knr constructions september 26, 2019...knr is a road focused epc player with over two decades of...

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September 26, 2019

CMP: | 232 Target: | 300 (29%) Target Period: 12-18 months

KNR Constructions (KNRCON)

BUY

Prudent play in EPC space...

KNR Constructions (KNR) is a leading road focused EPC player with over two

decades of experience and a reputation for completing projects on

time/ahead of schedule. With a strong orderbook of | 6,519 crore and rapid

execution of captive hybrid annuity model (HAM) projects and large ticket

irrigation projects, it is well on track to achieve 19% CAGR in revenues to

| 3,031.1 crore in FY19-21E. We also like KNR’s focus on monetising its

under construction HAM projects (Cube Highway deal for four HAM projects

at 1.8x P/BV). Considering strong execution and better EBITDA margins with

best in class WC cycle and healthy balance sheet, we initiate coverage on

KNR with a BUY rating on the stock and SoTP target price of | 300/share.

Order book at | 6,519 crore; adds big ticket irrigation orders

KNR’s order book (OB) was at a strong | 6,518.8 crore (including the recently

won HAM project and Karnataka State Highways Improvement Project

(KSHIP) HAM project), implying order book-to-bill ratio of 3.2x (on TTM

basis). The OB consists of | 5,544.6 crore from roads division and | 972.8

crore from irrigation. On new orders front, it won Mallanna Sagar irrigation

project worth | 850 crore in September, 2019. KNR is targeting another HAM

order worth | 1,000-1,500 crore in FY20E. With this, we expect revenues to

grow at 19% CAGR to | 3,031.1 crore in FY19-21E.

EBITDA margin to remain at higher band of 17-18% guidance

KNR enjoyed better EBITDA margins than its peers due to: i) large fleet of

own equipment and quarrying mine, ii) lower subcontracting expenses (9%

in FY19) and iii) receipt of early completion bonuses/escalation claims.

Going ahead, we expect EBITDA margin of 18.3%, 18.0% (higher band of

guidance of 17-18%) in FY20E, FY21E, respectively, on the back of higher

revenue contribution from high margin irrigation projects, lower level of

subcontracting expenses and receipts of some portion claims from various

authorities worth | 545 crore (| 53 crore already received in July, 2019).

Focus on monetising BOT/HAM projects

We also like its focus on monetising its BOT/HAM projects. KNR is one of

the few companies in the sector that managed to close a deal for four under

construction HAM projects with Cube Highways at significant higher

valuation (1.8x P/BV). With the deal, it eventually converted its HAM projects

to EPC. Beside this, it is looking to monetise its Kerala BOT project by FY20E.

The freed up capital could be used as growth capital for future bidding.

Valuation & Outlook

Considering strong execution, best in class WC, healthy balance sheet and

strong return ratios, we initiate coverage on the stock with a BUY

recommendation and an SoTP target price of | 300/share.

Key Financial Summary

| crore FY17 FY18 FY19 FY20E FY21E CAGR FY19-21E

Net Sales 1,541.1 1,931.7 2,137.3 2,506.6 3,031.1 19.1%

EBITDA 229.6 386.1 427.0 458.7 545.6 13.0%

EBITDA Margin (%) 14.9 20.0 20.0 18.3 18.0

PAT 157.2 272.1 263.3 238.8 266.7 0.6%

EPS (|) 11.2 19.4 18.7 17.0 19.0

P/E (x) 20.7 12.0 12.4 13.7 12.2

EV/EBITDA (x) 14.5 8.9 8.2 7.5 6.1

RoNW (%) 17.6 23.5 18.6 14.5 14.0

RoCE (%) 18.3 20.5 19.0 16.2 17.8

Source: ICICI Direct Research, Company

Particulars

Particular Amount (| crore)

Market Capitalization 3,261.9

Total Debt 264.1

Cash 13.0

EV 3,513.1

52 week H/L (|) 303/ 163

Equity capital 28.1

Face value 2.0

FII Holding (%) 3.2

DII Holding (%) 30.2

Key Highlights

OB at | 6,518.8 crore, 3.2x on TTM

basis

To sell entire stake in four HAM to

Cube Highways at 1.8x P/BV

EBITDA margins expected at 18.3%,

18.0% in FY20E, FY21E, respectively

Initiate coverage with BUY rating and

target price of | 300/share

Price Chart

Research Analyst

Deepak Purswani, CFA

[email protected]

Harsh Pathak

[email protected]

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ICICI Securities | Retail Research 2

ICICI Direct Research

Initiating Coverage | KNR Constructions

Company Background

Established in 1995, KNR Constructions (KNR) is a leading road focused EPC

player with over two decades of experience. The company has robust

project execution capabilities in road transportation engineering projects viz.

construction & maintenance of roads, highways, flyovers and bridges.

Besides this, KNR is also actively involved in the construction of irrigation

and urban water infrastructure management.

Road projects

In the last 20 years, KNR has successfully executed road projects of more

than ~6,000 km across 12 states in India. Its roads portfolio consists of six

hybrid annuity model (HAM) and four build operate transfer (BOT) projects

as of Q1FY20. Road vertical contribute | 5,544.6 crore out of KNR’s total EPC

order book worth | 6,518.8 crore as of Q1FY20.

HAM projects: KNR has six HAM projects in its kitty of which three have

received appointed dates and are currently under execution while financial

closure for the fourth project has been achieved. Furthermore, the financial

closure documents for its fifth project – KSHIP HAM project has been

submitted to the authority. KNR recently entered into a share purchase

agreement (SPA) with Cube Highways wherein the former will sell its entire

51% stake in four of its HAM projects in a phased manner.

BOT projects: The company has four BOT projects in its portfolio. Of these,

two are annuity based and two are toll based projects. These four projects

are spread across 778 lane km in Telangana, Karnataka, Kerala and Bihar.

Irrigation projects

KNR has completed few Irrigation and water management projects on EPC

basis viz. Reservoir across Mathadivagu in Adilabad district (Package- 9)

worth | 37.8 crore and Budpur Balancing Reservoir (Package-20) worth

| 37.0 crore. Currently, the company has two major irrigation orders for

Kaleshwaram and Palamuru Rangareddy lift irrigation projects worth total

~| 1,700 crore in its portfolio.

Exhibit 1: Timeline of KNR Constructions

Source: Company, ICICI Direct Research

Walayar toll project

Under construction Salem flyover

Palamuru lift irrigation project




In the past five years, KNR has executed projects across 11 states in India,

which provides good geographic diversification to the company. Even while

its current order book consists of projects across various states in India, the

company is looking to maintain its geographic diversity by focusing on Tamil

Nadu, Karnataka, Maharashtra and Uttar Pradesh for new orders. KNR also

has a healthy track record of working with reputed governments as well as

private clients viz. NHAI, MoRTH, EIL, Sadbhav Engineering, GMR, etc.

