KNR CONSTRUCTION

Riding Centre’s infra thrust

KNR Construction has emerged as a unique multi-domain infrastructure project development company in EPC (engineering, procurement and construction) services across fast-growing sectors like roads and highways, irrigation and urban water infrastructure management. The ISO 9001-2000 certified company has executed infrastructure projects independently as well as through joint ventures. As on date, it has over 20 projects on hand across India in Arunachal Pradesh, Bihar, Madhya Pradesh, Andhra Pradesh, Karnataka, Kerala and Tamil Nadu. The company has the ability to bid for, execute and implement medium and large projects in various infrastructure segments. It is now planning to foray into new business areas while strengthening its existing business activities and investing in infrastructure. This is an excellent investment avenue as its future prospects are highly promising.

Consider:

• The company employs a backward integration model powered by a wide range of equipment assets and in-house quarry mines, with minimal sub-contracting. This, in turn, has enabled it to enjoy good EBITDA margins of 14 to 15 per cent and PAT margins of 7 to 7.5 per cent during the last five years.
• The company has been able to build up a robust order book. The strong order book of Rs 7,117.9 crore (Rs 4,088.8 crore for 5 road projects and Rs 3,109.1 crore in the irrigation sector) as on April 30, 2021 has taken the total order book to Rs 11,400 crore, including L&T orders of Rs 4,320 crore. This provides visibility of 3 to 4 years. There are 4 to 5 more process bids that are underway – each of Rs 7,000 crore — in fiscal 2022. The order book comprises (a) an elevated highway along Avinashi Road in Coimbatore City – EPC for Rs 989.6 crore, (b) Magadi to Somwarpeth project — a HAM (hybrid annuity model) for Rs 634.4 crore, (c) Chevyarpesha Panayur Road – EPC for Rs 539 crore, (d) Oddanchatram to Modathukulam project – HAM for Rs 468.8 crore, (e) Trichy Tokallgram project – HAM for Rs 263.1 crore, (f) Other road projects for Rs 1,139 crore and (g) Irrigation projects for Rs 3,109.1 crore.
• Many more projects are lined up, which include the Palamal Irrigation Project (expected to start in the first half of 2022), the Habi Hotspot (to be completed in the current year), a recent LOA of six-laning of Ramanattu Kara junction of Valanchery bypass section of NH66 with a bid price of Rs 1,745 crore, and a recent LOA of sixlaning from the start of Valanchary bypass with a bid price of Rs 1,595 crore.
• Going ahead, the flow of orders for KNRCL will continue unabated as the government is keen to develop infrastructure at a fast pace. The government’s focus on the development of health institutions and urban infrastructure will be continually sustained in the coming years. The Railways have been the other major driver for the EPC segment, which has always managed to attract higher budgetary allocations. These segments are likely to further get a push in the coming years as the government plans health, education, Smart Cities and Housing for All projects. Further, FDI in India in the infra sector is less than 1 per cent of the GDP, compared to 2.4 per cent in China and 1.8 per cent in Brazil. Thus, the future prospects for KNRCL are all the more bright going ahead.

The company has been steadily growing on the financial front. During the last 10 years, its revenues have expanded from Rs 899 crore in fiscal 2010 to Rs 2,904 crore in fiscal 2021, with the net profit zooming from Rs 66 crore to Rs 473 crore. Within the next five years, the company’s sales turnover is expected to cross the Rs 5,000-crore mark, with a corresponding improvement in earnings.

With the ongoing development in the entire infra space, a strong and diversified order book position, efficient execution prowess, an asset monetization plan and a clean balance sheet, the company is expected to go from strength to strength. The stock is worth including in the portfolio of every smart investor.

CONSOLIDATED PERFORMANCE INDICATORS (Rs. in crore)

PENNAR INDUSTRIES

Bouncing back on steel strengths

Hyderabad-headquartered Pennar Industries is a diversified engineering company with end-to-end capabilities. It is a leading domestic player in industrial high-precision engineering steel components for the organized sector, specialising in the development of critical safety and highperformance components for the domestic and international markets. After a severe setback, the company is on the rebound and its prospects ahead are quite encouraging.

Consider:

• The company was administered a body blow by the pandemic and sales declined from Rs 2,116 crore in fiscal 2019 to Rs 2,097 crore in fiscal 2020 and further to Rs 1,517 crore in fiscal 2021, with net profit slumping from Rs 52 crore to just Rs 89 lakh in this period. During the last 3 years, the company’s earnings per share have shrunk by 27 per cent per year. Shareholders have been deprived of returns on their investment as no dividend has been declared for the last seven years. However, with the impact of the pandemic on the wane and Pennar opening all its manufacturing units and offices in India as per Covid protocols, the company has re-entered the growth path.
• With demand for the company’s products rising, its order book is getting bigger. During the second half of 2021, it has already bagged orders worth Rs 571 crore across its various business verticals. The pre-engineered building vertical received orders for construction manufacturing facilities, warehouses, solar PV modules and structural steel chiller rooms from customers like Amazon, Amyraah Properties, Trident, UTCl and Toyo. The current order book is quite healthy. Interestingly, these orders are across the company’s various business verticals. The Railway vertical has received orders from GE, ICF, Railtech, SCR, Texmaco and TT Metal for Rs 95 crore. The industrial components vertical has orders from Eonersion, Endurance Yamaha, Ashok Leyland, Wabco and Tecumseh. The enviro vertical has received orders from the Department of Atomic Energy, among others. The energy vertical has received orders from Vivan Solar, MB Green Energy, Axitech Energy, Heyday Ventures and Impulse Green Energy. The tubes and steel vertical has received orders from its existing customers, including Thermax, Adani Green Energy, L&T Solar and India Cements. What is more, Pennar’s US subsidiary Pennar Global Inc has booked orders worth Rs 223 crore.
• The company has received the green signal from the National Company Law Tribunal, Hyderabad for merger of its subsidiary, Pennar Engineering Building Systems and Pennar Environ, with itself. This merger is expected to create a leaner group structure and result in better synergies, optimization costs and fund utilization. It is likely to result in Pennar having a better capital structure, pooled resources and synchronized growth plans. All this is eventually expected to lead to focused growth, higher profitability and shareholder value creation.
• The company has acquired One-Works BIM Technologies, which is engaged in supporting clients through technical information, modelling management and data collection. It deals in BD digital building information modelling. Its services include developing, modeling, converting and mapping of buildings with seamless integration of buildings from the engineering and construction sector. The acquisition is expected to bring in technical strengths in building information modelling management and data.

The company is turning the corner if the performance during Q2 FY2022 is any indication. With net revenues during the July-September quarter amounting to Rs 554.7 crore as against Rs 30.4 crore in the corresponding quarter last year, the company has earned a bumper net profit of Rs 8.12 crore as compared to a paltry Rs 60 lakh in the same period last year. Prospects ahead are considered highly encouraging.

PERFORMANCE INDICATORS (Rs. in crore)