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Concerns over growth are overstated

KNR Constructions, infrastructure sector, CAGR, HAM projects

KNR Constructions (KNR) has the rare distinction of being a wealth creator in India s beleaguered infrastructure sector. This feat has been underpinned by the company s sustained growth and disciplined capital allocation. Besides capturing higher share of the industry s revenue pool, the gain has been much higher at the net profit level a testimony to KNR s strong fundamentals. However, the recent correction has raised investors concerns on growth and its sustainability.

In our view, these concerns are overdone as current order book imparts 3 years revenue visibility and we envisage this to translate into robust revenue and Ebitda growth in FY20e and FY21e. Moreover, our deep dive in KNR s historical performance across parameters like Mcap/order book, Mcap/revenue, EV/Ebitda and P/E indicates attractive valuations.

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Robust revenue spurt over FY20-21e: We estimate Ebitda margin to settle in the 16-17% range and Ebitda to post 12% CAGR over FY18-21e. However, due to higher tax outgo, net profit is likely to be flat over FY18-21E.

Valuations: The standalone EPC business is trading at 12x FY19e and 10x FY20e EPS. To remain conservative, we have not considered any contribution from the NPV of new HAM projects. We reiterate Buy with SOTP-based TP of Rs 290.