Results Review for KNR Constructions and Ahluwalia Contracts

KNR Constructions (NS:): KNR reported in-line revenue/EBITDA/APAT at INR 9.4/1.7/1bn, beating our estimates by 9.9/4.8/1.0%. EBITDA margin came in at 17.7%, down 158/98bps YoY/QoQ, owing to volatility in input and raw material prices and higher fixed and other overhead expenses. KNR maintained its FY24 revenue at INR 40bn+, with the EBITDA margin decreasing by 200-300bps from the FY23 margin (which was 18.6%). The executable OB as of Sep‘23 stood at INR 56.7bn. With no new orders recorded in H1FY24, KNR has slashed its FY24 order inflow target to INR 30-40bn from INR 40-50bn earlier. The total project pipeline is INR 1trn+, of which INR 900//120/30bn is from NHAI/mining/railways projects. Given the aggressive competition, the company is looking at projects from different segments like irrigation projects from states other than Telangana, railways, mining development, tunnelling, and metro. The balance equity requirement in eight NHAI HAM projects is INR 5.4bn as of Sep’23, of which INR 1/3.1/0.7/0.6bn will be infused in H2FY24/FY25/26/27. At the standalone level, KNR\\'s net debt stood at INR 0.5bn. Given a strong balance sheet, robust execution and likely new order wins in H2FY24, we maintain BUY with an unchanged TP of INR 341/sh (18x Sep-25E EPS).

Ahluwalia Contracts (NS:): Ahluwalia Contracts (AHLU) reported a strong quarter with revenue/EBITDA/APAT beating our estimates by 16.7/5.7/10.2%. EBITDA margin at 10.0% was up 2bps YoY but down 87bps QoQ due to higher volatility in raw material and input prices and higher employee expenses. AHLU maintained its top-line growth of 20% YoY in FY24, with EBITDA margin (incl. other income) expected upwards of 11%. The order book (OB) as of Sep23 stood at INR 120.8bn (~4.3x FY23 revenue), excluding L1 in one private project worth INR 28.4bn (international jewellery park in Mumbai). The OB is well-diversified, with government/private orders comprising 70/30% of OB and West/North/East/Overseas/South regions contributing 36/34/24/4/2% to it. Segment-wise, infrastructure/hospital and institutional are the major drivers, contributing 30/25/24%, followed by residential/commercial contributing 12/8%. 24% of the OB is fixed-price contracts. The total order inflow in FYTD24 has been INR 52.6bn. AHLU has a bid pipeline amounting to INR 25bn and it expects to win new orders worth INR 10bn, apart from L1. Given the recent rally in the stock price and a limited upside to our target price, we maintain our ADD rating on the stock, with an unchanged TP of INR 782 (14x Sep-25E EPS).

KNR ConstructionsOrder Booking Qwaited

KNR reported in-line revenue/EBITDA/APAT at INR 9.4/1.7/1bn, beating our estimates by 9.9/4.8/1.0%. EBITDA margin came in at 17.7%, down 158/98bps YoY/QoQ, owing to volatility in input and raw material prices and higher fixed and other overhead expenses. KNR maintained its FY24 revenue at INR 40bn+, with the EBITDA margin decreasing by 200-300bps from the FY23 margin (which was 18.6%). The executable OB as of Sep‘23 stood at INR 56.7bn. With no new orders recorded in H1FY24, KNR has slashed its FY24 order inflow target to INR 30-40bn from INR 40-50bn earlier. The total project pipeline is INR 1trn+, of which INR 900//120/30bn is from NHAI/mining/railways projects. Given the aggressive competition, the company is looking at projects from different segments like irrigation projects from states other than Telangana, railways, mining development, tunnelling, and metro. The balance equity requirement in eight NHAI HAM projects is INR 5.4bn as of Sep’23, of which INR 1/3.1/0.7/0.6bn will be infused in H2FY24/FY25/26/27. At the standalone level, KNR\\'s net debt stood at INR 0.5bn. Given a strong balance sheet, robust execution and likely new order wins in H2FY24, we maintain BUY with an unchanged TP of INR 341/sh (18x Sep-25E EPS).

• Q2FY24 financial performance: Revenue:INR 9.4bn (+15.4/+1.3% YoY/QoQ, a 9.9% beat). EBITDA: INR 1.7bn (+6.0/-4.0% YoY/QoQ, a 4.8% beat). EBITDA margin: 17.7% (-158/-98bps YoY/QoQ); vs. our estimate of 18.5%, owing to volatility in input and raw material prices and higher fixed and other overhead expenses. Interest cost: INR 58mn (-31.2/+15.2% YoY/QoQ). Depreciation: INR 311mn (-15.2/+9.6% YoY/QoQ). Other Income: INR 50mn (- 33.8/-29.1% YoY/QoQ). Taxes: INR 346mn (-3.6/-5.8% YoY/QoQ). APAT: INR 1bn (+10.0/-9.4% YoY/QoQ, a 1.0% beat). KNR maintained its FY24 revenue of INR 40bn+, with EBITDA margin lower by 200-300bps from FY23 (at 18.6%).

• Order booking awaited; diversification is the key:No new orders were recorded in H1FY24; as a result, the executable OB as of Sep‘23 stood at INR 56.7bn. Captive (HAM project) works constitute 45% of the OB whereas state/central government/other orders constitute 41/12/2%. Geographically, the OB is diversified in southern India with AP & Telangana/Kerala/Karnataka/TN contributing 41/31/16/12%. Business segment-wise, HAM/other roads/irrigation account for 45/27/28% of the OB. KNR is yet to achieve the appointed date for three projects worth INR 17.8bn. Including these three projects, the total OB as of Sep’23 stands at INR 74.5bn (~2.0x FY23 revenue). Given the aggressive competition, the company is looking at projects from different segments like irrigation projects from states other than Telangana, railways, mining development, tunnelling and metro. The total project pipeline is INR 1trn+, of which INR 900/120/30bn is from NHAI/mining/railways projects.

• Robust balance sheet:At the standalone/consolidated level, the gross debt stood at INR 0.8/7.7bn as of Sep23 and the net debt position stood at INR 0.5/6.9bn. KNR has a receivable balance of INR 6.5bn from Telangana irrigation projects and has received INR 1.8bn FYTD24.

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