KNR Constructions Ltd

KNR Constructions Ltd

KNR Constructions

KNR Constructions

KNR Constructions

KNR Constructions

KNR Constructions Listing

KNR Constructions will list today. Grey Market Price is at a discount - However, looking at the firm market, it may recover on listing

Grey Market - Emaar MGF, Reliance Power, KNR Constructions

Future Capital Holding 765 360 to 380


Reliance Power 450 160 to 170


Emaar MGF 610 to 690 110 to 120


J. Kumar Infraprojects 110 to 120 3 to 5


Cords Cable Ind 125 to 135 10 to 12


KNR Construction 170 to 180 Discount


On Mobile Global 425 to 450 40 to 50


Bang Overseas 200 to 207 32 to 35


Shriram EPC 290 to 330 20 to 22


IRB Infrastructure Developers 185 to 220 50 to 55

KNR Constructions Allotment - Subscription Details

KNR Construction Limited - Bid details

Sr.No.	Category			No. of times of total meant for the category
1	Qualified Institutional Buyers (QIBs)			1.3750
1(a)	Foreign Institutional Investors (FIIs)
1(b)	Domestic Financial Institutions(Banks/ Financial Institutions(FIs)/ Insurance Companies)
1(c)	Mutual Funds
1(d)	Others
2	Non Institutional Investors			3.2059
2(a)	Corporates
2(b)	Individuals (Other than RIIs)
2(c)	Others
3	Retail Individual Investors (RIIs)			0.2772
3(a)	Cut Off
3(b)	Price Bids
4	Employee Reservation			0.6113
4(a)	Cut Off
4(b)	Price Bids

KNR Constructions IPO Review

KNR Constructions IPO Review

KNR Constructions - valuations reasonable

KNR Constructions, yet another small construction company aiming to benefit from the vast opportunities in the construction sector and also to scale up its business, intends to raise Rs 133-141 crore through its initial public offer of 78.74 lakh shares at a price band of Rs 170-180 per share.

KNR, which is mainly into construction of roads and having recently diversified into the irrigation & water supply and urban infrastructure, generates about 70 per cent of revenue from southern India. The boom in road construction has helped the company grow its revenue and net profits over the last few years. KNR's turnover has increased from Rs 182 crore in FY 03 to Rs 324 crore in FY07 (CAGR of 15.5 per cent), while its net profit during the same period has grown from Rs 7.11 crore to Rs 20.40 crore (CAGR of 30 per cent).

While growth has been reasonable, it will improve substantially due to a robust order book and better industry outlook. Its order book expanded from Rs 200 crore in FY05 to Rs 1,734 crore (as on November 30, 2008)-- over five times its 2007 revenue, thus providing strong revenue and earning visibility.

Besides, as a part of growth strategy and to support its growing business needs, the company proposes to invest Rs 21.48 crore towards capital equipment followed by Rs 25.20 crore for increasing working capital and Rs 78.34 crore as investment in the build own and transfer (BOT) projects.

The company currently has two BOT road projects worth over Rs 1,040 crore in joint venture with Patel Engineering. KNR, which owns a 40 per cent stake in each of these JVs, will benefit by way of executing the construction work of worth Rs 800 crore besides, an annuity income once the project is completed after two years. The JV is expected to receive a gross annuity of Rs 154 crore per year, after which operating expenses and interest costs will be deducted.

Additionally, post this IPO, KNR's networth would rise from Rs 70.20 crore as on September 2007, to Rs 195 crore. This increase will help company improve its debt:equity at 0.95 times as compared to current ratio of 2.6 times. A higher networth will also help the company in qualifying for larger projects independently and thus, scale up its business going forward.

At the offer price of Rs 170-180, it is priced at 24-25 times its FY07 earnings and 18-19 times its FY08 annualised earnings . The valuations are reasonable considering the peer group companies like Pratibha Industries, Gayatri Projects and Tantia Construction, which trade between 20-25 times FY07 earnings. For H1FY08, KNR reported a net profit of Rs 12.8 crore.

This is expected to be higher at around Rs 19 crore in the second half, as typically, the first half numbers are lower due to monsoon. For the full year, the fully diluted EPS is expected around Rs 10, translating to a PE of 17-18 times. To sum up, a strong order book of over five times its FY07 revenue and to be executed in about 24 months translates in revenue and earnings growth of over 50 per cent over the next two years and thus support valuations.

Issue Opened: January 24, 2008 Issue closes: January 29, 2008

KNR Constructions IPO Review

Investors with a two-year perspective can consider applying to the initial public offer of infrastructure company KNR Constructions. A strong order book, reasonable track record in the industry and ability to forge joint ventures to foray into larger projects are the key positives that provide earnings visibility over the medium term.

