India Research Constructionapp.investmentguruindia.com/mobile/researcharticles/2017/January... · 4 January 03, 2017 Construction Exhibit 4: Road awards by Value during FY05-16 (Rs

January 03, 2017

Construction

India Research

SECTOR UPDATE

Company

CMP

(Rs)

TP

(Rs) Rating

Upside/

Downside

KNR

Const. 170 198 Buy 16%

NCC 84 97 Buy 16%

Ahluwalia

Contracts 261 287 Hold 10%

J Kumar

Infra 211 258 Buy 22%

HCC 42 UR UR UR

Simplex

Infra 286 307 Hold 7%

Source: Company, Karvy Stock Broking; Note: UR

Under Review

Change in TP

Company (Rs) Old New

KNR Const. 181 198

NCC 90 97

Ahluwalia

Contracts 269 287

Source: Company, Karvy Stock Broking

Analysts Contact Vijay Goel

022 6176 0828

[email protected]

Order inflows momentum to gain pace We maintain our positive view on Indian Construction sector as we believe

that order inflows momentum to continue with the environment turning

more conducive for execution of projects. Increase in investments towards

Infra focused sectors (like Roads/Highways, Urban Development, Railways,

Irrigation) would continue to drive order inflows for the companies. Also,

the measures taken by Govt. (like one-time fund infusion by NHAI into

stuck road BOT projects, introduction of Hybrid Annuity Model in

awarding of road projects, improvement in process of land acquisition &

other clearances, allowing 100% equity dilution from Concessionaires,

Introduction of InvIT, set up of National Infrastructure Investment Fund

and new arbitration norms) are making the environment more favorable for

execution of the projects. Moreover, reduction in interest costs and

deleveraging would further help the companies in easing working capital

pressure, increasing profitability and improving return ratios.

Roads/Highways, Urban development to drive India Infrastructure story

The total plan expenditure for key Infra focused sectors grew at a muted

CAGR of 1% during FY12-14 while it is expected at 21% CAGR during FY15-

17E. The key Infra focused sectors like Road/Highways & Urban Development

have seen a significant increase in allocation post FY14 (42-44% CAGR during

FY15-17E vs. 2-3% CAGR during FY12-14). Increase in investments in these

sectors would drive the order inflows for construction companies.

Improving profitability to support valuations

We expect significant growth in revenues for the construction companies

under our coverage led by strong order backlog (primarily driven by

Roads/Highways, Urban development & Irrigation) and pick-up in execution

(driven by deleveraging and ease in working capital). We estimate aggregate

revenue CAGR of 20% over FY16-18E for our coverage. Decline in interest cost

would further drive the profitability of the companies like NCC, HCC and

Simplex Infra. We estimate PAT CAGR of 20% over FY16-18E (led by NCC,

HCC). Interest coverage ratio for the companies is expected to improve with

net debt/equity to decline over FY16-18E. We believe that the improving

profitability and gaining balance sheet strength to support valuations.

Top Picks: KNR Construction, NCC and J. Kumar Infra.

Valuation Summary

P/E EV/EBITDA P/BV RoE (%)

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

Ahluwalia Contracts 20.71 17.77 14.56 11.26 9.69 7.91 4.14 3.36 2.76 22.2 20.9 20.8

J Kumar Infra 15.48 14.33 10.63 7.52 6.43 5.28 1.24 1.17 1.08 10.0 8.4 10.6

KNR Construction 14.84 19.07 15.37 15.95 12.84 10.06 0.66 0.56 0.48 24.9 16.0 17.3

HCC 38.42 35.91 21.10 10.02 9.99 8.72 1.75 1.67 1.55 5.2 4.8 7.6

NCC 20.84 17.67 14.80 8.71 7.75 7.00 1.36 1.27 1.20 6.7 7.5 8.3

Simplex Infra 21.38 19.73 10.61 8.20 7.09 6.05 0.92 0.88 0.82 4.4 4.6 8.0

Source: Karvy Stock Broking

2

January 03, 2017

Construction

Public Expenditure remains a key driver of Infrastructure As the private capex recovery is still some time away because of weak corporate

balance sheets, public expenditure has been the key driver for Infra development

in India. The Government allocated an amount of Rs 5500 bn (+15.3% YoY) as the

total Plan Expenditure (~28% of the total expenditure) in FY17 budget. The key

drivers of increase in plan expenditure are Roads transport & Highways,

Railways, Rural Development, Urban development and Railways. Of the budgeted

Rs 5500 bn of plan expenditure, more than 40 % (See Exhibit 2) is focused on

infrastructure development. During Apr-Oct 2016, the total plan spending has

already been 62% of total budgeted amount led by Roads & Urban development.

Exhibit 1: Total Central government expenditure summary

Rs bn FY13 FY14 FY15 FY16RE FY17BE FY17 YoY

Total Expenditure 14103 15594 16637 17854 19781 10.8%

Total Non Plan 9967 11061 12010 13082 14281 9.2%

Total Plan 4136 4533 4626 4772 5500 15.3%

Source: Budget documents, Karvy Stock Broking

Exhibit 2: Plan expenditure details

Rs bn FY16RE FY17BE YoY

Total Plan Expenditure 4772 5500 15.3%

Plan expenditure of major ministries focused on

Infrastructure development

Agriculture & Farmers Welfare 155 204 31.6%

Road Transport & Highways 443 550 24.2%

Rural Development 777 860 10.8%

Urban Development 152 211 39.2%

Railways 320 450 40.6%

Housing and Urban Poverty Alleviation 20 54 176.6%

Total 1865 2329 24.9%

% of total plan expenditure 39.1% 42.3% 8.3%


Exhibit 3: Budget allocation towards infra focused sectors


0

50000

100000

150000

200000

250000

300000

FY10 FY11 FY12 FY13 FY14 FY15 FY16RE FY17BE

Water Resources, River Development and

Ganga RejuvenationDrinking Water and Sanitation

Housing and Urban Poverty Alleviation

Power

Railways

Rural Development

Urban Development

Road Transport & Highways

3

January 03, 2017

Construction

Roads & Highways

Roads & Highways, a key focus area of Govt.

Construction of Roads/Highways (which currently make up ~10% of the total plan

spending of Govt.) have been a key focus area in Infrastructure development as

the total length of highways in India is just ~2% of the total length of roads despite

having major share of goods transportation. The Govt. aims to double the length of

national highways to 200k kms in the next 3-4 years from the current length of

~100k kms with a total capex of ~Rs 5 trn (funding through budgetary allocation,

bonds, monetization of BOT-Toll projects and borrowings).

Total Gross Budgetary Support (GBR) allocation is Rs 550 bn towards Roads

transport & Highways sector for FY17E (includes for both Centre and States). This

is an increase of 24.2% over the revised budgeted amount of Rs 442.7 bn in FY16.

The provision is for expenditure on development of National Highways, including

projects relating to expressways and 6 laning of crowded stretches of Golden

Quadrilateral and 2 laning of highways works under National Highways

Development Project (NHDP). The works are executed by the Public Works

Department of the States/UTs on an agency basis and by the National Highways

Authority of India (NHAI). The total allocation stands at Rs 1.14 trn (+58% YoY)

for FY17E, which includes Rs 593 bn (+112% YoY) as IEBR (Internal & Extra

Budgetary Resources) to NHAI (National Highway Authority of India).