Exhibit 2: Projects executed in last five years pan India


Exhibit 3: Reputed clientele base





Investment rationale

Known for consistent on time/early project completions

KNR is a road focused EPC player with over two decades of experience. The

company has successfully executed more than ~6000 km road projects

across 12 states in India over the last 20 years. KNR enjoys a reputation of

completing projects on time/ahead of schedule as its bidding strategy is

focused on the following parameters:

Project selection: It bids for projects funded by central government.

In case of state government projects, it ensures these projects have

funding support from a multilateral agency viz. ADB and World Bank

Resources ownership: It focuses on owning resources for timely

raw material availability. KNR possesses a higher fleet of equipment

than its peers and it also has its own quarrying mines at more than

90% of the project sites.

Project proximity: For efficient mobilisation of equipment, KNR

focuses on bidding projects that are in proximity to areas where the

company’s ongoing projects are getting completed

Focus on profitability of project and

Limited number of projects: Focus on limited but large ticket size

projects for conscious and close monitoring on each project under

execution

The bidding strategy along with its strong execution capabilities has led the

company to complete several projects ahead of schedule. This consistent

track record of completing projects on time/ahead of schedule is a key

proposition that differentiates KNR from its peer group and makes it a unique

player in the road construction space. There are a number of projects, which

are reflective of this strong performance over the years. For instance, the

Bijapur-Hungund project (97.2 km) was completed 11 months ahead of

schedule, which is considered a record in early completion in the history of

Indian highway construction work of this magnitude. Completion of projects

ahead of schedule entitles KNR to early completion bonus, which is also one

of the key factors that results in the company commanding much better

EBITDA margin than its peers.

Exhibit 4: Receives bonus for completion of construction ahead of schedule

910 1440 450 365 365365 910 730582 1219 343 364 364 364 880 609

0

400

800

1200

1600

Bijapur-H

ungund

Hyderabad-

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Karim

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Kam

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iddip

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Narsapur-

Asw

araopet

Wala

yar-

Vadakkancherry

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Scheduled Completion (Days) Actual Completion (Days)


KNR enjoys reputation of on time/ early completion

since its bidding strategy is focused on project

selection, resource ownership, project proximity,

profitability and concentrating on limited number of

projects




OB at strong | 6,519 crore; fast-track orders to boost execution

KNR’s order book (OB) was at a strong | 6,518.8 crore (including

Oddanchatram-Madathukulam and KSHIP HAM projects), implying an order

book-to-bill ratio of 3.2x. The current order book lends us comfort for strong

execution, going ahead. The current order book consists of | 5,544.6 crore

(~85% of the orderbook) from roads division, and | 972.8 crore (~15% of

the orderbook) from irrigation.

In road projects, orders worth | 4,387 crore (~67% of the orderbook) are

captive orders while orders aggregating | 1,158.5 crore (~18% of order

book) are non-captive. Among captive orders, in orders worth | 2,502.3

crore (~38% of orderbook), the company has already achieved financial

closure and received appointed date. Also, construction work has already

started in these projects. On the irrigation projects front, KNR secured the

| 847.3 crore order for Palamuru Rangareddy Lift Irrigation project from

Navyuga Engineering Company (Hyderabad) in Q1FY20. With this, the

irrigation vertical now accounts for 15% of the orderbook. Beside this, it

recently won another | 850 crore irrigation project from Megha Engineering

& Infrastructures (Hyderabad) for Mallanna Sagar project in September,

2019.

Exhibit 5: Order book as of Q1FY20


Exhibit 6: Order book as of Q1FY20

18%

15%38%

29%

67%

Roads - Non captive Irrigation

Roads - Captive Under execution Roads - Captive yet to commence


KNR is targeting another | 1000-1500 crore HAM projects in the remainder

of FY20E. In terms of execution, captive HAM projects and large ticket

irrigation projects are expected to keep KNR’s execution strong. Hence, we

expect revenues to grow at 19.1% CAGR to | 3,031.1 crore in FY19-21E.

Exhibit 7: Order book trend

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

-2000

0

2000

4000

6000

8000

10000

FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

(x

)

(| crore)

Net Order inflows Revenues Closing orderbook Order book-to-bill (x)


Projects | crore

Chittor to Mallavarm Project (HAM) 986.7

Ramsanpalle to Mangloor Project (HAM) 808.0

Trichy to Kallagam Project (HAM) 721.2

Hubli – Hospet Section of NH - 63 341.7

Flyover at Ramanthapuram and Sungam Junction 201.5

Top 5 Road Projects 3059.1

Other Road Projects 600.5

Irrigation Projects 972.8

Not included in OB yet# 1885.0

Other Projects 1.4

Total 6518.8




Has historically exceeded initial revenue guidance

We also highlight that KNR has always been prudent in giving its annual

guidance and historically exceeded its guidance. Based on historical

experience, the company could exceed its revenues guidance of | 2500

crore in FY20E as well.

Exhibit 8: Revenues guided by company vs. actually achieved

(| crore) FY15 FY16 FY17 FY18 FY19 FY20E

Revenues guided at beginning of the year (| crore)800-850 ~800 1200+ 1700-1800 ~1900 ~2500

Revenues achieved at the end of year 876.1 902.5 1541.1 1931.7 2137.3

Exceeded Variation 3.1% 12.8% 28.4% 7.3% 12.5%


Telangana budget cuts not to impact KNR’s execution

The Telangana government cut the state’s FY20E total expenditure to | 1.46

lakh crore (| 17,274 crore capex) vs. | 1.82 lakh crore projected earlier in its

recent Budget on the back of lower grants from the central government and

weaker-than-expected tax collections. The irrigation sector witnessed sharp

cuts in expenditure by 64% to ~| 6,286 crore for FY20E. However, the state

government has accorded highest priority to key irrigation projects viz.

Kaleshwaram & Palamuru lift irrigation project. They clarified that these

projects will continue and their funding will be met through external

borrowings. In that regard, media reports indicate that Power Finance

Corporation (PFC) will provide a total loan of | 30,000 crore for these projects

(| 18,000 crore for Palamuru and | 12,000 crore for Kaleshwaram). Hence,

we do not expect any delay in execution of KNR’s recently won two irrigation

projects worth ~| 1700 crore, going ahead.

We do not expect any significant delay on the

execution of recently won irrigation project despite

the Telangana government’s cut in state Budget as

Kaleshwaram and Palamuru Lift Irrigation projects

are given high priority and are expected to be

completed with funding support from external

borrowings from entities like PFC




Enjoys better EBITDA margins than its peers

KNR enjoys better margins than its peers mainly due to: i) focus on

execution through its own fleet of equipment & quarrying mines, ii) lower

level of subcontracting expense and iii) early completion bonus & escalation

claims.

Exhibit 9: EBITDA margin comparison with peers


Execution through own fleet of equipment, quarrying mine

KNR executes most of its projects through own plants & machinery and

quarrying mines compared to its peers. This is reflected in its relatively low

asset turnover. The ownership of a high fleet of equipment along with

owned quarrying mine not only provides them timely available raw material

but also enables it to enjoy much better margin than its peers. Gross block

as on FY19 was | 1012.5 crore implying gross block to turnover of 2.1x vs.

