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Motilal Oswal
KNR Constructions (Buy)
Target: ₹310
CMP: ₹258
KNR Constructions has completed the sale of the Walayar road project to Cube Highways at an enterprise value of ₹510 crore. Debt on the project stands at ₹130 crore. Thus, the deal’s equity value is estimated to be ₹380 crore.
While this is almost in line with the announced deal value in Jan’20, part of the proceeds is subject to the fulfilment of certain conditions. In lieu of an equity value of ₹380 crore, KNR is likely to immediately realise a payment of ₹310 crore, while the remaining would flow in over the next two years.
Further, NHAI claims and other governmental instrumentalities amount to ₹170 crore – a pass-through to KNR as and when realised. We are yet to factor in any arbitration proceeds in our model. Any such realisation could further boost the balance sheet.
Despite the recent increase in receivables, we believe KNR’s strong balance sheet gives it a key competitive advantage v/s peers: in bidding for newer projects and in terms of strong execution despite financing challenges in the sector – as the dependency on bank financing is minimal. We maintain our Buy rating, with higher TP of ₹310 (prior: ₹295).
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