Roads award target of 25000 kms for FY17E highly ambitious Total road awarding target of 25000 kms for FY17E (NHAI + MoRTH), which was

targeted at the start of FY17E, is highly ambitious and unlikely to be achieved. This

target is 147% increase over total FY16 awarding of 10098 kms (4368 kms from

NHAI and 5730 kms from MORTH). The NHAI awarding target stands at 6,631km

for FY17 (worth ~Rs 850bn). This is 52% higher than the NHAIs FY16 awarding of

4368 kms. In July 2016, NHAI actually revised down its FY17E target to 6631 kms

(which was earlier targeted at 15000 kms in Apr 2016). The focus of awarding was

kept on Hybrid Annuity Model (HAM) with ~47% of the total target. The

awarding through BoT (Build-Operate-Transfer) and EPC (Engineering-

Procurement-Construction) was kept at ~20% and ~33% respectively.

The total awarding during YTDFY17 (Apr-Oct 2016) stands at 4433 kms

(NHAI+MORTH) which is down by ~11% YoY (YTDFY16 awarding stood at 5012

kms). The slowdown in pace of awarding activities in FY17 is mainly because of

two reasons: 1) delay in acquisition of land as the awarding authority can only

award a road project when 80% of the land acquisition has been done (as per the

recent reforms) as against earlier trend of 20-30% acquisition of land. 2) Issues

facing by developers regarding financial closure in projects awarding through

Hybrid Annuity Model.

Total awarding likely at ~11000 kms for FY17E Historically, as the trend suggests that 55-60% of the ordering happens in the last 5

months, we expect the total awarding (NHAI + MORTH) of about ~11000 kms in

FY17E (4431 kms done during Apr-Oct 2016). NHAI awards have been at 2598

kms during Apr-Nov 2016 (45% on EPC, 42% on HAM and 13% on BOT). About

~2000 kms of NHAI projects are under the various stages of bidding and likely to

be awarded in next 2 months.

4

January 03, 2017

Construction

Exhibit 4: Road awards by Value during FY05-16 (Rs bn)

Source: NHAI, Karvy Stock Broking

Exhibit 5: Road awards by length during FY05-17E (kms)


Exhibit 6: NHAI road awards mix (EPC-BOT-HAM)


13696 86

335

433

599

94 74

224

684

0

200

400

600

800

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

Award value (Rs bn)

17301219

643

3368

5083

6380

1128 1437

3254

4368

6631

0

1000

2000

3000

4000

5000

6000

7000

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E

Award Length (kms)

19%6% 9%

84%74% 72%

81%94% 100% 100%

91%100% 100%

16%26%

20%

8%

0%

20%

40%

60%

80%

100%

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16

EPC BOT HAM

5

January 03, 2017

Construction

NHDP (National Highway Development Programme): Of the total current

NHDP programme of 48,589 kms, 38,063 kms have already been awarded (27,083

kms have been completed and 10,980 kms are under implementation) and 10,608

kms are yet to be awarded.

Exhibit 7: Status of NHDP & other projects under implementation by NHAI (as on November 30, 2016)

Total

Length (Km.)

Already

4/6Laned (Km.)

Under

Implementation (Km.)

Balance length

for award (Km.)

GQ 5,846 5,846 100% 0 0

NS EW Ph. I & II 7,142 6,506 91% 384 252

NHDP Phase III 11,809 7,193 61% 2,937 1,679

NHDP Phase IV 13,203 3,010 23% 6,244 3,949

NHDP Phase V 6,500 2,494 38% 978 3,028

NHDP Phase VI 1,000 0% 165 835

NHDP Phase VII 700 22 3% 79 599

NHDP Total 46,200 25,071 54% 10,787 10,342

Port Connectivity 435 379 87% 56 0

Others (Ph.-I, Ph.-II & Misc.) 1,844 1,716 93% 210 0

SARDP -NE 110 105 95% 5 0

Total by NHAI 48,589 27,271 56% 11,058 10,342


Exhibit 8: NHAI FY17E award target mix (%)


Exhibit 9: NHAI YTDFY17 (Apr-Nov2016) award mix (%)


33%

19%

47%

EPC

BOT

HAM

45%

13%

42%

EPC

BOT

HAM

6

January 03, 2017

Construction

Exhibit 10: Road Projects targeted for award in FY17 by NHAI

Sr. Project Name NH No. NHDP Length Lane Mode Cost Target

No.

Phase (Km.)

( Rs in bn) Month of

Award

ANDHRA PRADESH

1 Six-Laning of Gundugolanu Rajamundry 5 V 68.3 6 HAM 14.00 Jan-16

2 Six-Laning of Anandapuram-Visakapatnam-

Anakapalli 5 V 62 6 HAM 15.00 Feb-16

Sub Total

130.3

BIHAR

3 Maheshkut-Saharsa-Purnea ( PKG-1) 107 IV 90

EPC

Mar-16

4 Maheshkut-Saharsa-Purnea ( PKG-2) 107 IV 88

EPC

Mar-16

5 Majholi (Junction with NH-57) Charout 527C IV 63.6 2

5.24 Mar-16

(Junction with NH-104)

