April 19, 2012
HYDERABAD: Hyderabad-based construction firmKNR Constructions has completed the Bijapur-Hungund toll road of National Highways Authority of India (NHAI) nearly 11 months ahead of schedule and claimed it a record in the history of Indian highways.
The four lining of 97.22 kilometres of road project, valued at Rs 905.5 crore, was completed in 582 days as against the scheduled duration of 910 days.
NHAI had awarded the project on design, build, finance, operate and transfer (DBFOT) basis to a special purpose vehicle of Sadbhav Engineering, which in turn awarded the project to KNR Constructions, an EPC (engineering, procurement and construction) contracting firm.
“The primary motivation to complete the project much ahead of schedule was the attraction of earning a bonus of Rs 16 lakh per every single day of early completion. In the process, we ended up with earning a bonus of around Rs 50 crore for early completion,” Executive Director K. Jalandhar Reddy told ET.
As a part of achieving the target, he said, the company has paid additional compensation to the land owners towards expeditious land acquisition, apart from deploying modern imported construction equipment and adopting best sourcing and keeping a strong supply chain of raw material.
“Most of the concessionaries are bagging the road projects these days at very thin margins owing to aggressive bidding and early execution of projects by EPC contractors will significantly help them improve their financials,” said Reddy.
Further, he said in the backdrop of not securing BOT road projects from NHAI owing to not so aggressive bidding strategy, KNR will now focus largely on EPC road contracts and help the BOT players with its strong execution skills.
KNR, with Rs 1,051 crore revenue last fiscal, now has an order book of Rs 3,396 crore comprising of Rs 3,253 crore of road EPC contracts, said Reddy.
November 28, 2011
CRISIL Research has come out with its initial coverage on KNR Construction . The research firm has maintained the fundamental grade of 3/5 to the company in its November 25, 2011 report.
KNR Construction (KNR) is a Hyderabad-based company focussing on road infrastructure projects. It has a healthy order book of Rs 25.1 bn (2.4x TTM revenues), which provides sufficient revenue visibility. Though order flows are expected to be healthy given traction in project awards, the company’s ability to bag new orders in a competitive scenario without compromising on margins will be a challenge. KNR also has one of the lowest gearing in the industry; as on FY11, KNR’s net debt-equity ratio stood at 0.1x compared to peers’ average of 2.5x. CRISIL Research assigns KNR a fundamental grade of 3/5, indicating that its fundamentals are good relative to other listed securities in India.
Proven execution track record in roads; entering into other segments
A mid-sized player, KNR has demonstrated good execution capabilities in the road segment and has so far constructed more than 4,000 km of roads. Of late, it has diversified into water, irrigation and urban infra projects. However, roads still comprise the major chunk (~90%) of its order book.
Order book stands at 2.4x TTM; provides sufficient revenue visibility
KNR’s current order book is Rs 25.1 bn (2.4x TTM revenues) which provides revenue visibility for the next 24-30 months. The order book has been boosted by recent project awards worth Rs 11 bn including an EPC order from Sadbhav Engineering for Rs 5.8 bn. It also has L1 status for projects worth Rs 1 bn.
Forayed into asset ownership model
In FY08, KNR bagged two BOT projects in JV with Patel Engineering. Both these projects have been completed and the government has begun making the annuity payments. KNR has also securitised one of the projects for Rs 4 bn which will ease funding requirement for future projects.
Risk: Operating margins could decline due to increasing competition
KNR has higher operating margins due to benefits from backward integration of sourcing aggregates from its captive quarrying mines. However, we believe that going forward there is a risk of margin decline given the current competitive scenario, when it may have to bid aggressively for projects, resulting in lower margins.
Revenues and PAT to grow at a two-year CAGR of 19% and 4%
We expect revenues to grow at two-year CAGR of 19% to Rs 14.6 bn in FY13. PAT growth is expected to be lower at 4% to Rs 696 mn in FY13 compared to Rs 640 mn in FY11 due to high interest costs and initial losses in BOT projects.
Valuations – current market price has ‘strong upside’
CRISIL Research has used the sum-of-the-parts method to value KNR. The contracting business has been valued based on the P/E method at Rs 142 per share and the BOT projects have been valued using the discounted cash flow method at Rs 15 per share. We initiate coverage on KNR with a fair value of Rs 157 per share and a valuation grade of 5/5.
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