Buy KNR Constructions; target of Rs 369: Dolat Capital
Dolat Capital’s research report on KNR Constructions
KNR’s revenue is down 16.5% YoY to `4.6 bn in Q1FY20 (33.5% below estimates), due to delay in receiving appointed date for HAM projects coupled with `400-500 mn worth of execution not billed in Q1FY20. The EBITDA margin fell 37 bps YoY to 19.4% (287 bps above estimates), due to higher construction and employee cost which was partially offset by lower other expense. EBITDA margins are on the higher side led by lower sub contraction cost and various irrigation projects are on the verge of completion. The reported PAT down 35.5% YoY to `477 mn (31.3% below estimates), due to a muted operating performance coupled with higher depreciation, higher finance cost, lower other income and higher tax rate of 19.0% vs. 12.3% (Q1FY19).
Though stock has fallen ~17% post our Q4FY19 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 (Exhibit 3).
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