6 Ganga bridge Mokama 31 III 8.15 6 HAM 9.77 Dec-16

7 Sahibganj-Manihari Section of NH-131A & NH-133B

(including NH-131A NH (O) 21.8 4 HAM 19.05 Jun-16

bridge on river Ganga) & NH-133B

8 Narenpur-Purnea Section NH-131A NH (O) 49 4 HAM 11.04 Jun-16

9 Kishanganj Bypass 31 Non NHDP 15 4

2.41 Mar-16

Sub Total

335.6

CHHATISGARH

10 Raipur-Kodebad

IV 40

EPC 4.56 Jul-16

11 Kodebad-Dhamtar

IV 38.8

EPC 4.51 Jul-16

Sub Total

78.8

GUJARAT

12 2 Lane with paved shoulders of Gadu-Porbander

section NH-8E IV 92 2 BOT - Nov-16

13 4-laning of Porbander-Dwarka section NH-8E IV 118 4 BOT - Nov-16

14 4/6 LANING OF Bhavnagar-Talaja section of NH-8E NH-8E IV 48 4 HAM 8.02 Jul-16

15 Talaja-Mahuva section from km.53.585 to 100.100 NH-8E IV 45.5 4 HAM 6.13 Jun-16

16 Mahuva to Kagavadar Section from km. 100.110 to

139.915 NH-8E IV 40.0 4 HAM 6.00 Jun-16

17 Kagvadar to Una section from km. 139.915 to km.

180.478 NH-8E IV 40.9 4 HAM 5.36 Jun-16

18 Una to Kodinar Section from km. 180.478 to km.

221.610 NH-8E IV 40.9 4 HAM 5.59 Jun-16

19 Kodinar to Veraval Section from km.221.610 to km.

263.000 NH-8E IV 40.8 4 HAM 5.78 Jul-16

20 New Bridge across Varsova Creek ( 4 L, NHDP - V,

2.25 km, Hybrid Annuity) 8 V 2.2 4 HAM 2.46 Jul-16

21 Kamrej - Chalthan ( 6 L, NHDP - V, 16.25 km, EPC) 8 V 16.2 6 EPC 4.26 Jun-16

Sub Total

484.7

HARYANA

22 Punjab/Haryana Border/Jind Section of NH-71 71 III 68 4 BOT 6.67

23 4 laning of Yamunanagar-Saha-Barwala-Panchkula 73 III 19 4 EPC

Sub Total

87

HIMACHAL PRADESH

24 Pandoh - Takoli Section (4L, NHDP - IV, 20km) 21 IV 20 4 HAM 24.78 Aug-16

25 Solan to Kaithlighat Section (4L, NHDP - III, 23km) 22 III 23 4 EPC 8.87 May-16

26 Ner Chowk - Pandoh Section (4L, NHDP - IV,

26.5km) 21 IV 26.5 4 EPC 8.82 Jun-16

27 Kaithlighat - Dhalli section (4L, NHDP - III, 27.5km) 22 III 27.5 4 HAM 11.61 Jun-16

28 Takoli - Kullu section (2L PS, NHDP - IV, 28.7km) 21 III 28.7 4 EPC 3.66 Jun-16

Sub Total

125.7

Source: NHAI

7

January 03, 2017

Construction



No.

Phase (Km.)


Award

JAMMU KASHMIR

29 Ring Road in Jammu City

VII 57 4 EPC

Mar-16

30 Ring Road in Srinagar City

VII 60.9 4 EPC

Mar-16

Sub Total

117.9

JHARKHAND

31 Barhi-Hazaribagh 33 III 41.3 4 EPC 3.24 Jun-16

32 Barhi-Rajauli 31 IV 47.4 4 EPC

Mar-16

33 Govindpur(Raigunj)-Chas-WB Border 32 IV 57 4 EPC 4.58 Jun-16

34 Aurangabad-Bihar/Jharkhand Border 2 V 69.6 6 HAM 10.00 Mar-16

35 Bihar/Jharkhand Border-Barwa Adda 2 V 152.0 6 HAM 28.00 Mar-16

Sub Total

367.3

KERALA

36 Mukkola to Kerela / TN Border 66 (Old No.

47) III 16.2 4 EPC 14.12 Apr-16

Sub Total

16.2

KARNATAKA

37 6-laning of Chitradurga-Hav eri section of NH-4 4 V 151 6 HAM 6.93 Mar-16

38 4 laning of Hospet Bellary Karnataka / AP Border

from km 280.080 to km 375. 63 IVB 95.4 4 EPC 14.28 Aug-16

39 Four laning of Hubli Hospet section of NH-63 from

129.249 to 267 63 IV 143.7 4 EPC 20.37 Jul-16

40 Two/Four laning of Tamil Nadu/Karnataka border to

Bangalore section of NH-209 (km 287.500 to km 458.420) 209 IV 170.9 4 HAM

Jul-16

Sub Total

561.0

MADHYA PRADESH

41 Jhansi- Khajuraho (Package-I) 75&76 III 76.3 4 HAM 16.94 Dec-16

42 Jhansi- Khajuraho (Package-II) 75&76 III 85.4 4 HAM 13.40 Dec-16

43 Bhopal-Sanchi 86Ex III 53.8 2 EPC 3.05 Jun-16

44 Lakhnadon to MP/MH Border(MP-2) 7 III 9.2 4 EPC 0.71 Jun-16

Sub Total

224.7

MAHARASHTRA

45 4-laning of Chikhli-Tarsod (NH-6) 6 IV 62.7 4 HAM 10.72 Sep-16

46 4-laning of Tarsod - Fagne (NH-6) 6 IV 87.3 4 HAM 10.65 Sep-16

47 4-laning of Waranga to Mahagaon (NH-361) 361 IV 67.6 4 HAM 10.84 Dec-16

48 4-laning of Mahagaon to Yeotmal (NH-361) 361 IV 78.2 4 HAM 11.23 Dec-16

49 4-laning of Yeotmal to Wardha (NH-361) 361 IV 70.1 4 HAM 9.70 Dec-16

50 4-laning of Tuljapur to Ausa (NH-361) 361 IV 67.4 4 HAM 9.04 Oct-16

51 4-laning of Solapur-Bijapur (NH-13) 13 III 109.1 4 HAM 13.78 Dec-16

52 4-laning of Aurangabad-Telwadi of NH-211 (Package-I) 211 IV 86.8 4 BOT 12.52 Sep-16

53 4-laning of Bodhre-Dhule section of NH-211 (Package-II) 211 IV 67.2 4 BOT 8.40 Sep-16

54

Improvement of Autram Ghat section (with tunnel)

(from km 376 to km 390) part of Aurangabad-Dhule

section on NH-211

4 IV 6.5 4 EPC 7.00 Mar-16

55 Improvement of Khambataki Ghat section (with tunnel)

on Pune- Satara section of NH-4 4 V 6 4 HAM 7.00 Mar-16

56 4-laning of Ausa to Chakur section 361 IV 58.7 4 HAM 9.52 Dec-16

57 4-laning of Chakur to Loha section 361 IV 62.2 4 HAM 7.78 Dec-16

58 4-laning of Loha to Warnga Phata 361 IV 67.5 4 HAM 12.35 Dec-16

59 4-laning of Butibori-Wardha 361 IV 59.1 4 HAM 8.00 Dec-16

60 Satara - Kagal 4 V 133 6 BOT 24.50 Dec-16

Sub Total

1089.6

Source: NHAI

8

January 03, 2017

Construction



No.

Phase (Km.)


Award

ODISHA

61 Singhara-Binjabahal 6 IV 103.8 4 HAM 10.97 Mar-16

62 Binjabahal-Telebani 6 IV 78.32 4 HAM 10.67 Mar-16

63 Birmitrapur-Rajamunda 6 IV 75.6 4 EPC 8.51 Mar-16

64 Barkote-Rajamunda 23 IV 50 4 EPC - Mar-16

65 Angul-Sambalpur 42 IV 153 4 EPC 22.00 Mar-16

66 Cuttack-Angul 42 III 112 4 HAM 14.63 Mar-16

67 Telebani-Sambalpur (Forest portion) 6 IV 23.5 4 EPC - Mar-16

68 Balasore Chandikhole 5 V 138.2 6 HAM

Mar-16

Sub Total

734.41

PUNJAB

69 6-laning of Kharar-Ludhiana Section 95 V 76 6 HAM 13.88 Jun-16

70 4 lane Laddowal bypass (Linking NH 95

with NH- 1) VII 17 4 HAM 3.65 May-16

71 Elevated Highway from Samrala Chowk to MC

Limit IV 13 4 HAM 8.53 May-16

72 4 laning of Ropar-Phagwara

NHO 80.82 4 HAM 11.70 Jun-16

Sub Total

186.82

RAJASTHAN

73 Bar-Bilara-Jodhpur 112 IV 109.65 2 EPC 4.83 May-16

74 Tonk-Swaimadhopur 116 IV 66.8 2 EPC 3.18 Jun-16

75 Salasar-Nagaur Section 65 IV 119.594 2 HAM 5.57 Jul-16

76 Manoharpur-Dausa 11A IV 62.318 2 EPC 2.38 Jul-16

77 Dausa-Lalsot-Kothoon Section 11A IV 83.453 2 HAM 6.15 Jul-16

78 KUA Package I (Kishangarh-Vijaynagar) 79 V 90 6 BOT 10.32 Jul-16

79 KUA Package-2(Vijaynagar-end of Chittorgarh

bypass) 79 V 124.87 6 BOT 12.40 Jul-16

80 KUA Package-3(End of Chittorgarh bypass-

Udaipur) 76 V 95 6 BOT 11.00 Jul-16

81 KUA Package-4(Debri- Kaya - Udaipur Bypass) 8 V 23.5 6 HAM 6.26 Jun-16

82 KUA Package-5(End of Udaipur bypass-km

333.585-447.385 in 8 V 113.8 6 BOT 12.44 Aug-16

Rajasthan & Gujrat State)

