

closure. With regard to KSHIP HAM project,

the concession agreement is yet to be signed.

The Company procured project completion for

Trivandrum project, applied for PCOD for

Madurai project and applied for provisional

completion for Polachi- Coimbatore project.

The Company received the official financial

closure letter from NHAI for all the four HAM

projects. Construction agreement has been

signed for the KSHIP HAM project and the

Company was in the process of completing

financial closure for the project. The

Company received 100.0% PCOD and

collected an average toll of `2.0 million on

Muzaffarpur-Barauni project. In Trimula

project, 80.0% of 3H land was achieved and

MoU was also signed. Moreover, the process

of GAD approval is also in the final stage. For

Malgudi project, concession agreement was

signed and they were in the process of

achieving financial closure growth.

The Company was in the advanced stage of

financial negotiation in the KSHIP HAM

project and will be submitting the document

to the authority very shortly. Chidambaram

project was delayed due to land clearance

issues. Chittor to Mallavaram project has

entered into the construction phase. The

Company was in the process of submitting

the bill for first payment to NHAI.


Q1FY19 Q2FY19 Q3FY19 Q4FY19

Management Guidance

The Company won claim on one SPV worth

`990.0 million and are expecting another

claim award by March on another SPV.

EBITDA margin to remain in the range of

15.0-16.0%. Effective tax rate to be in the

range of 15.0-18.0% towards year end and

20.0-25.0% in FY20

Revenue guidance for FY19 would be around

`18.0-19.0 billion. Management expects

EBITDA margin in the second half to remain

in the range of 17.0-18.0%. Bankers

sanctioned funds for HAM at 9.45% interest

rate. The Company received around `100.0

million, which was stuck in the Yedula

project.

Won an award worth `5.0 billion, which was

pending with NHAI. The Company was

expecting a claim of `90.0 million. EBITDA is

expected to be around 14.0-15.0%. The

Company entered in to share purchase

agreement with Cube Highway and

Infrastructure III Private Limited for Trichy,

Tirumala and Chidambaram.

The Company is expecting a growth of 10.0-

15.0%in FY20, lately in the 3rd or 4th

quarter. Targeting an order inflow of around

`20.0-25.0 billion. Capex will be around `1.8-

`2.0 billion. Guidance of around `25.0 billion

of order inflow.

Debt and Working Capital

Days

Till date, debt on a stand-alone basis stood at

`2.5 billion and working capital days was 30

days.

Debt on a stand-alone basis stood at `2.4

billion and net working capital days was 25

days.



days.



days.

Bidding Pipeline Management will continue to bid for projects

and expect to win projects worth

approximately `20.0 billion to `25.0 billion.

The Company started bidding for a HAM

project, and bid for four other HAM projects,

out of which it could not get two projects and

other two are yet to open. The management

hopes to bag atleast one HAM project. With

respect to EPC, there will be a mixed bag of

projects, i.e mixture of irrigation, flyover and

road.

Toll Collection

Walayar-Vadakkancherry project started

100.0% toll collection, collecting `1.5 million

to `1.6 million per day.

BOT toll project witnessed an improved

average toll collection of `1.8 million per day.


Profit and Loss Account

(` Mn) FY18A FY19A FY20E FY21E

Revenue 19,317 21,373 24,977 34,067

Total Expense 15,477 17,103 20,532 28,276

COGS 12,854 13,881 16,485 22,835

Employees Cost 721 929 1,300 1,625

Other expenses 1,902 2,293 2,747 3,816

EBIDTA 3,839 4,270 4,445 5,791

Depreciation 1,341 1,681 1,811 2,025

EBIT 2,498 2,589 2,634 3,766

Interest 209 291 330 285

Other Income 393 634 700 570

Exc. / E.O. items 0 25 0 0

EBT 2,682 2,957 3,005 4,052

Tax (39) 273 602 1,014

RPAT 2,721 2,684 2,403 3,038

Minority Interest 0 0 0 0

Profit/Loss share of associates 0 0 0 0

APAT 2,486 2,709 2,123 3,038

Balance Sheet


Sources of Funds

Equity Capital 281 281 281 281

Minority Interest 0 0 0 0

Reserves & Surplus 11,297 13,862 16,197 19,167

Net Worth 11,578 14,143 16,478 19,448

Total Debt 2,204 2,640 3,020 2,600

Net Deferred Tax Liability (1,408) (1,739) (1,799) (1,830)

Total Capital Employed 12,375 15,044 17,700 20,219

Applications of Funds

Net Block 3,936 4,340 4,530 4,004

CWIP 0 0 0 0

Investments 5,100 6,200 8,160 9,589

Current Assets, Loans & Advances 9,215 10,424 12,353 17,042

Inventories 712 951 1,232 1,697

Receivables 2,320 2,344 2,997 4,088

Cash and Bank Balances 438 130 132 108

Loans and Advances 279 65 82 113

Other Current Assets 5,209 6,686 7,760 10,946

Less: Current Liabilities & Provisions 5,876 5,920 7,343 10,417

Payables 2,184 2,236 2,669 3,676

Other Current Liabilities 3,692 3,684 4,673 6,741

Net Current Assets 3,339 4,504 5,010 6,625

Total Assets 12,375 15,044 17,700 20,219

E – Estimates


Important Ratios

Particulars FY18A FY19A FY20E FY21E

(A) Margins (%)

