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Shares of KNR Constructions hit a record high of Rs 402.50, as they surged 19 per cent on the BSE in Thursday’s intra-day trade amid heavy volumes on healthy outlook. In the past two days, the stock of the engineering, procurement and construction (EPC) services company has rallied 35 per cent. In the past three weeks it has zoomed 58 per cent.
The average trading volumes at the counter nearly doubled with a combined 11.12 million equity shares representing 3.95 per cent of total equity of KNR Constructions had changed hands on the NSE and BSE till 11:26 am. In comparison, the S&P BSE Sensex was up 1.1 per cent at 75,212.
The government has been emphasising infrastructure development through various initiatives such as National Infrastructure pipeline (NIP), Make in India, Smart cities mission, PM Gati Shakti with a view to upgrade existing infrastructure and develop new projects across sectors like transportation, energy, water and housing.
KNR is a leading player in the country’s infrastructure sector, where it mainly focuses on providing infrastructure services for Highways, Flyovers &Bridges, and Irrigation sectors. It participates in all the formats of Bids including Item Rate Contracts, EPC Contracts, BOT (Toll/ Annuity), and HAM mode.
KNR‘s name is reckoned as reputed developer of Highways in HAMs (Hybrid Annuity Model) BOT (build, operate, transfer), Annuity Models. KNR, developer of 2 BoT, 2 Annuity projects and 11 HAM projects of Highways in Telangana, Andhra Pradesh, Karnataka, Tamilnadu, Kerala and Bihar states.
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The Union Budget 2024-25 increased the Road sector Capex outlay by 11 per cent, thereby providing larger opportunities for companies such as KNR. Further diversification into other segments bodes well for the company. However, delay in execution of irrigation projects and new orders at lower margin owing to aggressive bidding by developers endangers its future growth prospect, according to analysts.
As of March 31, 2024, the company has an outstanding order book position of Rs 5,305 crore, which gives revenue visibility for the next 1.5-2 years. EPC Road Projects and HAM projects constitute 60 per cent of the total order book, while irrigation projects constitute the remaining 40 per cent. Recently, the company won 2 projects worth Rs 1,200 crore which is not included in the books (including that orderbook position worth Rs 6,505 crore).
However, with a strong bidding pipeline and better bidding strategy, the management expects an order inflow of Rs 2,000-2,500 crore in Q1FY25 and total order inflow of Rs 5,000-6,000 crore from road & other projects in FY25 which shall keep its order book healthy moving ahead.
Although the company’s main focus will be HAM projects, it is looking to diversify to other segments such as Railways, Mining, Solar, Tunnel, Power & Power transmission and Urban Infra to keep the revenue stream unaffected. Apart from the road segment, it is working on forging an agreement with others. With newer opportunities emerging in various infra-related sectors, further diversification strategy augurs well for the company, analysts at Axis Securities said.
Given a robust order pipeline and a strategic focus on expanding into new segments and markets, KNR aims to significantly enhance its order book. Additionally, considering the slow pace of awarding contracts by National Highways Authority of India (NHAI), the company is exploring partnerships for BOT projects and diversification into non-road segments, Motilal Oswal Financial Services (MOFSL) had said in its result update.
The tender pipeline remains robust with strong order flows expected post elections. The company is venturing into non-road segments such as metro and water projects to increase its addressable market. Execution is expected to flattish in FY25 with strong growth in FY26. The brokerage firm expects 11 per cent CAGR in revenue over FY24-26. EBITDA margin is expected to be 17-18 per cent, MOFSL said.