At the offer price band of Rs 170-180, the company is valued at 8-9 times its expected per share earnings for FY 2009 on the expanded equity base. The stock’s market capitalisation at the issue price would be about Rs 500 crore. The small market-cap could expose the stock to steep declines if there are any broad market corrections. Investors should, therefore, be willing to hold the stock over a longer time horizon.
Offer details

KNR Constructions is a Hyderabad-based infrastructure company with operations predominantly in the road and highways sector. The company is also present in irrigation and urban water infrastructure segments. It plans to raise Rs 142 crore through this offer. The proceeds will be utilised to invest in capital equipment and finance build-operate-transfer (BOT) projects secured through joint ventures.
Strong order book

The unexecuted portion of the orders in hand is Rs 1,734 crore. This is about 5.4 times the company’s sales for FY 2007.

That a good number of these orders are slotted for completion by FY 2009 provides strong earnings visibility for the next two years.

KNR is also geographically well diversified with state/NHAI projects in Andhra Pradesh, Uttar Pradesh, New Delhi, Assam and Gujarat. While the South accounts for 70 per cent of the order book (as a result of the large size of BOT orders bagged in the region), the rest of the orders are from the East, North-East and the Northern regions.

With the National Highway Development Programme moving to the next phases (Phase IIIA and later IIIB) of road development, KNR’s qualification in projects across the country lends confidence as to its ability to bag bigger orders in the new phases.

While roads remain KNR’s area of focus, it has diversified into irrigation as well as urban water solutions. Although business prospects for these segments remain bright, the company may have to compete with larger/established regional players.
Deriving strength through joint ventures

KNR has steadily moved to implementing larger-sized orders, thus improving its operating profit margins. Its OPMs have grown from 8.3 per cent in 2006 to 15.5 per cent for the half-year ended September 2007. The company’s ability to forge successful joint ventures may have been the key to ramp up the size of orders.

Notable among them is KNR’s association with Patel Engineering for the past seven years. Joint ventures and special purpose vehicle (SPV) projects with Patel Engineering have enabled KNR to not only diversify to other locations but also move to big-ticket orders. Its recent venture into BOT projects in the road space is through SPVs of Patel-KNR. These SPVs, in turn, secure KNR the Engineering Procurement and Construction (EPC) contract for such projects.

Interestingly, in order to forge a cautious entry into this new segment, the company has decided to go in for annuity-based BOT projects, which provide assured payments from the Government. The company plans to bid for toll-based projects too in future. Its well-timed move into the BOT space and the prospects arising from Phase IIIA (which awards only BOT projects) augur well for future orders in this segment.

KNR being a mid-sized company, its cautious approach to new segments through joint ventures with reputed players and annuity-based models minimises the risks typically associated with small companies aiming to qualify for bigger/high-end projects.

KNR’s net profit grew at a compounded annual rate of 42 per cent over the three years ended FY 2007. The company witnessed some slowdown in orders in 2005 before they picked up pace. While the prospects for the next two years, based on orders in hand, appear bright, investors with a longer perspective may have to look out for the company’s ability to scale up the order book beyond this time frame.

Although KNR has comfortably managed its debt obligations, its debt-equity ratio has been high. Post offer, however, the ratio would come to 1.6. An adverse interest rate scenario, though not an immediate risk, could affect the bottom line. At the operating profit level though, the increasing contribution from irrigation and urban water infrastructure projects may bolster earnings.

The offer is open during January 24-29. Axis Bank is the book running lead manager.

KNR Constructions IPO Analysis

KNR Constructions IPO Analysis

Grey Market - Onmobile Global, KNR Constructions, EMAAR MGF

Future Capital Holding 765 370 to 380


Reliance Power 450 150 to 160


Emaar MGF 610 to 690 180 to 200


J. Kumar Infraprojects 110 to 120 5 to 8


Cords Cable Ind. 125 to 135 15 to 20


KNR Construction 170 to 180 12 to 15


On Mobile Global 425 to 450 80 to 90


Bang Overseas 200 to 207 30 to 32

KNR Constructions

Promoted by K Narasimha Reddy, KNR Construction (KNR) designs, engineers, constructs and maintains roads. The company diversified into construction of irrigation and urban water supply projects in 2005.

As part of the National Highway Authority of India’s (NHAI) national highway development NHDP) program, KNR has a seven-year relationship with Patel Engineering as a joint venture (JV) partner. The KNR-Patel JV has won 10 road construction projects including two build-operate-transfer (BOT) annuity projects as a part of NHDP Phase II. Their combined value is Rs 960 crore. Primarily focused on road projects, the company is a late entrant into irrigation and water-supply projects. It won its first irrigation project, in JV with Backbone Projects (51% stake), in 2005. Another irrigation project with a majority stake is in JV with Srilaxmi Engineering Company (49%). The JV with Patel Engineering and others facilitate KNR to move up the value chain with either higher ticket orders or complex projects or new construction verticals by acquiring the much-needed pre-qualification capabilities.