83 KUA Package-6(Km 447.385-540.595) in Gujarat 8 V 93.21 6 BOT 10.77 Aug-16

84 KUA Package-7(km.540.595-555.48 in Gujarat 8 V 14.885 6 EPC

Aug-16

Sub Total

997.08

TAMIL NADU

85 4/6 Laning of Vikravandi Kumbakonam

Thanjavur 45C IV 165 4 EPC 10.90 Feb-16

Sub Total

165

UTTAR PRADESH

86 Aligarh-Kanpur (PKG-1) 91 IV 150 4 EPC

Mar-16

87 Varanasi Ring road(Phase II)

VII 43 4 EPC

Mar-16

88 Varanasi-Hanumanha 7 IV 125 4 EPC

Mar-16

89 4 Laning of Lucknow-Sultanpur

IV 127.4 4 HAM 16.62 Jun-16

90 Chakeri - Allahabad 2 V 131 6 BOT

Mar-16

91 Handia -Varanasi 2 V 72.4 6 HAM

Mar-16

Sub Total

648.8

Source: NHAI

9

January 03, 2017

Construction



No. Phase (Km.) ( Rs in bn) Month of

Award

WEST BENGAL

92 KJR/WB Border-Purliaya-Balarampur-JHR/WB

Border-upto junction 32 IV 83 4 EPC 6.92 Mar-16

with NH-33 at Chandil

93 4 laning of Dhupguri to Salsalabari Section

(Package-II) 31-D II 71.069 4 EPC 9.72 Mar-16

94 Four laning with paved shoulders of NH-6 from

Chichira to Kharagpur 6 IV 55.52 4 EPC 7.67 Jan-16

(Km. 185.150 to Km. 134.400) including

rehabilitation of existing

four lane road from Km 134.400 to Km 129.600

in the State of West

Bengal under NHDP Phase III on EPC mode.

95 Dalkola Bypass 34 Others 5.5 4 EPC 0.79 Jun-16

Sub Total 215.09

EXPRESSWAY (UP)

96 DME:Pkg II UP Border to Dasna 24 VI 19.284 6 HAM 14.51 Jun-16

97 DME Pkg IV New Alignment of DME from

Dasna to Meerut 24 VI 46.056 6 HAM 25.50 Oct-16

Sub Total 65.34

Total 6631 kms

Source: NHAI

Shifting towards Hybrid Annuity to increase competition in EPC Over the last three years, NHAI awarded majority of projects through EPC mode

(over 70% during FY12-14). However, as per the NHAIs FY17E target of 6631 kms,

the authority plans to award projects through the three modes (EPC, BOT and

HAM) with HAM projects forming majority of the awards (47% of total). The

reduction in proportion of EPC projects is expected to increase competition within

this space. In case of HAM projects, which require 60% of the funding by the

developer, we believe that the awarding of these projects will be limited to those

players only having strong balance sheet.

Exhibit 14: NHAI awarding mix FY17E sees a major shift towards HAM


84%74% 72%

33%

100% 100%

16%26% 20%

19%

8%

47%

0%

20%

40%

60%

80%

100%

120%

FY12 FY13 FY14 FY15 FY16 FY17E

EPC BOT HAM

10

January 03, 2017

Construction

Completion target at 15000 kms for FY17E is also not achievable Road completion target was initially set at 15000 kms for FY17E (8000 kms from

NHAI and 7000 kms from MORTH). This 15000 kms of construction target is as

against of 6029 kms completion in FY16 (1987 kms from NHAI and 4042 kms from

MORTH). MoRTH has completed 2357 kms of projects during Apr-Oct 2016 while

NHAI has completed ~1382 kms during Apr-Nov 2016.

The construction activity is expected to pick-up as it remains high during the

period (Oct-Mar). The total completion is expected to be 8000-9000 kms for FY17E

at ~23 km/day (vs target of 15000 kms at ~41 kms/day).

Post the recent de-monetization of old Rs 500/1000 notes by the Government, the

construction activities have been impacted post 8th Nov 2016 as the cash crunch in

the system has been impacting salary payments to workers/labors and transport

drivers resulting in delay in construction activities. However, most of the

companies have been paying salaries in advances to workers and extending cash

support to subcontractors, which has been helping in avoiding too much of

disruption.

Exhibit 15: NHAI Execution trend


Funding of Highway projects

For FY17E, IEBR (Internal Extra Budgetary Resources) of Rs 593 bn was approved

and has been allotted to NHAI for construction and maintenance of National

Highways. Apart from this, NHAI plans to raise Rs 550 bn in FY17E through

bonds & other sources for the construction.

NHAI plans to raise Rs 200 bn from Employees Provident Fund Organization

(EPFO)s bonds in FY17E (Rs100 bn has already been raised from these bonds so

far in FY17). LIC has in-principle agreed to subscribe to its taxable bonds worth up

to Rs 250 bn (not more than Rs 85 bn in one financial year). Moreover, NHAI is

authorized to raise additional Rs 100bn though 54 EC bonds (Rs 50 bn) and masala

bonds (Rs 50 bn on the London Stock Exchange). Another plan of raising Rs 165 bn

through markets and monetization of completed national highway projects will

further augment funds availability for the new projects.

636

1684

2205

2693

1783

2248

2844

1900

1500

1988

3000

0

500

1000

1500

2000

2500

3000

3500

FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17E

NHAI Execution (Kms)

11

January 03, 2017

Construction

National Investment Infrastructure Fund (NIIF) NIIF is Indias maiden sovereign wealth fund. It was created by the government in

December 2015 for enhancing infrastructure financing in the country. The Rs 400

bn NIIF was created as an investment vehicle for funding commercially viable

green field, brown field and stalled projects. The centre plans to invest an initial

corpus of Rs 200 bn which is expected to increase to Rs 400 bn gradually. The

Government's share in the corpus will be 49%. For the balance 51%, NIIF will

solicit equity participation from strategic anchor partners viz.,

Multilateral/bilateral institutions, Sovereign wealth funds, Pension funds and

domestic Public sector enterprises.

Monetization of public funded national highway projects

In Aug 2016, CCEA (Cabinet Committee on Economic Affairs) authorized NHAI to

monetize public funded National Highway projects which are operational and are

generating toll revenues for at least two years after the Commercial Operations

Date (COD) through the Toll Operate Transfer (TOT) Model. The monetization

will be subject to approval of Ministry of Road Transport and Highways (MoRTH)

/ NHAI on a case to case basis.

Around 75 operational NH projects (~4400 kms) completed under public funding

have been preliminarily identified for potential monetization using the TOT

Model.