3.5x-6.6x by its peers.

Exhibit 10: Gross block turnover, EBITDA margin compared to peers

Company Particulars FY15 FY16 FY17 FY18 FY19

Gross Block Turnover 1.6 1.8 2.4 2.4 2.1

EBITDA margin 14.4 16.9 14.9 20.0 20.0


EBITDA margin 13.9 13.2 13.1 17.2 14.8


EBITDA margin 10.1 10.2 10.7 11.8 12.1


EBITDA margin 12.7 12.9 12.1 12.0 13.5

KNR

PNC

Sadbhav

Ashoka Buildcon


Lower subcontracting expenses also adds up in margin

In recent years, lower subcontracting expenses also contributed to a sharp

improvement in EBITDA margins as illustrated in Exhibit 11. The company’s

subcontracting levels (as percentage of revenues) peaked out at 35% in

FY17. Since then, they have consistently declined to 8% in FY19.

Subcontract levels were at ~9% in Q1FY20. The management aims to

maintain it at sub 10% levels vis-à-vis increasing the execution through own

equipment/machineries, going ahead. We believe this would help the

company deliver better EBITDA margins, going ahead, as well.

Exhibit 11: Subcontracting trend vs. EBITDA margin movement

EBITDA Margins (%) FY15 FY16 FY17 FY18 FY19

KNR Construction 14.4 16.9 14.9 20.0 20.0

Ashoka Buildcon 12.7 12.9 12.1 12 13.5

Sadbhav Engineering 10.1 10.2 10.7 11.8 12.1

PNC Infratech 13.9 13.2 13.1 17.2 14.8

3937

12

29

26

18

19

35

21

815.7

17.2

17.8

16.8

15.1

14.4

16.9

14.9

20.0 20.0

12

13

14

15

16

17

18

19

20

21

0

5

10

15

20

25

30

35

40

45

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

(%

)

Subcontracting as a % of revenues (LHS) EBITDA margin (RHS)

In-house construction equipment

Sr. No. Name of machinery Quantity

1 Tippers & Tankers 1038

2 Excavators 309

3 Generators 194

4 Concrete Mixers & Pumps 127

5 Compactors 124

6 Loaders 71

7 Drillers & Breakers 64

8 Graders 58

9 Cranes 49

10 Pavers 40

11 Batching Plants 40

12 Tractors 35

13 Weigh Bridges 34

14 Rollers 31

15 Crushers 27

16 Light Sources 24

17 Trailers 23

18 Dozers 27

19 Compressors 23

20 Transformers 18

21 Wet Mix Plants 12

22 Hot Mix Plants 12

23 Curblaying Machine 8

24 Sweeping Machines 7

25 Drum Mix Plants 6

26 Sprayers 6

1012.5

Plant & Machinery gross block

(| crore)




Early completion bonus/escalation claims also contribute to margins

KNR has a notable track record of completing projects ahead of schedule,

which entitles the company to early completion bonuses. For instance, one

of its key milestones was completion of Bijapur-Hungund (worth | 825.0

crore) 11 months ahead of schedule in 2012. The project was at that time

the single biggest road project with KNR for which it received | 50 crore

early completion bonus. Another significant milestone was completion of

the Hyderabad-Ramagundam project seven months ahead of schedule.

Bonuses on early completion along with escalation claims also contribute to

margins. Going ahead, we believe a recovery of favourable old claims from

various authorities aggregating | 545 crore over the next few years would

also enable it to achieve higher band of its EBITDA margin guidance of 17-

18%. For instance, it has received claims worth | 53 crore related to

irrigation projects in July, 2019. This will support EBITDA margins in

Q2FY20E.

Increasing contribution from irrigation projects

KNR recently won two large irrigation projects worth | 1,697.3 crore in its

portfolio: a) Palamuru Rangareddy Lift Irrigation project worth | 847.3 crore

in July, 2019; b) Mallanna Sagar project worth | 850 crore in September,

2019. Including these projects, irrigation contributes to ~25% of the overall

order book of KNR and have shorter execution timelines of ~15-18 months.

Hence, irrigation projects are expected to contribute 25-35% of revenues in

FY20-21. Higher revenue contribution from high margin irrigation projects is

also expected to support better EBITDA margins, going ahead.

Focus on monetising BOT/ HAM projects

KNR has four operational BOT assets and six HAM projects. The company

has already made equity investment of | 671 crore out of KNR’s share of

equity commitment of | 685 crore in all these project put together. The

company’s focus continues to remain on an asset light model. KNR is

looking to monetise these assets. On the BOT front, the company is looking

to sell Walayar Tollway by end of FY20E, which could free up | 370-380

crore. On the HAM project portfolio, KNR has already entered into a deal

with Cube Highway in four out of six projects, where the deal is arranged in

two phases. In phase one, Cube Highway is expected to take 49% stake.

Eventually, it will take 100% stake post mandatory lock in period after

achieving commercial operation date (COD). We highlight that KNR is one of

the very few companies that have managed to bring PE players at the under

construction level of HAM projects. The deal also implies attractive implied

P/BV multiple of 1.8x for KNR.

Looking to monetise one operational BOT projects

KNR has two operational BOT toll projects in its portfolio – Walayar project

(100% stake) and Muzaffarpur-Barauni project (51% stake), which witnessed

toll collection of | 19 lakh/day and | 27 lakh/day, respectively, and toll

revenues worth | 17.1 crore and | 25.5 crore, respectively, as of Q1FY20.

Out of two BOT projects, KNR is currently looking to monetise the Walayar

BOT projects by end of FY20E. It has invested | 397.4 crore as of Q1FY20

and expects to realise | 370-380 crore by selling off this project.

Additionally, the company also has two BOT annuity projects in which it has

40% stake each. Patel KNR Infrastructures Ltd securitised its project loan

through issuance of non-convertible debentures (NCDs) to LIC and raised |

409.0 crore in April 2010, while Patel KNR Heavy Infra Ltd securitised its

project loan through issuance of NCDs to L&T Infrastructures Finance

Company and raised | 400.0 crore in September 2013. The said proceeds

were used to retire the existing high cost project loan and unsecured loans

of promoters and to meet the issue expenses.

