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The relatively- tepid scenario on awarding of infrastructure projects over the past 18-24 months has resulted in many companies in the space moving to the slow lane on the growth front. In fact, many of them faced revenue declines.
The long-drawn election process in 2024 and many State elections have meant that contracts from the governments (Centre and State) have not been really forthcoming. The relatively-tight leash on the fiscal deficit front held by the Union government has meant that no excess spending is done in the space. The issues surrounding land acquisition also persist in many projects, including in HAM (hybrid annuity model) contracts.
In FY24 and more so in FY25, there has been a slowdown in infrastructure spends from the government as elections and formation of a new coalition took time. The Centre also spent less than the planned amount for infrastructure in FY25 to the tune of ₹10.18 lakh crore rather than the ₹11.11 lakh crore budgeted earlier. However, the government has announced a ₹11.21-lakh crore plan for infrastructure spend in the recent Budget, with allocation of ₹2.87 lakh crore for the Ministry of Road Transport and Highways
In this regard, we had recommended KNR Constructions, a predominantly road construction and irrigation projects player, in March 2024 at ₹240. Since our recommendation, the stock rose to ₹410-levels in the middle of last year, before crashing down with other small-caps in the market correction that characterised much of the past six-eight months. It now trades at ₹235 and presents an investment opportunity once again. At this price, the stock trades at 12 times its likely per share earnings for FY26.
A healthy order-book, steady execution record and a fairly strong financial position are positives for the company.
In 9MFY25, KNR’s revenues fell 9.7 per cent over 9MFY24 to ₹2,507.5 crore, while net profits grew 120 per cent to ₹650.5 crore. The steep rise in profits is due to other higher other income, lower subcontracting costs and decrease in depreciation compared to the previous period.
Many projects nearing completion resulted in anaemic revenues. Apart from the slow pace of awards, delays in payments by some government clients is also a challenge, resulting in revenues falling. For example, the management has indicated that the Telangana government owes ₹977 crore in payments and it has even taken the legal route to ensure settlement of dues.
Sound client base and order book
KNR Constructions is a key highways infrastructure player in Karnataka, Telangana, Andhra Pradesh and Tamil Nadu. It also executes irrigation and pipeline projects for State governments.
The company has a fairly large client base. This includes NHAI, Andhra Pradesh Road Development Corporation, Karnataka State Highway Improvement Project, GMR Projects, Telangana Irrigation, Engineers India, Highways Department of Government of Tamil Nadu and Sadbhav Engineering. There is a blend of captive, public and private sector projects to be executed.
It is also in talks with Adani group (estimated size of ₹3,400 crore) and Cube highways for EPC road projects.
KNR Constructions has an order-book of ₹5,517 crore as of December 2024, which it is looking to execute over the next 12.18 months. The company had also indicated that it is likely to bag ₹8,000-10,000-crore worth of projects by around June-July of 2025, which gives considerable long-term visibility.
Around 47 per cent of the order-book comes from road projects, including through HAM contracts. Another 26 per cent is accounted for by irrigation orders and 28 per cent by pipeline works.
Key roadway projects, including Magadi to Somwarpet, Ramanattukara to Valanchery, Valanchery to Kappirikkad and Chittor to Thatchur, are 84-90 per cent complete.
KNR has generally ensured that it completes projects within or even ahead of the deadlines specified by clients and concessionaire. There are instances where the company has completed projects more than 100 days ahead of the originally-scheduled deadline.
Robust financials
KNR Constructions maintains a fairly healthy financial position. Even in the turbulent period over the past couple of years, the company managed to generate EBITDA margins of 16-17 per cent, which is among the best in the industry.
The delay in contract awards and held-up payments, apart from equity requirements for HAM projects have made the company take some extra debt at the consolidated level. Even so, the net debt to equity is comfortable at around 0.33.
With the contracts that it hopes to win by June-July 2024 and also its existing order-book, KNR Constructions would have considerable execution and revenue visibility over the next few years.
Published on May 17, 2025
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