TOT Model provides an efficient Operation and Maintenance (O&M) framework

requiring reduced involvement of NHAI in projects post construction completion.

Further, the corpus generated from proceeds of such project monetization will be

utilized by the Government to meet its fund requirements regarding future

development and O&M of highways in the country. This could address

development/strengthening of highways in unviable geographies. The Model

would facilitate efficient toll realization through private sector.

For the traditional public funded NH projects i.e. projects constructed under

erstwhile Item Rate Contracts or the current Engineering, Procurement,

Construction (EPC) lump -sum contracts, after completion of construction and

completion of defects liability period of up to four years, the contractors exit the

completed projects and the entire responsibility of regular and periodic

maintenance and day - to - day operations including toll collection comes on to

NHAI. NHAI generally outsources such services through various vendors and

contractors. With continuous growth of the sector, number of public funded

operational highway projects is likely to increase over time. Such completed and

operational public funded projects in some cases have been bid out under the

Operate, Maintain and Transfer (OMT) contracts wherein the selected

concessionaire is required to take care of the project O&M for a period of around 6-

9 years depending on when the major periodic maintenance is due. The OMT

model has only been partially successful. Limitations of the model include

relatively short tenure of O&M obligations for the concessionaire and participation

mostly being restricted to contractors and developers only.

12

January 03, 2017

Construction

Monetization of public funded NH roads is expected to create a framework for

attracting long term institutional investment on the strength of future toll

receivables. Market feedback indicates that certain institutional investors from

outside the country have a long term investment appetite and are keen to

participate in operational highway projects with stable toll revenue outlook. These

investors generally hesitate from taking construction risk but are willing to look at

de-risked Brownfield road assets.

Accordingly, the Model for monetization of public funded, operational NH

projects has been developed to address above needs. Under this Model, also

referred to as the TOT Model, the right of collection of user fee (toll) in respect of

selected operational NH stretches constructed through public funding is proposed

to be assigned for a specific time period, to developers/investors against upfront

payment of a lump-sum amount to the Government. Further, during the tenure of

the contract, the O&M responsibility would remain with the assigned

developer/investor.

13

January 03, 2017

Construction

Urban Development Urban Development is also a key focus area of Govt. (total plan expenditure has

been increased by over 3x over the last 3 years from Rs 64 bn in FY14 to Rs 211 bn

in FY17E). Of the total amount allocated towards urban development in FY17E (Rs

211 bn with 39% YoY increase), over 45% of total allocation is towards

development of Metros (Rs 100 bn). The other focus areas are AMRUT (Atal

Mission for Rejuvenation for Urban Transformation) with Rs 41 bn, Rs 32 bn for

Smart cities and Rs 23 bn for Swatch Bharat Mission.

Exhibit 16: Plan Expenditure for Urban Development

Source: Budget documents, Karvy Stock Broking, Company

Exhibit 17: Details of Urban development plan expenditure

Rs bn FY16RE FY17BE YoY

152 211 39.2%

Metros 93 100 8.0%

AMRUT 26 41 54.7%

Smart Cities 9 32 252.9%

Swachh Bharat Mission 10 23 130.0%

HRIDAY, Projects in NE & Others 13 15 11.6%


Metros: Of the total Rs 100 bn of total plan expenditure budgeted for Metros by Central Govt, ~Rs 55 bn of this is allocated for Delhi Metro.

Exhibit 18: Expenditure details for Metro projects

Rs bn FY17BE for Metros

Delhi Metro 54.9

Chennai Metro 9.6

Bangalore Metro 6.7

Ahmedabad Metro 6.6

Nagpur Metro 6.0

Mumbai Metro 5.0

Kochi Metro 4.5

Lucknow Metro 4.1

Others Metros including grant to DMRC 3

Total 100

Source: Ministry of Urban Development, Karvy Stock Broking

55 60 62 58 64

102

152

211

0

50

100

150

200

250

FY10 FY11 FY12 FY13 FY14 FY15 FY16RE FY17BE

Urban Development

14

January 03, 2017

Construction

The major metro projects under implementation are Mumbai Metro (Line 2, 3 & 7

with total of ~92 kms), Delhi Metro (Phase-3 covering 161 kms), Ahmedabad Metro

(two phases covering ~39 kms and Nagpur metro (two phases covering 38 kms).

Exhibit 19: Major Metro projects (operational & Under Implementation)

Route

Kms Status

Estimated Cost (Rs

bn)

Implementing

Agency

Mumbai Metro Line -1 Versova-Andheri-Ghatkopar 11.4 Operational 23.6 Reliance Infra (on

PPP)

Line -2A Dahisar-DN Nagar 18.5 Under

Implementation 64.1 MMRDA-DMRC

Line -2B DN Nagar-Mankhurd 23.6 Approved 109.9 MMRDA-DMRC

Line -3 Colaba-Bandra-Seepz 33.5 Under

Implementation 244.3 MMRC

Line -4 Wadala-Ghatkopar-Teen Hath Naka-

Kasarwadavli 32.0 Approved 145.5 MMRC

Line -5 Thane-Bhiwandi-Kalyan 24.0 Approved 84.2 MMRDA

Line -6 Lokhandwala-Jogeshwari-Kanjurmarg 14.5 Approved 66.7 MMRDA

Line -7 Andheri East-Dahisar East 16.5 Under

Implementation 62.1 MMRDA

Ahmedabad

Metro

Phase-1 &

2 North-South & East-West Corridor 39

Under

Implementation 107.7 MEGA

Nagpur Metro Line 1 &2 North-South & East-West Corridor 38 Under

Implementation 87 NMRCL

Delhi Metro Phase-1 3 Lines 65 Operational

DMRC

Phase -2 10 lines 125 Operational

DMRC

Phase-3 7 Lines 161 Under

Implementation DMRC

Chennai Metro Phase-1 2 Lines 45 Operational 140 CMRL

Phase-2 3 Lines 88 Planning 360 CMRL

Source: MoUD, Karvy Stock Broking, Company

Mumbai Metro: Line 2A (Dahisar to DN Nagar) order of Rs 13.44 bn has been

awarded to J Kumar Infra in Nov 2016 under two packages. Line-3 (Colaba to

Seepz), orders have been awarded to JKumar-CTRG, HCC-MMS, L&T-STEC,

Dogus-Soma, CEC-ITD Cem-TPL (See Exhibit 20).

Exhibit 20: Mumbai Metro Line-3 contracts details

Mumbai Metro Line 3 Route Contractors Total Value (Rs bn)

Package-1 Cuffe Parade, Vidhan Bhavan, Churchgate, Hutatma chowk L&T-STEC JV 29.9

Package-2 CST Metro, Grant Road, Kalabadevi, Girgaon HCC-MMS JV 25.2

Package-3 Central Metro, Mahalaxmi, Science Museum, Worli, Acharya

Atre Chowk DOGUS-SOMA 25.6

Package-4 Siddhivinayak, Dadar, Sitaladevi CEC-ITD CEM-TPL JV 28.3

Package-5 Dharavi, BKC, Vidyanagari, Santacruz J Kumar-CRTG 28.2

Package-6 Domestic Airport, Sahar Airport, International Airport J Kumar-CRTG 21.2

Package-7 Marol Naka, MIDC, SEEPZ, Aarey Depot L&T-STEC JV 22.8

Total

181.2

Source: MMRC, Karvy Stock Broking

15

January 03, 2017

Construction

Mumbai Metro Line 7 (Andheri East to Dahisar East) orders have been awarded to

NCC (Dahisar East to Thakur Complex/Village), JKumar Infra (Mahindra &

Mahindra to Aarey) & Simplex Infra (New Ashok Nagar to Andheri East).