Including the recently won order Mallana Sagar

project worth | 850 crore, total contribution of

irrigation projects stands at 25% to the overall order

book

KNR is one of the fewer companies that have

managed to close deal for under construction HAM

projects




Exhibit 12: BOT projects in KNR's portfolio as of Q1FY20

Project Stake State

Toll

Revenue

per day in

Q1FY20

(| lakh/day)

Concession

Start Date

Concession

Period (yrs)

Scheduled COD Actual COD

Project

Cost (|

crore)

Equity as

of Q1FY20

(| crore)

Debt as of

Q1FY20

(| crore)

BOT toll projects

KNR Walayar Tollways 100% Kerala 19 May 18, 2013 20 November 15, 2015 July 9, 2014 900.5 397.4 152.1

KNR Muzaffarpur Barauni Tollway 51% Bihar 27 July 8, 2012 21 October 31, 2015 June 3, 2016 458.9 177.2 306.3

BOT annuity projects SecuritizedSemi Annuity - 36

installments

Patel KNR Infrastructures Ltd 40% Karnataka Yes Mar 26, 2007 20 32.9 Dec 21, 2009 442.0 37.0 239.6

Patel KNR Heavy Infra Ltd 40% Telangana Yes Mar 2, 2008 20 44.4 June 11, 2010 592.0 64.9 387.0


Three out of six HAM projects are under execution

KNR has six HAM projects in its kitty. Out of this, the company has already

received appointed date for three projects - Trichy-Kallagam, Chittoor-

Mallavaram and Ramsanpalle-Mangloor. The execution of these project has

already started and is expected to pick up in full swing in H2FY20E post

monsoons. On the fourth HAM project - Meensurutti-Chidambaram, it has

already achieved financial closure in September, 2018. However, there was

a delay in appointed date due to a delay in land acquisition (63-64% land is

acquired) while the project could get terminated due to a delay in land

acquisition and associated escalated cost. The equity requirement for all six

HAM projects is estimated to be | 586.3 crore (| 541 crore – ex Meensurutti-

Chidambaram). With closure of deal with Cube Highway on four HAM

projects, KNR’s share of equity investment would be | 395.6 (| 372.4 crore

– ex Meensurutti-Chidambaram). Out of this, it has already invested | 183.3

crore as of Q1FY20. We highlight that KNR could enter in stake sale

arrangements with private equity players for balance HAM projects. As and

when such deal happens, KNR’s share of equity requirement would further

fall below | 395.6 crore.

Exhibit 13: HAM projects in KNR’s portfolio as of Q1FY20

Project Stake StatusConcession

Period (yrs)

Bid

Project

Cost (|

crore)

Total

Project

Cost (|

crore)

GrantEst. equity

(| crore)

Est. debt

(| crore)

Equity

Invested

(| crore)

Trichy to Kallagam 100%* AD received 17 1020.6 910.0 431.8 96.2 382.0 48.1

Meensurutti to Chidambaram# 100%* FC achieved 17 482.0 431.6 204.1 45.5 182.0 8.4

Chittor to Mallavaram 100%* AD received 17.5 1730.1 1455.5 739.3 143.3 573.0 72.5

Ramsanpalle to Mangloor 100%* AD received 17 1234.0 1045.6 524.5 104.2 416.9 52.1

Magadi to Somwarpeth 100% FC documents submitted 9 1144.5 1127.6 748.5 122.1 257.0 2.6

Oddanchatram to Madathukulam 100% LOA received in March, 2019 17 920.0 - - - - 0.1


* Share Purchase Agreement signed with Cube Highways and Infrastructure III Pte. Ltd.

# likely to get terminated due to land acquisition related issues and associated higher cost

AD = Appointed date; FC = Financial closure

KNR has made equity investment of | 183.3 crore

out of ~| 198.5 crore among its four HAM projects

where it entered into a deal with Cube Highway




To sell four HAM projects to Cube at 1.8x KNR’s invested equity

KNR is one of the few companies in the sector that has managed to close

the deal with private equity investors like Cube Highway for its under

construction HAM projects. This means that the company eventually

converted these HAM projects into EPC projects. These HAM projects are

expected to free up KNR’s capital, which could be used as growth capital,

going ahead. The company entered into a share purchase agreement (SPA)

with Cube Highway in February–August, 2019 for four projects. As per the

deal, KNR will initially hold 51% stake while Cube Highway will hold 49%

stake. Eventually, in a phased manner, KNR will sell its entire shareholding

in the SPVs to the investor. This will be subject to shareholding transfer

restrictions set out in the concession agreement executed between NHAI

and the SPV while being subject to various regulatory and lender approvals.

The transaction is contemplated to be completed in two stages, with the first

stage scheduled to be completed after achievement of the commercial

operation date (COD) as per concession agreement and the second stage

scheduled to be completed after expiry of mandatory lock-in period as per

the concession agreement.

Exhibit 14: Details of share purchase agreement with Cube

Project SPV Name Type

Total equity

investment

(| crore)

Cube's stake

(49%)

KNR's stake

(51%)

Conisderation for

KNR's 51% stake

Price:Equity

Trichy to Kallagam KNR Srirangam Infra Pvt Ltd HAM 96.2 47.2 49.1 73.6 1.50

Meensurutti to Chidambaram# KNR Chidambaram Infra Pvt Ltd HAM 45.5 22.3 23.2 36.5 1.57

Chittor to Mallavaram KNR Tirumala Infra Pvt Ltd HAM 143.3 70.2 73.1 152.1 2.08

Ramsanpalle to Mangloor KNR Shankarampet Infra Pvt Ltd HAM 104.2 51.1 53.2 95.8 1.80

Total 389.2 190.7 198.5 357.9 1.80


# likely to get terminated due to land acquisition related issues and associated higher cost

During the construction period, KNR is required to infuse equity worth

| 198.5 crore against its 51% stake among these four projects. Against this,

the company has already invested | 183.3 crore in these projects. Post

achieving COD, sale of this entire stake to Cube in a phased manner will

fetch the company an aggregate of | 357.9 crore, implying pretty decent

1.80x P/B multiple for KNR. Cube will start investing the balance 49% equity

commitment during the construction phase once 90% right of way (RoW) is

available at the projects. Hence, major portion of equity infusion by Cube

Highway would be done six to seven months ahead of COD. This implies

equity infusion by Cube Highway only from FY21E onwards. Till then, the

company will meet its funding through grants from NHAI and debt.

Additionally, KNR is required to pay interest to Cube Highway for the fund

received during the construction period till CoD, which could be to the extent

of ~| 15 crore. Even adjusting for this interest component, P/BV for the deal

is expected to be ~1.7x P/BV.

Best-in-class WC; one of the lowest debt positions in industry

KNR enjoys best in class working capital (WC) cycle. Its NWC days were at

36 days in FY19. This slipped by six days QoQ to 42 days in Q1FY20 primarily

on account of a sharp increase in debtors by | 200 crore pertaining to

unbilled work of HAM project whose appointed date was received in

Q1FY20. The management expects NWC days back to FY19 levels. Best in

class WC along with superior execution and EBITDA margins has led KNR

to enjoy RoCE at 19.0% in FY19, better than its peers.

