KNR Constructions rallies 6% on dilution of entire stake in subsidiaries

The board approved dilution of entire stake held in material subsidiary companies, namely KNR Shankarampet Projects, KNR Srirangam Infra and KNR Tirumala Infra

Shares of KNR Constructions (KNRCL) hit a record high of Rs 315 as they rallied 6 per cent on the BSE in intra-day trade on Thursday after the company said its board approved dilution of the entire stake held in material subsidiary companies subject to regulatory approval. The stock surpassed its previous high of Rs 309 touched on August 23, 2021.

The dilution of stake in companies includes KNR Shankarampet Projects Private Limited, KNR Srirangam Infra private Limited and KNR Tirumala Infra Private Limited, the company said.

KNRCL has entered into a Share Purchase Agreement (SPA) with Cube for the above mentioned three special purpose vehicles (SPV's). The company, in an investor presentation, said that in a phased manner it will sell to Cube its entire shareholding in the SPV.

The sale is subject to the shareholding transfer restrictions set out in the concession agreement executed between the National Highways Authority of India (NHAI) and the SPV's and various regulatory and lender’s approvals.

The transaction is contemplated to be completed in two stages. The first stage is scheduled to be completed after the achievement of the Commercial Operation Date (the “COD”) as per the Concession Agreement. The second stage is scheduled to be completed after the expiry of the mandatory lock-in period as per the Concession Agreement, it said.

“Realisation of sale proceeds in the 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,” the rating agency Crisil said in rating rationale.

Crisil Ratings on August 6, 2021, reaffirmed its ratings on the bank facilities of KNRCL at ‘CRISIL AA-/Positive/CRISIL A1+’. The revision in outlook factored in the 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. A strong execution track record along with a healthy order book to revenue ratio of 4.5x times is expected to support revenue growth, the rating agency said.

KNRCL provides engineering, procurement, and construction (EPC) services, primarily for the roads and highways segment. The company has a strong EPC order book of Rs 6,596 crore as of June 30, 2021. The majority of clients are government agencies, including the central government, NHAI, and the public works departments of state governments. KNRCL has diversified in the past few years, with orders executed in irrigation and flyover and bridge construction segments as well.