KNR Constructions -...
Transcript of 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
September 18, 2019 3
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)
Source: Company, DART
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
4,410
6,061
8,231
9,828 10,800
0
2,000
4,000
6,000
8,000
10,000
12,000
FY15 FY16 FY17 FY18 FY19
Road Building (Kms)
September 18, 2019 4
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)
Source: Company, DART
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)
FY15 FY16 FY17 FY18 FY19
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
Source: Company, DART
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27
30
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25
30
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FY15 FY16 FY17 FY18 FY19
Road development in a day (Km)
September 18, 2019 5
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
Source: Company, DART
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)
September 18, 2019 6
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
September 18, 2019 7
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%
Source: Company, DART
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
Source: Company, DART
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 - -
Source: Company, DART
September 18, 2019 8
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
Source: Company, DART
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
Source: Company, DART
September 18, 2019 9
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
Source: Company, DART
September 18, 2019 10
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 (%)
Source: Company, DART
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
Source: Company, DART
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Revenue (Rs bn) Revenue Growth (%)
38%
31%
22%
26%
30%
18% 19%
35%
21%
8%11%
18%16%
19%
27%
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29%
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FY15 FY16 FY17 FY18 FY19
Material consumed Sub-contractors work bills
Spreading & Assortment Expenses Employee cost
September 18, 2019 11
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
Source: Company, DART
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
Source: Company, DART
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EBITDA (` bn) EBITDA Margin (%)
September 18, 2019 12
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
Source: Company, DART
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
Source: Company, DART
0.7 1.0 1.7 2.5 2.7
8.3
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Adj. PAT (` bn) PAT Margins (%)
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12.0
17.718.9
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Basic Earnings per share (`) Dividend per share (`)
September 18, 2019 13
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
Source: Company, DART
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)
Source: Company, DART
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Net Debt (̀ bn) Net Debt to Equity (x)
5.8
7.4
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11.6
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September 18, 2019 14
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
Source: Company, DART
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.
4.8 5.1 6.4 8.2 10.1
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1.8 1.8
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Gross Block (` bn) Capex (̀ bn) Asset Turnover (x)
September 18, 2019 15
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
Source: Company, DART
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
Source: Company, DART
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
Source: Company, DART
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52
39 44
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32
40 38
15 14 14 13 16
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FY15 FY16 FY17 FY18 FY19
Debtors Days Creditors Days Inventory Days Cash Conversion Cycle (Days)
September 18, 2019 16
Total working capital days
Source: Company, DART
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.
97
75
23
59
73
0
20
40
60
80
100
120
FY15 FY16 FY17 FY18 FY19
0.7
2.5
3.2
1.5
2.5
-0.4
0.3
1.2
1.8 1.9
0.4
1.9 1.8
-0.5
0.4
(1)
0
1
2
3
4
FY15 FY16 FY17 FY18 FY19
CFO (` bn) Capex (` bn) FCFF (` bn)
59.5
76.5
56.3
-31.4
17.8
(40)
(20)
0
20
40
60
80
100
FY15 FY16 FY17 FY18 FY19
OCF/FCFF conversion (%)
September 18, 2019 17
Order Book Segment Wise Order Book Break-up
Source: Company, DART Source: Company, DART
Order-Book State-Wise Geography-Wise Order Book
Source: Company, DART Source: Company, DART
Order book trend
Source: Company, DART
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
FY15 FY16 FY17 FY18 FY19
Order Book (̀ bn) Order Book/Sales
September 18, 2019 18
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 (%)
Source: Company, DART
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 (%)
Source: Company, DART
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
FY15 FY16 FY17 FY18 FY19
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
FY15 FY16 FY17 FY18 FY19
RoANW (%) RoACE (%)
September 18, 2019 19
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.
September 18, 2019 20
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.
September 18, 2019 21
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.
Debt on a stand-alone basis stood at `2.4
billion and net working capital days was 26
days.
Debt on a stand-alone basis stood at `2.6
billion and net working capital days was 36
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.
September 18, 2019 22
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
(` Mn) FY18A FY19A FY20E FY21E
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
September 18, 2019 23
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
(` Mn) FY18A FY19A FY20E FY21E
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
Se
p-1
8
Oct-
18
Nov-1
8
Dec-1
8
Jan
-19
Fe
b-1
9
Ma
r-19
Ap
r-19
Ma
y-1
9
Jun
-19
Jul-1
9
Au
g-1
9
Se
p-1
9
(`) KNRC Target Price
Dolat Capital Market Private Limited. Sunshine Tower, 28th Floor, Senapati Bapat Marg, Dadar (West), Mumbai 400013
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