In the four HAM projects in which KNR has entered

into stake sake arrangement with Cube, the

company is required to infuse | 198.5 crore equity

against 51% stake. Once CoD is achieved, the 51%

stake sale to Cube Highways in a phased manner

will fetch | 357.9 crore to KNR, which implies 1.80x

P/BV multiple




Exhibit 15: Net working capital

15 15 14 14 1620

74 53 39 45 40 5820 17 12 19 20 36

69

52

41 4036

42

0

20

40

60

80

0

20

40

60

80

FY15 FY16 FY17 FY18 FY19 Q1FY20

Inventory Debtors Creditors Net Working Capital


Exhibit 16: Lowest NWC compared to peers

52

33 3439

48

98

109

131

113

76

168

158

168

141146

140

162

114

20

60

100

140

180

FY15 FY16 FY17 FY18 FY19

(days)

KNR PNC Infra Sadbhav Engg NCC

Source: Company, ICICI Direct Research; * we have considered other current assets, other

liabilities and provisions in our calculation

Exhibit 17: RoCE, RoE comparison with peers


RoE (%) 12.8 15.9 17.6 23.5 18.6

RoCE (%) 11.8 16.2 18.3 20.5 19.0

RoE (%) 14.0 11.3 9.7 13.9 14.4

RoCE (%) 21.0 18.7 13.2 13.7 15.6

RoE (%) 8.4 9.0 11.3 11.8 9.2

RoCE (%) 11.5 13.0 10.8 9.9 10.5

RoE (%) 3.5 7.0 6.6 6.8 11.9

RoCE (%) 13.9 16.0 14.6 15.9 21.2

KNR

PNC Infra

Sadbhav Engg

NCC


On the debt front, KNR’s standalone debt was at | 342 crore (including

promoter debt of | 205 crore) as of Q1FY20, implying net D/E of 0.19x, which

is among the lowest in industry. The company is looking to sell Walayar BOT

project. Cash proceeds from sale of this asset would be used to repay

promoter debt. Besides this, it has already completed infusion of equity in

three of its under construction HAM projects where it has done a deal with

Cube Highways. Hence, we do not expect any significant rise in debt level

from FY19 level, going ahead.

Exhibit 18: Debt comparison with peers


Debt (| crore) 104.9 116.7 153.3 240.3 264.1

Net D/E (x) 0.14 0.07 0.08 0.15 0.16

Debt (| crore) 353.0 11.7 147.3 128.6 375.4

Net D/E (x) 0.49 0.01 0.09 0.07 0.18

Debt (| crore) 1096.4 1062.9 1518.3 1484.7 1484.7

Net D/E (x) 0.78 0.70 0.90 0.79 0.70

Debt (| crore) 1995.1 1883.6 1576.7 1300.0 1993.3

Net D/E (x) 0.59 0.49 0.43 0.29 0.36

KNR

PNC Infra

NCC

Sadbhav Engg


Exhibit 19: Total debt, net D/E trend for KNR

153.3

240.3

264.1

277.2

297.2

0.08

0.15

0.16

0.10

0.11

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

FY17 FY18 FY19 FY20E FY21E

(x

)

(| crore)

Debt (| crore) Net D/E (x)





Government plans massive infrastructure spending

Government’s big infrastructure push

In Union Budget 2019-20, the government plans to spend | 100 lakh crore

on infrastructure by 2024. This intended outlay is a massive 2.7x jump from

| 37.2 lakh crore spent towards infrastructure development in FY13-17.

Media reports also indicate the FM has set up a task force recently to draw

up a national infrastructure project pipeline to implement its ambitious plan.

Improving road connectivity: Prime focus area for government

The government aims to construct ~60,000-km length national highways at

a total spend of ~| 15 lakh crore in the next five years. By FY24E, NHAI is

expected to award 32,300 km, out of which 60% is expected to be EPC, 30%

HAM and 10% BOT orders. The Ministry of Road Transport & Highway

awarded 17,055 km in FY18, the highest ever. However, in FY19, the

awarding plunged to 5,470 km due to central government elections, change

in land acquisition policy and bank aversion to fund HAM projects.

Nonetheless, with the government making efforts to sort out issues like

speeding up land acquisition and setting up dedicated financing arm for

NHAI projects, we expect road awarding to revive, going ahead.

Exhibit 20: NHAI & MoRTH awarding

14353067 4344 4355

7396

2222

3169

7972

10098

15948 17055

5470

0

5000

10000

15000

20000

25000

30000

FY14 FY15 FY16 FY17 FY18 FY19

Km

s

NHAI Other Agencies

Source: ICICIdirect.com Research

Exhibit 21: NHAI & MoRTH construction activity

1901 1501 1988 2628 3071 3320

4260 44106061

8231

982910855

0

5000

10000

15000

20000

25000

FY14 FY15 FY16 FY17 FY18 FY19

Km

s

NHAI Other Agencies

Source: ICICIdirect.com Research

Bharatmala Pariyojana - key driver for road investment

Under Bharatmala Pariyojana Phase-I, total 34,800 km at an estimated cost

of | 5,35,000 crore has been considered (~24,800 km are in Phase I in

addition to ~10,000 km of balance road works under NHDP). Bharatmala

Phase-I is proposed to be implemented over a five-year period i.e. 2017-18

to 2021-22. So far, 225 projects with aggregate length of ~9,613 km have

been appraised and approved under Bharatmala Pariyojana Phase-I at a total

capital cost of | 2,43,415 crore. Bharatmala phase is expected to be funded

through i) Cess Road Fund - | 1.4 lakh crore, ii) National Highway

monetisation - | 0.35 lakh crore, iii) PBF-toll collection of NHAI - | 0.46 lakh

crore, iv) market borrowing - | 2.1 lakh crore and v) PPP - | 1.06 lakh crore.

Bharatmala Pariyojana phase I could get delayed by few years due to land

acquisition related and funding related issues.

Sources of funding Bharatmala phase I

26%

6%

9%39%

20%

Cess Road Fund NH monetization

PBF - Toll Colelctions Market Borrowings

Source: MoRTH, ICICI Direct Research




Exhibit 22: Bharatmala phase I estimated cost

Components

Length to be

awarded (km)

Estimated

outlay

(| crore)

Estimated cost

per km

(| crore)

Awarded

length

(km)

Total capital

cost

(| crore)

Actual csot per

km

(| crore)

Economic Corridors development 9000 120000 13 1548 42675 28

Inter-corridor and Feeder routes 6000 80000 13 194 3883 20

National Corridors Efficiency improvements 5000 100000 20 1073 31782 30

Border & International connectivity roads 2000 25000 13 973 4563 5

Coastal and port connectivity roads 2000 20000 10 90 1351 15

Expressways 800 40000 50 124 11304 91

Total Bharatmala Pariyojana 24800 385000 16 4003 95558 24

Balance road works under NHDP 10000 150000 15 1755 40304 23

Grand Total 34800 535000 15 5758 135862 24

Source: NHAI, ICICI Direct Research

Asset monetisation by NHAI critical for future awarding of Bharatmala

NHAI’s borrowing has increased sharply from ~| 0.25 lakh crore to ~| 1.78

lakh crore in FY19 on account of increased construction activity and sharp

rise in land acquisition cost. NHAI’s land acquisition cost has risen ~4x to

| 3.4 crore/hectare in FY14-18 resulting in sharp outgo towards land

acquisition. Hence, we believe NHAI has to increase monetisation of existing

assets for future awarding of Bharatmala Pariyojana. In that regard, media

reports indicate that NHAI is set to raise more than | 85,000 crore by FY25

through the toll operate transfer (ToT) model and InvITs by FY25E. Besides

this, the government is also looking to set up a dedicated financing arm for

NHAI projects. While the fine print is awaited, it could help sort out financing

related issues, going ahead.