Maharashtra state cabinet has also approved metro lines 2B and Line 4. The

funding of these metro projects will be through Multilateral/International

institutions loan assistance (JICA, World Bank, Asian Development Bank) &

Central, State Government sharing.

Smart Cities & AMRUT Smart Cities Mission is an urban renewal program by the Govt with a mission to

develop 100 cities all over the country making them citizen friendly and

sustainable. The Ministry of Urban Development is responsible for implementing

the mission in collaboration with the state governments of the respective cities. 60

smart cities have been announced by the government with total expenditure of Rs

1.44 trn (~Rs 2400 per smart city). Of the 60 names, Maharashtra has maximum of 7

cities, followed by TN & Karnataka (6 cities each), MP (5 cities), North East region

(5 cities), Rajasthan, Uttar Pradesh & Punjab (4 cities each), AP and Gujarat (3 cities

each), Odisha (2 cities). The other states like Chhattisgarh, Bihar, Jharkhand, West

Bengal, Telangana, Kerala, Haryana, HP, Delhi, Goa have 1 city each. A total of Rs

980 bn was approved by the Cabinet for development of 100 smart cities and

rejuvenation of 500 others (Rs 480 bn for the Smart Cities mission and a total

funding of Rs 500 bn for the Atal Mission for Rejuvenation and Urban

Transformation (AMRUT) has been approved by the Cabinet. Development of

smart cities & AMRUT would be a major driver of order inflows in Building

segment for the construction companies.

Exhibit 21: List of 60 smart cities

Maharashtra Madhya Pradesh Andhra Pradesh Tamil Nadu

1 Nashik 17 Bhopal 33 VisakhaPatnam 47 Coimbatore

2 Thane 18 Indore 34 Tirupati 48 Chennai

3 Kalyan-Dombivali 19 Jabalpur 35 Kakinada 49 Madurai

4 Solangpur 20 Gwalior 50 Vellore

5 Nagpur 21 Ujjain Gujarat 51 Salem

6 Pune 36 Ahmedabad 52 Thanjavur

7 Aurangabad Rajasthan 37 Surat

22 Jaipur 38 Vododara Uttar Pradesh

Karnataka 23 Udaipur 53 Kanpur

8 Mangaluru 24 Kota North East 54 Lucknow

9 Belagavi 25 Ajmer 39 Agratla 55 Varanasi

10 Shivamogga 40 Imphal 56 Agra

11 HubballiDharwad Punjab and Chandigarh 41 Kohima

12 Tumakuru 26 Ludhiana 42 Namchi Chhattisgarh

13 Davenegere 27 Jalandhar 43 Guwahati 57 Raipur

28 Amritsar

Jharkhand 29 Chandigarh Telangana West Bengal

14 Ranchi 44 Warangal 58 NewTown Kolkata

Orissa

Haryana 30 Bhubaneshwar Bihar Delhi

15 Faridabad 31 Raurkela 45 Bhagalpur 59 New Delhi

Goa Andaman and Nicobar Himachal Pradesh Kerala

16 Panaji 32 Port Blair 46 Dharamshala 60 Kochi

Source: Ministry of Urban Development, Karvy Stock Broking, Company

https://en.wikipedia.org/wiki/Ministry_of_Urban_Developmenthttps://en.wikipedia.org/wiki/Atal_Mission_for_Rejuvenation_and_Urban_Transformationhttps://en.wikipedia.org/wiki/Atal_Mission_for_Rejuvenation_and_Urban_Transformationhttps://en.wikipedia.org/wiki/Atal_Mission_for_Rejuvenation_and_Urban_Transformation

16

January 03, 2017

Construction

Key Measures taken to revive the Construction Sector

Government & NHAI has taken various measures to remove the stumbling blocks

which had been affecting the construction of Highway projects. The key measure

include one-time fund infusion by NHAI into stuck BOT projects, introduction of

Hybrid Annuity Model, improvement in process of land acquisition & other

clearances, allowing 100% equity dilution from Concessionaires, Introduction of

InvIT, set up of NIIF (National Infrastructure Investment Fund) and new

arbitration norms.

One-time fund infusion by NHAI into stuck BOT projects: In May 2015, CCEA

approved the proposal of one-time fund infusion from NHAI. Under this measure,

NHAI would provide financial assistance to stuck BOT projects (only those which

have achieved 50% physical completion). After completion of construction of such

projects, the first charge on the toll receivables of these projects would be ensured

for NHAI through execution of tripartite agreement between the senior lender,

Concessionaire and the Authority.

Introduction of Hybrid Annuity Model (HAM): CCEA approved Hybrid

Annuity Model as one of the modes of delivery for implementing the Highway

Projects in Jan 2016. Under this model, the government provides 40% of the project

cost to the developer to start work while the remaining investment (60%) has to be

made by the developer. Revenue collection is the responsibility of the NHAI and

developers will be paid in annual installments over a specified period of time. An important feature of the HAM is allocation of risks between the partners (Govt. &

developer). Thus, HAM will provide comfort to the stakeholders (NHAI, creditors,

and developer) in reviving stalled road projects.

New Arbitration norms: CCEA considered the proposals of NITI Aayog in its

meeting held in August 2016 regarding new arbitration norms and approved the

same for the revival of construction sector.

In case of claims where the concerned authority has challenged the Arbitral Award

already announced, 75% of the award may be paid by the concerned authority to

the contractor against bank guarantee without prejudice to the final order of the

Court in the matter under challenge. This measure will improve liquidity of

construction players.

NHAI has started disbursing funds (75% of arbitration awards) locked up in

arbitration to contractors/concessionaries. The total quantum of claims submitted

by developers to NHAI is Rs 25 bn, of which Rs 18 bn (75% of Rs 25 bn) is expected

to be released by NHAI to concessionaires in the next couple of weeks. As per the

industry estimates, the total quantum of money in arbitration is Rs 80-90 bn, of

which NHAI would likely to release Rs 60-70 bn (75% of Rs 80-90 bn).

As per the submission letters received, NHAI has released Rs 2697 mn to IRB Infra.

The other players who have submitted claims letters are HCC (~Rs 10 bn), IL&FS

(~Rs 1.5 bn), and AFCONS (~Rs 1.4 bn). HCC would be the biggest beneficiary of

the new arbitration norm as the company has ~Rs 34 bn of arbitration awards in its

favor with various Govt. agencies.

17

January 03, 2017

Construction

Improvement in land acquisition process and regulatory clearances: Under this

new measure regarding land acquisition, NHAI will not award any road project

unless it possesses 80% of land for BOT project and 90% of land for EPC project. It

will significantly reduce the execution period (between awarding and execution).

In another development, Govt. has allowed online submission of applications for

environment and forest approvals to fast-track stalled projects and removes

bottlenecks.

Permit of 100% equity divestment: In June 2015, CCEA approved the proposal of

100% equity divestment for all BOT projects after two years of construction

completion. Under the new amendment to this measure, funds received post

divestment can be used for non-NHAI projects also as opposed to earlier clause of

investment in only NHAI projects.

