MOSL: KNR CONSTRUCTION (Buy)-Balance sheet strengthens further
KNR CONSTRUCTION: Balance sheet strengthens further
(KNRC IN, Mkt Cap USD0.6b, CMP INR278, TP INR374, 34% Upside, Buy)
KNR monetizes Walayar road project
KNR has entered into a share purchase agreement with Cube Highways to sell its 100% stake in the Walayar road project. Total enterprise value of the deal stands at INR5.3b. As of Sep’19, debt on the project was at INR1.4b. Thus, the equity value of the deal is estimated at ~INR3.9b or P/Inv of ~1x. This is in line with our valuation of the project. There are further NHAI claims and other governmental instrumentalities, which are a pass through to KNR as and when realized. Taking this into account, the deal value may surpass our valuation of the project.
Balance sheet strengthens further – best one in road sector
The transaction is likely to close in another 2-3 months. We factor in proceeds of INR3.9b by end-Mar’20. KNR has already monetized three of its HAM projects. We expect the balance sheet to strengthen further with net cash position of >INR2b/5b by FY21/22. The company has the best balance sheet position amongst mid-cap road EPC companies. This should support premium valuations for KNR, in our view.
Strong order book to support revenue growth
Given the company’s strong order book position (OB/Rev: 3.1x) and superior execution capability, we expect revenue CAGR of 18% over FY19-22. Thanks to the strong balance sheet position, KNR is well positioned to bid for new projects as and when bidding commences in the road sector. We expect NHAI awarding to pick up by end-4QFY20 with total awarding of 4,000km for FY20.
KNR Constructions Limited. KNR Constructions Limited is an India-based holding company. The Company is a multi-domain infrastructure project development company. The Company undertakes engineering, procurement and construction (EPC) contracts, as well as build-operate-transfer (BOT) projects across various sectors, such as construction and maintenance of roads, highways, flyovers and bridges. Its range of verticals also include irrigation projects, water management, agriculture and trading business. It has completed approximately 5,890 kilometers of projects across over 10 states in India. Its urban water infrastructure management project is Challaghatta Main Valley Project, which involves the remodeling of primary and secondary storm drains, bridges/culverts and related works in Challaghatta Main Valley in Bangalore City. The Company's irrigation and water management projects include Shankara Samudram Balancing Reservoir, Eastern Kosi Canal system, Reservoir across Mathadivagu and Budpur Balancing Reservoir.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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