Exhibit 23: NHAI financial performance

Parameters (| crore) FY15 FY16 FY17 FY18

Sources of Fund

Receipt of Cess 6885.9 15420.0 2326.5 12429.5

Toll Plough Back 5448.0 6500.0 7500.0 8462.1

Additional Budgetary Support 600.0 370.3 5649.0 4150.0

Capital Grant (JICA & WB) 0.0 0.0 0.0 186.0

Capital Gain Tax Exemption Bonds 3343.4 4281.2 5572.7 6657.4

Taxable bonds 0.0 19000.0 27545.0 20875.0

Decrease in cash 6197.5 0.0 0.0 0.0

Rupee denominated Offshore (Masala) Bonds 0.0 0.0 0.0 3000.0

Loans from National Small Savings Fund 0.0 0.0 0.0 20000.0

Other Sources/Working Capital changes 1315.0 1186.5 1900.3 3145.2

Total 23789.7 46757.9 50493.5 78905.2

Application of Funds

Land Acquisition 9097.9 21933.9 17823.2 32142.6

Project Expenditure 7885.4 12573.2 20843.2 30647.9

Repayment of Loans and Interest thereon 4292.4 5129.8 7010.3 8946.2

Increase in Cash 0.0 4068.5 1636.0 0.0

Other Outflow 2514.1 3052.7 3180.9 7168.6

Total 23789.7 46757.9 50493.5 78905.2


NHAI borrowing

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

2.0

FY15 FY16 FY17 FY18 FY19*

| la

kh c

rore


*as per media reports




Exhibit 24: NHAI land acquisition

0

2000

4000

6000

8000

10000

FY15 FY16 FY17 FY18

(hectares)


Exhibit 25: NHAI’s land cost per Hectare

0.9

1.4

2.4 2.4

3.4

0.0

1.0

2.0

3.0

4.0


(| crore p

er hectare)


Pradhan Mantri Gram Sadak Yojana

Total 5,99,090 km road length has been constructed under the scheme since

inception till April, 2019. Further to give a strong impetus to rural road

connectivity across the country, the government, in the recent Union

Budget, approved the launch of PMSGY-III in July, 2019. Under the PMGSY-

III Scheme, it is proposed to consolidate 1,25,000 km road length in the

states at an estimated cost of | 80250 crore (central government’s share -

| 53,800 crore, state government share- | 26,450 crore). The implementation

period of PMSGY-III is 2019-20 to 2024-25.

River interlinking projects

The river interlinking programme has gained national importance while the

government has taken it up on a high priority. The interlink project has been

split into three parts: i) Northern Himalayan river interlink component, ii)

southern peninsular component and iii) intrastate river-linking component.

The government is planning to speed up the ambitious | 5.5 lakh crore river

interlinking plan, which aims to link rivers through a network of reservoirs

and canals across India. A separate Ministry of Jal Shakti has been formed

to give greater impetus to irrigation, drinking water and waterways. Tenders

related to Jal Shakti Abhiyan are expected to start coming up from Q3FY20E.

This could throw up a huge set of opportunities for EPC players like KNR.

In the recent Union Budget, the government

approved the launch of PMSGY-III in July, 2019.

Under the PMGSY-III Scheme, it is proposed to

consolidate 1,25,000 km road length in the states at

an estimated cost of | 80250 crore. Also, the

government is planning to speed up its ambitious |

5.5 lakh crore river interlinking plan




Financials

Revenues expected to grow at 19.1% CAGR in FY19-21E

KNR has six HAM projects, of which it has already received appointment

date while work has already started on this project. These three projects

together are contributing ~| 2,500 crore out of the total orderbook worth

~| 6500 crore. Beside this, it recently bagged two irrigation projects worth

~| 1700 crore, which are expected to be completed over the next 12-16

months. Hence, we believe KNR’s execution would remain strong in the

coming years. Overall, we expect revenues to grow at 19.1% CAGR to

| 3,031.1 crore in FY19-21E.

Exhibit 26: Revenues expected to grow at 19.1% CAGR in FY19-21E

1541.1

1931.7

2137.3

2506.6

3031.1

0.0

500.0

1000.0

1500.0

2000.0

2500.0

3000.0

3500.0


(| crore)


EBITDA margin to remain at higher band of 17-18% guidance

EBITDA margins expanded 510 bps to 20.0% in FY17-19. Higher EBITDA

margins were on account of several factors playing out such as declining

subcontract levels, increasing share of high margin irrigation projects and

receipt of early completion bonus/escalation at several projects. Going

ahead, we expect KNR to achieve higher band of 17-18% EBITDA margin

guidance on the back of higher revenue contribution from high margin

irrigation projects, lower level of subcontracting expenses and receipts of

some portion claims from various authorities worth | 545 crore. Out of this,

it has already received | 53 crore from NHAI in July, 2019, which is expected

to flow in Q2FY20E. Hence, we build in EBITDA margin at 18.3% and 18.0%

in FY20E and FY21E, respectively.

Exhibit 27: EBITDA margins expected to remain high

229.6 386.1 427.0 458.7 545.6

14.9

20.0 20.0

18.3 18.0

0.0

5.0

10.0

15.0

20.0

25.0

0.0

100.0

200.0

300.0

400.0

500.0

600.0


(%

)

(| crore)

EBITDA EBITDA Margin (%)


We expect KNR’s revenues to grow 19.1% CAGR to

| 3,031.1 crore in FY19-21E

CAGR: 19.1%




PAT to remain flattish on higher tax outgo

We expect PAT to remain flattish in FY19-21E despite strong execution

mainly on account of higher tax outgo. As the benefits of various projects

under section 80-IA are getting completed, we anticipate its effective tax rate

would increase from 9.4% in FY19 to 25.0% in FY21E. The flattish bottomline

is also on account of higher depreciation charges following higher capex &

moderation in EBITDA margins,

Exhibit 28: PAT to grow at 14.1% CAGR in FY17-21E

157.2 272.1 263.3 238.8 266.7

0.0

50.0

100.0

150.0

200.0

250.0

300.0


(| crore)


Return ratios expected to remain healthy ahead

We expect KNR’s RoCE to remain in the range of 16-18% in FY20-21E on the

back of strong execution. The RoCE is expected to marginally get impacted

as we build in sustainable EBITDA margin of 18.3%, 18.0% in FY20, FY21E,

respectively vs. ~20% seen in the last three years.

Exhibit 29: RoE, RoCE trend

17.6

23.5

18.6

14.514.0

18.320.5

19.0

16.217.8

10

12

14

16

18

20

22

24

26


(%

)

RoE RoCE


CAGR: 14.1%




Risks & Concerns

Lower awarding by the authorities…

Based on the current order book, we are comfortable on KNR’s execution till

FY21E. In order to keep up with strong execution beyond FY21E, it is crucial

for KNR to keep securing new orders especially from government entities

like NHAI. If the company is unable to win new projects possibly on account

of delay in awarding from NHAI or higher competitive intensity, it could

impact its revenues growth and profitability beyond FY21E.

