KNR Constructions gains 5% as CRISIL revises rating outlook to positive

Shares of KNR Constructions (KNRCL) rose 5 per cent to Rs 254.35 on the BSE in intra-day trade on Thursday after CRISIL Ratings revised its outlook on the long-term bank facilities of the company to 'Positive' from 'Stable' and reaffirmed the rating at 'CRISIL AA-'. The stock of the construction and engineering company had hit a 52-week high of Rs 260 on June 30, 2021.

The revision in outlook factors in expected improvement in scale of operations in KNRCL’s business risk profile with the sustenance of revenue growth of over 15 per cent annually in the medium term while maintaining its healthy financial risk profile, CRISIL said in a rating rationale.

"The strong execution record along with healthy order book (approximately Rs 11,650 crore as of June 2021) to revenue ratio of 4.5x times is expected to support revenue growth. Operating income reported a healthy growth of 20 per cent in fiscal 2021 despite the lockdowns imposed by the government to curb the spread of the pandemic in the first half of the year. This was supported by the execution of orders from the irrigation segment which is a lesser labour intensive work. Further, operating margin remained at healthy levels of 20 per cent and is expected to sustain in the future as well," the rating agency added.

KNRCL's order pipeline is at approximately Rs 11,650 crore as on June 2021. The outstanding order to revenue ratio is around 4.5 times, providing strong revenue visibility over the medium term, CRISIL said. Around 75 per cent of the orders are from the road segment and the remaining are from the irrigation segment. Of the road orders, hybrid annuity model (HAM) and engineering, procurement and construction (EPC) orders account for 48 per cent and 27 per cent, respectively.

KNRCL has entered an agreement for the sale of three of its HAM projects. "Realisation of sale proceeds in next 6-12 months with completion of these HAM assets this fiscal is expected to keep the dependence on borrowing low and help the company sustain its healthy financial profile. Timely conclusion of sale transaction of HAM projects in fiscal 2022 will remain a key monitorable," CRISIL further said.