Ahluwalia Contracts, KNR Constructions Q2 Results Review - HDFC Securities

HDFC Securities Institutional Equities

Ahluwalia Contracts - Execution picking up

Ahluwalia Contracts India Ltd. reported a strong quarter with revenue / Ebitda /adjusted profit after tax beating our estimates by 16.7/5.7/10.2%. Ebitda margin at 10.0% was up 2 basis points YoY but down 87 bps QoQ due to higher volatility in raw material and input prices and higher employee expenses.

Ahluwalia Contracts maintained its top-line growth of 20% YoY in FY24, with Ebitda margin (including other income) expected upwards of 11%. The order book as of September 2023 stood at Rs 120.8 billion (~4.3 times FY23 revenue), excluding level-one in one private project worth Rs 28.4 billion (international jewellery park in Mumbai).

The order book is welldiversified, with government/private orders comprising 70/30% of order book and West/North/East/Overseas/South regions contributing 36/34/24/4/2% to it. Segment-wise, infrastructure / hospital and institutional are the major drivers, contributing 30/25/24%, followed by residential/commercial contributing 12/8%. 24% of the order book is fixed-price contracts.

The total order inflow in FYTD24 has been Rs 52.6 billion. Ahluwalia Contracts has a bid pipeline amounting to Rs 25 billion and it expects to win new orders worth Rs 10 billion, apart from level one.

Given the recent rally in the stock price and a limited upside to our target price, we maintain our 'Add' rating on the stock, with an unchanged target price of Rs 782 (14 times Sep-25E earnings per share).

KNR Construction - Order booking awaited

KNR Construction Ltd. reported in-line revenue/Ebitda/adjusted profit after tax at Rs 9.4/1.7/1 billion, beating our estimates by 9.9/4.8/1.0%. Ebitda margin came in at 17.7%, down 158/98 basis points YoY/QoQ, owing to volatility in input and raw material prices and higher fixed and other overhead expenses.

KNR maintained its FY24 revenue at Rs 40 billion plus, with the Ebitda margin decreasing by 200-300 bps from the FY23 margin (which was 18.6%).

The executable order book as of Sep-23 stood at Rs 56.7 billion. With no new orders recorded in H1 FY24, KNR has slashed its FY24 order inflow target to Rs 30-40 billion from Rs 40-50bn earlier. The total project pipeline is Rs 1 trillion plus, of which Rs 900//120/30 billion is from National Highway Authority of India/mining/railways projects.

Given the aggressive competition, the company is looking at projects from different segments like irrigation projects from states other than Telangana, railways, mining development, tunnelling, and metro.

The balance equity requirement in eight NHAI hybrid annuity model projects is Rs 5.4 billion as of Sep-23, of which Rs 1/3.1/0.7/0.6 billion will be infused in H2 FY24/FY25/26/27.

At the standalone level, KNR's net debt stood at Rs 0.5 billion. Given a strong balance sheet, robust execution and likely new order wins in H2 FY24, we maintain 'Buy' with an unchanged target price of Rs 341/share (18 times Sep-25E EPS).

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