Unexecuted orders spread over 25 projects in various states were Rs 1733.83 crore end November 2007. Clients included NHAI, state government projects funded by multilateral financial institutions such as the World Bank and ADB. The order-mix is heavily skewed towards low-margin roads with about 89.3% of the orders made up of road-sector projects. Irrigation and water-supply projects account for 8.4% and urban-water-infrastructure-management projects 2.3%.

KNR has 90-acre freehold land with significant portion in adjacent districts of Hyderabad in Andhra Pradesh, about nine acres in Karnataka, and 56 cents (about half acre) near Chennai in Tamilnadu.

The IPO proceeds will be used to infuse equity in the SPVs that executes BOT projects, contribute towards unsecured loans taken for the BOT project in Andhra Pradesh, and meet capital expenses for purchase of capital equipment and working capital requirement.

Strengths

Significant successful execution track record and repeat quality orders on continuous basis from reputed clients such as NHAI.

Unexecuted order book, at Rs 1733.82 crore end November 2007, translates into about 5.4 times the operational income of the year ending March 2007 (FY 2007), providing strong revenue visibility.

Weakness

Contribution of low-margin road projects stood at about 95% of consolidated income in FY 2007 and half year ended September 2007. The share of road projects in the unexecuted order book too stood a staggering 89.3%.

About 11 of the current 25 projects that form part of the current order book were won on JV or subcontracted to it by the special purpose vehicle (SPV) or JV partner, with majority coming from JV partner Patel Engineering (PEL).

Valuation

Operational income posted a growth of 116% to Rs 324.42 crore and a 154% jump in restated profit to Rs 13.56 crore in FY 2007 The EPS on adjusted net profit works out Rs 7.3 for FY 2007. The offer price discounts FY 2007 earning by 23.3 times at the lower price band of 170 and 24.7 times at the upper price band of Rs 180. Industry peers such as JMC Projects, C&C Constructions and PBA Infrastructure quote at a PE of 23.9 times, 14.7 times, 12 times of their FY 2007 earning. MSK Projects quotes at a PE of 38.5 times FY 2007 earning

CRISIL IPO grade 3/5 for KNR Constructions

Public issue of 7,874,570 equity shares of face value Rs 10 targeting an issue size in the range of Rs 1,500-Rs 1,750 million.

CRISIL has assigned a CRISIL IPO Grade '3/5' (pronounced 'three on five') to the proposed initial public offer of KNR Constructions Ltd (KNRCL). This grade indicates that the fundamentals of the issue are average, in relation to other listed equity securities in India.

The grading reflects KNRCL's strong track record of project execution in both roads construction and operations and maintenance (O&M). The company has executed many projects as part of the NHAI's NHDP program and has had a 7-year relationship with Patel Engineering as a joint venture partner. The KNR-Patel JV has won 10 road construction projects so far. These include two BOT annuity projects as a part of NHDP Phase II, the combined value of which is Rs 9.6 billion. As of September 2007, KNRCL's order book stood at Rs 16.25 billion, of which the roads sector constituted 89 per cent. The grading is constrained by the relatively underdeveloped state of the company's operating system, which in turn, could constrain its ability to augment the size of its operations. The grading also reflects the uncertainties associated with company's plans to diversify into the power generation and real estate sectors.

About the company
KNRCL is engaged in the business of providing engineering, procurement and construction services in the transportation sector, namely, roads and highways, irrigation and urban water infrastructure management. Roads and highways is the key business of operation, forming 89 per cent of the company's order book as on September 30, 2007. The company has been awarded various projects by both NHAI and state governments.

KNR Constructions Ltd (KNRCL) was incorporated as a public limited company on July 11, 1995. It was promoted by Mr K N Reddy who started as a contractor for small works. KNRCL was primarily a road operation and maintenance company that ventured into road construction 8 years ago and is now diversifying into irrigation and urban sanitation projects. In 2000, KNRCL formed a 50:50 joint venture with Patel Engineering. Since then, the joint venture has bagged several large projects, including two BOT Annuity projects awarded by the NHAI in 2006 and 2007. Projects bagged through joint ventures currently form 74 per cent of the company's total order book.

For the year ended March 31, 2007, KNRCL reported net profits of Rs 198.8 million and turnover of Rs 2,591 million, as compared with net profits of Rs 153.7 million and turnover of Rs 1,261 million in 2005-06.