KNR Constructions: Q1FY25 Earnings Call Highlights
Revenue growth in FY25 uncertain due to project delays. Management aims to match last year's revenue in FY25. FY26 revenue growth dependent on securing the targeted order inflow in FY25.
knrcl.com | NSE: KNRCON
1. Key Takeaways
1.1 TLDR
Focusing on securing new orders to drive future revenue growth.
Short-term revenue visibility is impacted by external factors like monsoon delays
Targeting high-value projects across various sectors, aiming for higher margins and maintaining a strong balance sheet.
In aggressive pursuit of new opportunities and focus on asset-light growth through monetization indicates a positive long-term outlook.
Overall Themes:
Order Inflow Focus: KNR is highly focused on securing new orders, targeting INR 6,000-8,000 crores by the end of FY25, to address concerns about the current order book.
Sector Opportunities: KNR sees opportunities in various sectors, including roads & highways (NHAI, MSRDC, BOT), irrigation, railways, and metros.
Financial Performance: Revenue remained flat year-on-year, but EBITDA and net profit showed double-digit growth driven by an arbitration claim and dividend income.
Balance Sheet Strength: KNR maintains a strong balance sheet with low net debt-to-equity and aims to further reduce debt through asset monetization.
1.2 Order Book and Revenue Growth:
Current order book stands at INR 4,922 crores (1.5 years of execution) and is expected to increase to INR 6,122 crores with the addition of two HAM projects awaiting appointed dates.
Management is actively pursuing various opportunities to achieve the order inflow target, including:
Upcoming NHAI tenders
Projects in Kerala, North East India, and Maharashtra
Subcontracting for MSRDC projects (targeting INR 2,000 crores)
Irrigation projects in Telangana, Andhra Pradesh, and Madhya Pradesh
BOT Toll Projects as EPC contractor
Metro and Railway projects
Revenue growth in FY25 is uncertain due to project delays caused by monsoon rains. However, management aims to match last year's revenue with potential order execution in Q3 and Q4.
FY26 revenue growth is contingent on securing the targeted order inflow in FY25.
1.3 Project Updates and Strategy:
HAM projects are progressing well, with Oddanchatram to Madathukulam achieving 100% completion and awaiting final COD.
Marripudi HAM project execution is expected to reach 30-35% by year-end.
Periya Shanthi project faced delays due to heavy rains but is targeted for completion by June 2025.
KNR is shifting focus towards projects requiring higher engineering skills, with an estimated 60-70% of the order book comprising such projects.
The company is open to participating in BOT projects as an EPC contractor or a minority partner.
1.4 Financial Performance and Outlook:
Q1 FY25 revenue was flat year-on-year at INR 985 crores.
EBITDA grew 29% to INR 279 crores with a margin of 28.3%
Net profit increased by 25% to INR 166 crores.
Strong performance was driven by a one-off arbitration claim of INR 60.8 crores and dividend income of INR 14.5 crores.
KNR is targeting an EBITDA margin of 15-16% going forward, factoring in the mix of projects and assuming stable input prices.
1.5 Other Important Points:
KNR is awaiting appointed dates for two Mysore-Kushalnagara projects (INR 1,200 crores) expected by mid-September or October.
Telangana receivables stand at INR 900 crores, with INR 600 crores certified and the remaining expected to be cleared by September-end.
KNR is in discussions to monetize four HAM projects, with Palani expected to be completed this year and the remaining three by September 2025.
The company is pursuing claims through the Vivad Se Vishwas scheme, expecting to receive around INR 140 crores (after VSV calculation).
Key Quotes:
On order inflow: "We are definitely targeting INR 6,000 crores to INR 7,000 crores by this year, and hopefully, we will get it. That's the gut feeling we have." (Mr. K. Jalandhar Reddy)
On FY26 growth: "If we receive (the targeted order inflow) in this year, definitely, we are quite good for that year... I think we'll do better than what we have performed at least this year." (Mr. K. Jalandhar Reddy)
On BOT project strategy: "The target is to go as the EPC contractor only, but however, if at all I have to take part for my compulsion, I am open to do it." (Mr. K. Jalandhar Reddy)
On Telangana receivables: "We have a discussion with the Telangana government, and they are keen on paying payments by September end, what they said." (Mr. K. Jalandhar Reddy)
On asset monetization: "As our policy is there to be asset-light, we will continue to do the monetization of assets." (Mr. K. Venkata Rama Rao)
KNR Constructions Q1 FY25 Earnings Call FAQ
1. What are the key industry developments impacting KNR Constructions?
The Indian government has shown strong support for the infrastructure sector:
The interim budget allocated INR 11.11 lakh crores to infrastructure.
MoRTH plans INR 22 lakh crores highway investment, covering 30,600 km by 2031-32, including eight national high-speed road corridors.
Road contract awards are expected to reach INR 5 lakh crores by the end of the fiscal year.
Completion deadline for Bharatmala Phase-1 has been extended to 2027-28.
The Union Budget allocated INR 15,000 crores to develop Andhra Pradesh's capital city.
Telangana government plans to invest INR 1.5 lakh crores over five years for the Musi riverfront.
2. What is KNR Constructions' current order book position?
As of June 30, 2024, the company has a total order book of INR 4,922 crores:
58% EPC road and HAM projects
20% irrigation projects
22% pipeline projects
Client-wise:
63% third-party clients
37% captive HAM projects
Excluding two HAM projects (INR 1,200 crores) awaiting appointment dates, the order book stands at INR 6,122 crores.
3. What is the company's order inflow target for FY25?
KNR Constructions is targeting an order inflow of INR 6,000 - 8,000 crores by the end of FY25. This will come from various sectors, including:
NHAI projects
BOT toll projects (as EPC contractor)
MSRDC projects (subcontracting with Patel Infra)
Irrigation projects (Telangana, Madhya Pradesh)
Metro and flyover projects
Railway projects
Mining contracts
4. How will KNR Constructions' revenue be impacted by the order inflow?
Revenue growth in FY25 might be limited due to delays in projects awaiting appointment dates and the impact of the monsoon season on ongoing projects. However, the company is hopeful for improved performance in the third and fourth quarters, assuming new orders are secured and executed.
Growth in FY26 and beyond will depend on the successful acquisition of new orders in FY25.
5. What is the company's strategy for BOT projects?
KNR Constructions aims to primarily participate in BOT projects as an EPC contractor, not as an investor.
6. What are the expected EBITDA margins for FY25 and FY26?
Assuming stable input prices, the company expects to achieve EBITDA margins of 15% to 16%, including high-margin irrigation and BOT toll projects.
7. What is the status of the delayed appointment dates for the Mysore-Kushalnagara project?
The project is awaiting environmental clearance. An EC meeting is expected in August 2024, with appointment dates expected in mid-September or October 2024.
8. What is the company's plan for monetizing its HAM projects?
KNR Constructions is in discussions to monetize four HAM projects:
One (KNR Pallani) is expected to be monetized by the end of FY25.
Three more (Kerala (2) and Chittoor-Thatchur) are targeted for monetization by September 2025.
The company will receive a single payment for all four projects from one investor and expects a good valuation.
Source: Link to Earning Call Transcripts
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