Infrastructure Investment Trusts (InvITs): InvITs enable investments into the

infrastructure sector by pooling small sums of money from multitude of individual

investors for directly investing in infrastructure so as to return a portion of the

income (after deducting expenditures) to unit holders of InvITs, who pooled in the

money.

BOT developers allowed to reduce stake to 15% (full exit allowed after three years)

in existing operational projects (cash flow generating for at least three years)

through InvIT. This will free up funds for the developer, which can be used for

other projects as well as reduce lenders exposure to these projects.

18

January 03, 2017

Construction

Industry gearing up for a longer up cycle; Key

Investment themes for Infra Sector

Environment turning favorable

We believe that the environment is tuning favorable for Infrastructure

development in India considering the Govt. focus on the sector. Increasing

investments towards the key segments and providing measures to revive the

sector through removing stumbling blocks which had been affecting the sector.

The key measures taken by the govt. are one-time fund infusion by NHAI into

stuck road BOT projects, introduction of Hybrid Annuity Model in awarding of

road projects, improvement in process of land acquisition & other clearances,

allowing 100% equity dilution from Concessionaires, Introduction of InvIT, set up

of NIIF (National Infrastructure Investment Fund) and new arbitration norms.

Orders inflows continues to gather pace

Exhibit:1 shows the CAGR of plan expenditure (by the Govt.) during FY12-14 &

FY15-17E. It clearly shows the significant difference between CAGR of the two

periods. The total plan expenditure for key Infra focused sectors grew at a muted

CAGR of 1% during FY12-14 while it is expected at 21% CAGR during FY15-17E.

The key 4 Infra focused sectors like Road/Highways, Urban Development, Rural

development and Railways (which contributes 38% to the total plan expenditure)

have seen a significant increase in allocation post FY14. Companies like KNR

Constructions, NCC, J.Kumar Infra & Ahluwalia Contracts have focus on

Roads/Highways, Urban Development and Irrigation (Rural Development) would

benefit from the increasing investments in these areas.

Exhibit 22: Significant increase in allocation (FY15-17E)

CAGR

FY12-14 FY15-17E

Road Transport & Highways 3% 42%

Urban Development 2% 44%

Rural Development -4% 13%

Railways 8% 22%


Exhibit 23: Order Book/Bill ratio

Order Book/Bill Ratio

(x FY17e Rev)

KNR Construction 3.8

J. Kumar Infra 6.0

NCC 2.4

Ahluwalia Contracts 3.0

Source: Karvy Stock Broking, Company

Reduction in interest cost We believe that the Infra sector (which had been suffering from high leverage)

would benefit with the reduction in interest rates going ahead. Interest coverage

ratio of the companies is expected to improve which will boost profitability.

Moreover, decline in interest cost (% of EBIT) would help the companies in gaining

interest from investors. Moreover clients balance sheet improvement (on decline

in interest costs) would help in lower working capital and eventually drive more

order inflows and execution of the projects.

19

January 03, 2017

Construction

Improving profitability to support valuations We expect significant growth in revenues for the construction companies under

our coverage led by strong order backlog (primarily driven by Roads/Highways,

Urban development & Irrigation) and pick-up in execution (driven by

deleveraging and ease in working capital). We estimate aggregate revenue CAGR

of 20% over FY16-18E for our coverage. Decline in interest cost would further

drive the profitability of the companies like NCC, HCC and Simplex Infra. We

estimate PAT CAGR of 20% over FY16-18E (led by NCC, HCC). Interest coverage

ratio for the companies is expected to improve with net debt/equity to decline over

FY16-18E. We believe that the improving profitability and gaining balance sheet

strength to support valuations. We continue to prefer KNR Construction, NCC

and J. Kumar Infra.

Exhibit 24: Earnings Matrix

Revenue EBITDA EBITDA margin (%) PAT

Rs mn FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

Ahluwalia Contracts 12,496 14,380 17,116 1,608 1,841 2,225 12.9 12.8 13.0 844 984 1,201

J Kumar Infra 14,086 16,363 20,708 2,484 2,782 3,520 17.6 17.0 17.0 1,032 1,114 1,501

KNR Construction 9,025 13,300 16,934 1,554 1,929 2,455 17.2 14.5 14.5 1,611 1,254 1,555

HCC 40,661 43,181 49,694 8,112 7,816 8,194 19.9 18.1 16.5 850 909 1,548

NCC 83,252 88,342 95,814 7,374 8,039 8,815 8.9 9.1 9.2 2,432 2,629 3,138

Simplex Infra 58,116 58,626 63,831 5,662 6,449 7,149 9.7 11.0 11.2 663 718 1,334


Exhibit 25: Earnings Matrix

EPS (Rs) Net Debt/Equity (x) RoE (%) RoCE (%)

FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

Ahluwalia Contracts 12.6 14.7 17.9 0.1 0.0 0.0 22.2 20.9 20.8 29.4 29.8 31.1

J Kumar Infra 13.6 14.7 19.9 0.1 0.2 0.2 10.0 8.4 10.6 14.5 13.5 15.9

KNR Construction 11.5 8.9 11.1 0.1 0.1 0.1 24.9 16.0 17.3 19.0 20.1 22.1

HCC 1.1 1.2 2.0 2.6 2.2 1.7 5.2 4.8 7.6 12.7 13.3 14.2

NCC 4.0 4.7 5.6 0.5 0.4 0.4 6.7 7.5 8.3 15.7 15.0 15.8

Simplex Infra 13.4 14.5 27.0 2.1 1.9 1.6 4.4 4.6 8.0 10.7 10.7 12.2


Exhibit 26: Valuation matrix

Upside P/E EV/EBITDA P/BV

Rating CMP TP % FY16 FY17E FY18E FY16 FY17E FY18E FY16 FY17E FY18E

Ahluwalia Contracts Hold 261 287 10% 20.71 17.77 14.56 11.26 9.69 7.91 4.14 3.36 2.76

J Kumar Infra Buy 211 258 22% 15.48 14.33 10.63 7.52 6.43 5.28 1.24 1.17 1.08

KNR Construction Buy 170 198 16% 14.84 19.07 15.37 15.95 12.84 10.06 0.66 0.56 0.48

HCC UR 42 UR UR 38.42 35.91 21.10 10.02 9.99 8.72 1.75 1.67 1.55

NCC Buy 84 97 16% 20.84 17.67 14.80 8.71 7.75 7.00 1.36 1.27 1.20

Simplex Infra Hold 286 307 7% 21.38 19.73 10.61 8.20 7.09 6.05 0.92 0.88 0.82

Source: Karvy Stock Broking, Company, Note: UR-Under Review

Infrastructure January 03, 2017

KNR Constructions

Bloomberg: KNRC IN Reuters: KNRL.BO

BUY

India Research

COMPANY UPDATE

Recommendation

CMP: Rs170

Target Price: Rs198

Previous Target Price: Rs181

Upside (%) 16%

Stock Information Market Cap. (Rs bn / US$ mn) 24/351

52-week High/Low (Rs) 188/82

3m ADV (Rs mn /US$ mn) 12/0.2

Beta 0.9

Sensex/ Nifty 26,595/8,180

Share outstanding (mn) 141

Stock Performance (%) 1M 3M 12M YTD

Absolute 9.7 12.1 47.2 (1.6)

