KNR Constructions (KNRC) Q2FY22 (standalone) PAT came 40%/27% higher than our/ consensus estimate. This is led by revenue which is up 26% YoY and EBITDA margin up 154bps YoY at 22%. Company’s execution gained momentum with no shortfall in workforce in Q2FY22, stated IDBI Capital Equity Research.

Given the past precedence, conservatively company is targeting revenue at Rs 30 billion for FY22E. YTDFY22 Order inflow was Rs 9 billion and further inflow expected at Rs 20-25 billion in H2FY22. H1FY22 total order book provided revenue visibility which equals 4x TTM Revenue (incl. L1). Order book comprises of Roads / Irrigation at 73% /27%. Total receivable is at Rs 7 billion and KNRC expects to recover the dues by Mar-22, it said.

"We roll forward TP to FY24E and revised TP stands at Rs 345. Maintain Buy with stock catalyst is recovery of receivables, order win, execution momentum and maintenance of EBITDA margin," the broking firm added.

Key highlights and investment rationale

Q2FY22 Snapshot: KNRC reported revenue of Rs 7.6 billion (up 26% YoY). EBITDA at Rs1.7 billion, +35% YoY with EBITDA margin of 22.2% vs 20.6% YoY. PAT stood at Rs 0.9 billion, +91% YoY. PAT increase is aided by EBITDA increase and higher other income. For FY22E, company expects revenue at Rs 30 billion.

Order inflow target at Rs 20-25 billion in H2FY22: H1FY22 Order book at Rs 116 billion (equals 4x TTM Revenue) comprising Roads / Irrigation at 73% /27%. Q2FY22 order inflow stood at Rs 7 billion and close FY22E with order inflow of Rs 30-35 billion. During the quarter company also received an order from the widening of existing service roads of outer ring road, Hyderabad worth Rs 21.3 billion and 1 HAM project worth Rs 10.4 billion. Going forward, company is targeting to enter in the railway sector.

Outlook on receivables: Q2FY22 Net working capital (NWC) days have reduced to 45 days vs 66 days QoQ. Out of the total receivables from the irrigation project of Rs 7 billion, company expects to recover the dues by Mar-22. In total receivables, ~50% is from irrigation and 50% is from in-house HAM projects.

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