Delay in pick up in execution…

KNR has three HAM projects that are yet to commence execution. Delay in

receipt of appointed date for these projects could impact our revenue

estimates. For instance, Chidambaram-Meensurutti HAM project (BPC: |

482.0 crore) whose financial closure was achieved in September, 2018 may

get terminated as only 63-64% land is available as of Q1FY20. Secondly, the

company has couple of large ticket irrigation projects in Telangana, where

the state government has cut its budgeted expenditure for FY20E.

Nonetheless, we are given the understanding that both the KNR’s irrigation

projects are part of schemes wherein the government has given highest

priority and their funding will be met through external borrowings from

agencies like PFC. However, any slippage in securing timely funding could

stretch working capital cycle of the company and could delay execution at

these projects which could impact our revenue estimates.

Maintaining higher margins in newer geographies…

KNR may expand its presence in geographies such as Maharashtra and Uttar

Pradesh. In such case, the company could find difficulties in owning

quarrying mine, procuring raw material and manpower availability at desired

lower rates and on time. This could impact its margins and timely execution

of projects in these geographies.

Rise in raw material prices could put pressure on margins…

Raw materials make up ~40% of the overall cost. KNR’s key raw materials

include aggregates, steel and cement. While KNR enters into long-term

arrangements with its suppliers for these materials, any sharp decrease in

prices of these raw materials could put the company on a disadvantageous

position.

External factors could impact working capital cycle of the company…

KNR’s execution may get impacted due to external factors such as delay in

land acquisition by client such as NHAI, political landscape at state level or

delay in securing receivables. This could lead to stretch in WC as well and

consequent debt level, which may impact its profitability & liquidity position,

going ahead.




Valuation & Outlook

At the CMP, KNR is trading at attractive valuations of 5.6x FY21E EV/EBITDA

and 11.8x FY21E EPS. The company is a focused road based EPC player that

enjoys a strong execution track record with the reputation of completing

projects on time/ahead of the schedule. KNR also enjoys best in class WC

cycle with very healthy balance sheet and strong return ratio (RoCE: 19.0%

& RoE: 18.6%). Revenues and PAT have grown at a CAGR of 20.7% and

34.0%, respectively, in FY14-19.

Going ahead, with a healthy orderbook, and strong execution on captive as

well as shorter duration irrigation projects, we expect KNR’s execution to

pick up and expect its revenues to grow at 19.1% CAGR in FY19-21E. Hence,

we initiate coverage on KNR Construction with a BUY recommendation and

an SoTP based target price of | 300/ share. We value its core EPC business

at | 272/share (7x FY21E EV/EBITDA, implying 15.8x FY21 fully tax adjusted

EPS). We also value its equity investment in BOT & HAM business at

| 38/share (0.8x P/BV).

Exhibit 30: SOTP valuation

Value (| crore) Per Share (| ) Comment

EPC Business (A) 3819 272 7.0x FY21E EV/EBITDA

BOT toll Investment (B = C+D) 390 28

Walayar tollway (C) 318 23 0.8x P/BV

Muzaffarpur tollway (D) 72 5 0.8x P/BV

HAM Projects Investment (E) 147 10 0.8x P/BV

Total Equity Investment (F=B+E) 537 38

Less: Net Debt (G) 83 6 FY21E Net Debt

SoTP Value (A+F-G) 4274 304

Rounded-off target price 300


Considering strong execution, best in class WC and healthy balance sheet,

KNR is better placed than its peers on the RoCE and EV/EBITDA matrix. It is

currently trading at 5.6x FY21E EV/EBITDA vs. 4-8x compared to its peers.

Even, it is attractively placed based on RoE and PE matrix.

Exhibit 31: Peer comparison on FY21E RoCE vs. EV/EBITDA

0

5

10

15

20

25

0 2 4 6 8 10

RoC

E (%

)

EV/EBITDA (x)

KNR NCC PNC Sadbhav


Exhibit 32: Peer comparison on FY21E RoE vs. P/E

0

2

4

6

8

10

12

14

16

18

0 5 10 15 20

RoE (%

)

P/E (x)

PNC NCC KNR Sadbhav


Size of the bubble represent revenues (| crore) Size of the bubble represents PAT (| crore)




KNR has historically traded at an average one-year forward EV/EBITDA of

7.8x in the last five years. Currently, the company is trading at an attractive

valuation of 5.6x FY21E EV/EBITDA. We believe the company should

command better multiples given its execution focused approach with

reputation of on time/ahead of completion schedule, best in class WC,

superior return ratios and strong opportunities arising in this space ahead.

Exhibit 33: One-year forward EV/EBITDA

500

1,500

2,500

3,500

4,500

5,500

Jan-15

May-15

Sep-1

5

Jan-16

May-16

Sep-1

6

Jan-17

May-17

Sep-1

7

Jan-18

May-18

Sep-1

8

Jan-19

May-19

Sep-1

9

|

EV 12x 10x 8x 6x

Source: Bloomberg, ICICI Direct Research

Exhibit 34: Average one-year forward EV/EBITDA

3.0

6.0

9.0

12.0

Jan-15

May-15

Sep-1

5

Jan-16

May-16

Sep-1

6

Jan-17

May-17

Sep-1

7

Jan-18

May-18

Sep-1

8

Jan-19

May-19

Sep-1

9

(x)

EV/EBITDA Multiple Average EV/EBITDA

1+ STD 1- STD

Source: Bloomberg NHAI, ICICI Direct Research

In terms of full tax adjusted P/E multiple, KNR has historically traded at an

average one-year forward P/E of 16.8x in the last five years. Currently, the

company is trading at an attractive valuation of 15.4x FY21E fully tax

adjusted P/E multiple. We believe KNR should command better multiples

given its execution focused approach with reputation of on time/ahead of

completion schedule, best in class WC, superior return ratios and strong

opportunities arising in this space ahead.

Exhibit 35: One year forward P/E band

30

110

190

270

350

Jan-15

May-15

Sep-1

5

Jan-16

May-16

Sep-1

6

Jan-17

May-17

Sep-1

7

Jan-18

May-18

Sep-1

8

Jan-19

May-19

Sep-1

9

|

Price 25x 20x 15x 10x

Source: Bloomberg, ICICI Direct Research

Exhibit 36: Average one-year forward P/E band

10.0

15.0

20.0

25.0

Jan-15

May-15

Sep-1

5

Jan-16

May-16

Sep-1

6

Jan-17

May-17

Sep-1

7

Jan-18

May-18

Sep-1

8

Jan-19

May-19

Sep-1

9

(x)

P/E Multiple Average P/E 1+ STD 1- STD

Source: Bloomberg NHAI, ICICI Direct Research

Exhibit 37: Peer group comparison

Sector / Company CMP M Cap

(|) TP(|) Rating (| Cr) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E

KNR Constructions (KNRCON) 231 320 Buy 3,248 18.7 17.1 18.8 12.3 13.0 11.8 8.1 7.1 5.6 2.3 1.9 1.6 18.6 14.6 13.9

