The stocks of the construction and engineering company were trading at its highest level since September 6, 2018. In the past two months, it rallied 32% as compared to a 7.5% rise in the S&P BSE Sensex.
The company had an order book of Rs 58.1 billion (3.0x of FY18 revenue) at end of the September 2018. It forayed into the development of five HAM (Hybrid Annuity Mode) projects, which entail engineering, procurement and construction revenue of Rs 39.8 billion (included in the order book).
India Ratings and Research (Ind-Ra) on December 12, had revised KNRCL’s outlook to Positive from Stable while affirming its long-term issuer rating at ‘IND A+’.
The positive outlook reflects a disciplined build-up of KNRCL’s order book, which is likely to result in sustained growth momentum and IndRa’s expectation of continued strong financial profile over the medium-term.
Although the agency expects revenue growth to remain subdued in FY19 on account of a muted growth in the order book, the revenue trajectory is likely to be healthy from FY20 on the execution of HAM projects from end-FY19. Further, the company expects to participate in the tendering process for orders of around Rs 20 billion until end-FY19, which is likely to add to further growth in revenue over FY20-FY22.
“A sustained increase in the revenue and order intake as reflected in a stable order book to revenue ratio, while maintaining EBITDA margins at existing levels and/or achieving segmental and geographical diversification while maintaining the credit profile could lead to a positive rating action,” the rating agency said.
“The company’s growth would return once its hybrid annuity portfolio is “appointed” (four expected shortly). We see inspiring growth in FY20 to make the expected subdued revenue growth in FY19. It’s heartening to see a further shortening of the cash-conversion cycle; at 25 days it is indeed among the best and clearly exemplifies a sound business strategy at work. A well-set balance sheet, proven execution capabilities and de-risking efforts for its hybrid annuity portfolio support our preference for KNR,” analysts at Anand Rathi Share and Stock Brokers said in company update.
“Though order book (incl. L1)/TTM revenue currently stands at 2.9x, we expect a meaningful ramp-up in revenues from FY20 only as land acquisition by National Highway Authority of India (NHAI) for the four HAM projects may delay the appointed dates to Dec’18 (for two projects) and 4QFY19 (for two projects),” according to Equirus Securities.
Though ramp-ups from existing order book may happen from FY20, we believe the stock holds limited downside potential from current levels, even as some time correction cannot be ruled out in the near term, analysts at brokerage firm said in result update.
At 10:15 am, KNRCL was trading 6% higher at Rs 219 on BSE, as compared to a 0.58% rise in the S&P BSE Sensex. The trading volumes on the counter more than doubled with a combined 787,148 equity shares changed hands on the BSE and NSE so far.
Thus far in the calendar year 2018, the stock has underperformed the market by falling 32%, against a 5% gain in the benchmark index.