MOSL: KNR Construction (Buy)-Irrigation sprinkling a few opportunities
KNR Construction: Irrigation sprinkling a few opportunities
(KNRC IN, Mkt Cap USD0.6b, CMP INR286, TP INR335, 17% Upside, Buy)
We met KNR Construction’s (KNRC) management, where our discussion revolved around the order inflow trends, the status of ongoing projects, the opportunity areas and its strategy to drive business. Key takeaways:
Order inflow trends in Roads yet to see meaningful pick-up: KNRC expects order inflow of INR25b in FY20, mainly supported by the Irrigation segment. The company mentioned that it is well positioned to finalize a few projects in the near term, including (a) two irrigation projects – Malanna Sagar and Palamurru irrigation projects – worth INR16b (INR8b each) and (b) one HAM project worth INR10b. A pick-up in order inflows in Roads, however, remains elusive.
Promising near-term business opportunity in Irrigation: KNR aims to finalize the aforementioned two Telangana-based irrigation projects over the coming quarter. Upon finalization, these projects will likely be executed in 18 months. KNRC highlighted that irrigation projects command better margins than its under-execution road EPC projects (15-16% operating margins). Importantly, the company sees a promising opportunity in river inter-linking projects, and has pre-qualification to bid for projects worth INR16b in the irrigation segment.
Funds, land – the key issues in Road Infrastructure: We note key bankers are going slow on providing funds to road HAM projects, which, in turn, is delaying fresh awarding. On this matter, KNRC cited that it expects road projects of 12,000km to be awarded in FY20, provided the issue of funding/land is addressed. However, the company will be more strategic in its bids and has shortlisted ones that are in proximity to its ongoing projects. It expects to add road orders worth INR9b in 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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