IRB Infra (IRBINF) 96 100 Hold 3,191 25.6 22.8 18.2 3.8 4.2 5.3 5.6 5.4 6.4 0.5 0.5 0.4 13.8 10.8 8.1

PNC Infratech (PNCINF) 204 255 Buy 5,233 11.9 12.4 13.6 17.2 16.4 15.0 11.6 9.4 8.4 2.5 2.2 1.9 14.4 13.3 12.8

Sadbhav Engg. (SADENG) 127 140 Hold 2,178 10.9 9.8 11.6 11.7 13.0 11.0 8.4 8.1 7.3 1.0 1.0 0.9 9.2 7.7 8.5

Ashoka Buildcon (ASHBUI) 118 150 Buy 3,312 -1.4 -1.7 0.4 NA NA 307.1 6.5 5.9 5.2 NA NA 13.9 NA NA 4.5

RoE (%)EPS (|) P/E (x) EV/EBITDA (x) P/B (x)





Financial summary

Exhibit 38: Profit and loss statement | crore

(| Crore) FY18 FY19 FY20E FY21E

Net Sales 1,931.7 2,137.3 2,506.6 3,031.1

Other operating income - - - -

Total Revenues 1,931.7 2,137.3 2,506.6 3,031.1

Raw Material Expense 505.5 643.2 744.5 909.3

Other Construction Expenses 929.8 744.9 914.9 1,106.4

Employee benefit expenses 72.1 92.9 112.8 136.4

Other Expenses 38.1 229.3 275.7 333.4

Total Operating Expenditure 1,545.5 1,710.3 2,047.9 2,485.5

EBITDA 386.1 427.0 458.7 545.6

Other Income 39.3 63.4 36.7 41.4

Interest 23.1 29.1 32.6 33.7

Depreciation 134.1 168.1 181.8 197.7

PBT 268.2 290.6 281.0 355.6

Total Tax (3.9) 27.3 42.1 88.9

Reported PAT 272.1 263.3 238.8 266.7

Adjusted PAT 272.1 263.3 238.8 266.7

EPS (Diluted) 19.4 18.7 17.0 19.0


Exhibit 39: Cash flow statement | crore

| crore FY18 FY19 FY20E FY21E

Profit before Tax 268.2 290.6 281.0 355.6

Depreciation 134.1 168.1 181.8 197.7

Interest Paid 23.1 29.1 32.6 33.7

Cash Flow before WC changes 413.5 453.1 458.7 545.6

Net Increase in Current Assets (240.8) (168.5) (215.7) (239.1)

Net Increase in Current Liabilities 7.8 17.9 101.5 144.1

Net CF from Operating Activities 156.8 247.5 302.3 361.7

(Purchase)/Sale of Fixed Assets (200.9) (203.4) (200.0) (200.0)

Purchase of Investment (2.3) (108.3) (44.2) (48.1)

Interest Income (8.5) (4.5) (36.7) (41.4)

Net CF from Investing Activities (183.1) (285.4) (207.6) (206.7)

Proceeds from share capital - - - -

Interest Paid 23.1 29.1 32.6 33.7

Net CF from Financing Activities 51.2 7.2 (39.8) (41.7)

Net Cash flow 24.9 (30.7) 55.0 113.3

Opening Cash/ Cash Equivalent 16.4 37.1 13.0 68.0

Closing Cash/ Cash Equivalent 41.3 6.4 68.0 181.3


Exhibit 40: Balance sheet | crore

(| Crore) FY18 FY19 FY20E FY21E

Liabilities

Share Capital 28.1 28.1 28.1 28.1

Reserves & Surplus 1,129.7 1,386.1 1,617.8 1,876.4

Total Shareholders funds 1,157.8 1,414.2 1,645.9 1,904.5

Secured Loan - 33.6 59.5 59.5

Unsecured Loan 240.3 230.6 204.6 204.6

Total Debt 240.3 264.1 264.1 264.1

Deferred Tax Liability - - - -

Liability side total 1,427 1,696 1,930 2,192

Assets

Gross Block 817.6 1,012.4 1,212.4 1,412.4

Net Block 331.6 371.1 389.3 391.6

Capital WIP 0.0 0.0 0.0 0.0

Non-current Investments 572.0 683.0 727.3 775.3

Current Assets

Inventories 71.2 95.0 137.3 166.1

Sundry Debtors 232.0 234.4 309.0 373.7

Loans and Advances 27.9 9.1 9.8 10.7

Other Current Assets 428.4 533.9 626.1 757.1

Cash 43.8 13.0 68.0 181.3

Total Current Assets 759.5 872.3 1,082.3 1,307.6

Creditors 218.4 223.6 262.2 317.1

Provisions 14.2 11.8 13.8 16.7

Other Current Liabilities 314.9 338.4 396.9 480.0

Other Long Term Liabilities 13.2 13.3 15.5 18.8

Total Current Liabilities 547.5 573.8 673.0 813.8

Net Current Assets 288.1 331.1 496.9 694.7

Assets side total 1,427 1,696 1,930 2,192


Exhibit 41: Key ratios

(Year-end March) FY18 FY19 FY20E FY21E

Per Share Data

EPS (Fully Diluted) 19.4 18.7 17.0 19.0

Cash EPS 28.9 30.7 29.9 33.0

BV 82.3 100.6 117.1 135.5

-

Operating Ratios

EBITDA / Net Sales 20.0 20.0 18.3 18.0

PAT / Net Sales 14.1 12.3 9.5 8.8

Inventory Days 13 16 20 20

Debtor Days 44 40 45 45

Creditor Days 41 38 38 38

Return Ratios

RoE 23.5 18.6 14.5 14.0

RoCE 20.5 19.0 16.2 17.8

RoIC 32.4 26.5 24.9 28.7

Valuation Ratios

EV / EBITDA 8.9 8.2 7.5 6.1

P/E 12.0 12.4 13.7 12.2

EV / Net Sales 1.8 1.6 1.4 1.1

Market Cap / Sales 1.7 1.5 1.3 1.1

Price to Book Value 2.8 2.3 2.0 1.7

Turnover Ratios

Asset turnover 1.4 1.3 1.3 1.4

Gross Block Turnover 2.4 2.1 2.1 2.1

Solvency Ratios

Debt / Equity 0.2 0.2 0.2 0.1

Current Ratio 1.4 1.5 1.6 1.6

Debt / EBITDA 0.6 0.6 0.6 0.5

Quick Ratio 1.3 1.4 1.4 1.4





RATING RATIONALE

ICICI Direct endeavors to provide objective opinions and recommendations. ICICI Direct assigns ratings to its

stocks according to their notional target price vs. current market price and then categorizes them as Buy, Hold,

Reduce and Sell. The performance horizon is two years unless specified and the notional target price is defined

as the analysts' valuation for a stock

Buy: >15%

Hold: -5% to 15%;

Reduce: -15% to -5%;

Sell: <-15%

Pankaj Pandey Head – Research [email protected]

ICICI Direct Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]




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