Gross Profit Margin 33.5 35.1 34.0 33.0

EBIDTA Margin 19.9 20.0 17.8 17.0

EBIT Margin 12.9 12.1 10.5 11.1

Tax rate (1.5) 9.2 20.0 25.0

Net Profit Margin 12.9 12.7 8.5 8.9

(B) As Percentage of Net Sales (%)

COGS 66.5 64.9 66.0 67.0

Employee 3.7 4.3 5.2 4.8

Other 9.8 10.7 11.0 11.2

(C) Measure of Financial Status

Gross Debt / Equity 0.2 0.2 0.2 0.1

Interest Coverage 11.9 8.9 8.0 13.2

Inventory days 13 16 18 18

Debtors days 44 40 44 44

Average Cost of Debt 11.5 12.0 11.7 10.1

Payable days 41 38 39 39

Working Capital days 63 77 73 71

FA T/O 4.9 4.9 5.5 8.5

(D) Measures of Investment

AEPS (`) 17.7 19.3 15.1 21.6

CEPS (`) 27.2 31.2 28.0 36.0

DPS (`) 0.6 0.5 0.5 0.5

Dividend Payout (%) 3.4 2.5 3.2 2.2

BVPS (`) 82.3 100.6 117.2 138.3

RoANW (%) 24.4 21.2 14.0 17.0

RoACE (%) 26.8 21.7 16.8 17.7

RoAIC (%) 27.7 22.1 17.0 17.8

(E) Valuation Ratios

CMP (`) 220 220 220 220

P/E 12.4 11.4 14.6 10.2

Mcap (` Mn) 30,950 30,950 30,950 30,950

MCap/ Sales 1.6 1.4 1.2 0.9

EV 32,459 33,212 33,688 33,352

EV/Sales 1.7 1.6 1.3 1.0

EV/EBITDA 8.5 7.8 7.6 5.8

P/BV 2.7 2.2 1.9 1.6

Dividend Yield (%) 0.3 0.2 0.2 0.2

(F) Growth Rate (%)

Revenue 25.3 10.6 16.9 36.4

EBITDA 67.2 11.2 4.1 30.3

EBIT 50.7 3.6 1.8 43.0

PBT 64.3 10.3 1.6 34.8

APAT 47.9 9.0 (21.6) 43.1

EPS 47.9 9.0 (21.6) 43.1

Cash Flow


CFO 1,568 2,806 3,336 3,408

CFI (1,866) (3,019) (3,355) (2,880)

CFF 490 (95) 20 (553)

FCFF (440) 666 1,336 1,908

Opening Cash 246 438 130 132

Closing Cash 438 130 132 108

E – Estimates

DART RATING MATRIX

Total Return Expectation (12 Months)

Buy > 20%

Accumulate 10 to 20%

Reduce 0 to 10%

Sell < 0%

Rating and Target Price History

Month Rating TP (`) Price (`)

Apr-18 Buy 403 316

May-18 Buy 407 293

Aug-18 Buy 418 229

Sep-18 Buy 418 208

Nov-18 Buy 369 190

Feb-19 Buy 250 200

May-19 Buy 369 280

Aug-19 Buy 369 233

*Price as on recommendation date

DART Team

Purvag Shah Managing Director [email protected] +9122 4096 9747

Amit Khurana, CFA Head of Equities [email protected] +9122 4096 9745

CONTACT DETAILS

Equity Sales Designation E-mail Direct Lines

Dinesh Bajaj VP - Equity Sales [email protected] +9122 4096 9709

Kartik Sadagopan VP - Equity Sales [email protected] +9122 4096 9762

Kapil Yadav VP - Equity Sales [email protected] +9122 4096 9735

Yomika Agarwal VP - Equity Sales [email protected] +9122 4096 9772

Ashwani Kandoi AVP - Equity Sales [email protected] +9122 4096 9725

Lekha Nahar Manager - Equity Sales [email protected] +9122 4096 9740

Equity Trading Designation E-mail

P. Sridhar SVP and Head of Sales Trading [email protected] +9122 4096 9728

Chandrakant Ware VP - Sales Trading [email protected] +9122 4096 9707

Shirish Thakkar VP - Head Domestic Derivatives Sales Trading [email protected] +9122 4096 9702

Kartik Mehta Asia Head Derivatives [email protected] +9122 4096 9715

Dinesh Mehta Co- Head Asia Derivatives [email protected] +9122 4096 9765

Bhavin Mehta VP - Derivatives Strategist [email protected] +9122 4096 9705

160

220

280

340

400

460

Ma

r-18

Ap

r-18

Ma

y-1

8

Jun

-18

Jul-1

8

Au

g-1

8

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p-1

8

Oct-

18

Nov-1

8

Dec-1

8

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-19

Fe

b-1

9

Ma

r-19

Ap

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Ma

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Jul-1

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g-1

9

Se

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9

(`) KNRC Target Price

Dolat Capital Market Private Limited. Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai 400013

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