Rel. to Sensex 8.2 17.5 44.8 (1.5)

Performance

Source: Bloomberg


022 6176 0828

[email protected]

40

90

140

190

15,000

19,000

23,000

27,000

31,000

Jan

-16

Feb

-16

Mar

-16

May

-16

Jun

-16

Jul-

16

Sep

-16

Oct

-16

No

v-1

6

Dec

-16

Sensex (LHS) KNR Const. (RHS)

Earnings to rebound strongly; Maintain Buy

KNR Constructions (KNR), which is prominently present in roads segment, is

expected to see a significant growth in revenues driven by execution of its new

orders. Post the order inflow of ~Rs 11 bn in H1FY17, the order book stands at

Rs 45.8 bn with book to sales at 3.8x (with roads & Irrigation contributes ~85%

and ~15% respectively) provides high revenue visibility. Though FY16 revenue

has been flattish YoY on account of some delay in execution in new orders,

FY17-18E would see the major impact of execution of new orders received in

FY16. Maintain Buy with a revised target price of Rs 198.

BoT projects status

KNR (in JV with Patel Engineering) has signed a share purchase agreement to sell

entire equity stake in the two road BoT assets to an Essel group company for an

enterprise value of Rs 8.5 bn. This is in-line with companys plan to retain focus

on EPC projects. These two projects have no residual equity value left and have

Rs 7.8 bn of debt. The expected cash accrual of Rs 700 mn will be used for de-

leveraging. Kerala BoT project (KNR Walayar Tollways) was commissioned in

Oct 2015 and the current toll collection is Rs 1.1 mn/day. Bihar BoT (KNR

Muzaffarpur Barauni) received provisional certificate for 75% completion in June

2016 and current toll collection is Rs 0.6 mn/day.

Outlook and Valuation

After a muted revenue growth in FY16, we estimate sharp recovery in revenues

in FY17E (+47% YoY) & FY18E (+27% YoY) led by pick-up in execution of the

recent won orders. EBITDA margins are expected to be at 14.5% in FY17E- 18E,

leading to 26% EBITDA CAGR during the period. Though PAT is expected to

decline by 22% YoY in FY17E (due to higher depreciation and interest), it is

estimated to increase by 24% YoY in FY18E. The implied standalone valuation at

12x P/E on FY18E earnings looks attractive considering strong earnings growth

(on pick-up in execution of large order backlog), strong balance sheet (net D/E at

0.1x) and efficient working capital. We raise our target multiple to 16.5x P/E (from

15x earlier) to value FY18E standalone earnings considering better visibility on

execution and order inflows. We maintain Buy on KNR with a revised target

price of Rs 198 (includes a total of Rs 15/share value to Road BoTs).

Key Financials

Y/E March (Rs mn) FY14 FY15 FY16 FY17E FY18E

Revenue 8,348 8,761 9,025 13,300 16,934

EBITDA 1,258 1,261 1,554 1,929 2,455

EBITDA margin (%) 15.1 14.4 17.2 14.5 14.5

Adj. Net profit 610 730 1,611 1,254 1,555

EPS (Rs) 4.3 5.2 11.5 8.9 11.1

RoE (%) 12.6 13.5 24.9 15.9 16.8

RoCE (%) 14.9 13.3 19.0 20.0 21.5

P/E (x) 39.2 32.7 14.8 19.1 15.4

P/BV (x) 0.9 0.8 0.7 0.6 0.5

EV/EBITDA (x) 19.6 19.6 16.0 12.8 10.1


21

January 03, 2017

KNR Construction

Order Book details

Of the total order book of Rs 45.8 bn, 85% (~Rs 39 bn) is contributed by road

projects with the execution time frame of 30 months. The large part of orders from

Roads segment (~Rs 30 bn) was received post FY16 with half of them were

awarded by NHAI. The operating margins for Road projects are expected to be

14.5%.

The company focuses on EPC projects and is not looking for bidding through

Hybrid Annuity Mode. The management expects an incremental order inflow of

Rs 10-12 bn in FY17E (so far it has received Rs 11bn orders in H1FY17).

Exhibit 1: Order book details

Key Projects Rs mn

Hubli-Hospet Section of NH-63 6,674

Madurai -Ramanathpuram Section of NH-49 6,526

Thiruvananthapuram Bypass 4,985

Rehabilitation and upgradation of Dindigul-Bangalore Road (Pollachi to Coimbatore) 4,149

Upgrading Arcot Villupuram Road 2,787

Top 5 Road Projects 25,121

Other Road Projects 13,871

Irrigation Projects 6,799

Total 45,791

Order Completion as on Sept-16 37.4%


Exhibit 2: Order book trend


Exhibit 3: SOTP Valuation

Particulars Valuation basis Revised Earlier

Standalone Construction business 16.5x FY18E EPS 183 166

Kerala BoT 0.7x P/BV of Invested Equity 13 13

Muzaffarpur Barauni BoT 0.7x P/BV of Invested Equity 2 2

Total 198 181


13

20

13 13

35

42 45

9 9

2

9

30

21 20

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0

10

20

30

40

50

FY12 FY13 FY14 FY15 FY16 FY17E FY18E

Order book Order inflow Order book /sales (RHS)

Rsbn (x)

22

January 03, 2017

KNR Construction

Exhibit 4: Revenue expected at 37% CAGR


Exhibit 5: EBITDA expected to grow 26% CAGR


Exhibit 6: PAT expected at -2% CAGR (Rs mn)


Exhibit 7: Net Debt/equity (x)


Exhibit 8: Cash conversion cycle (days)


Exhibit 9: Return ratios


7,505 6,921 8,348 8,761 9,025

13,300

16,934

(10)

0

10

20

30

40

50

0

3,000

6,000

9,000

12,000

15,000

18,000


Revenue Revenue growth (RHS)

%Rs mn

1,338 1,164 1,258 1,261

1,554

1,929

2,455

10

12

14

16

18

0

500

1,000

1,500

2,000

2,500

3,000


EBITDA EBITDA margin (RHS)

%Rs mn

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

0

500

1000

1500

2000


PAT PAT growth (RHS)

0.0

0.1

0.1

0.2

0.2


Net debt/Equity

11.3 8.5

20.9

41.9

34.7

26.4

37.5

0.0

10.0

20.0

30.0

40.0

50.0


Cash Conversion Cycle

10.0

12.0

14.0

16.0

18.0

20.0

22.0

24.0

26.0

13.0

15.0

17.0

19.0

21.0

FY12 FY13 FY14 FY15 FY16E FY17E FY18E

RoCE (%) RoE (%)

23

January 03, 2017

KNR Construction

Exhibit 10: Profit & Loss statement

Y/E Mar (Rs mn) FY14 FY15 FY16 FY17E FY18E

Net Sales 8,348 8,761 9,025 13,300 16,934

% growth 20.6 5.0 3.0 47.4 27.3

Operating expenditure 7,090 7,500 7,471 11,372 14,479

EBITDA 1,258 1,261 1,554 1,929 2,455

% growth 8.0 0.3 23.2 24.1 27.3

Depreciation 572 541 431 425 529

Other income 155 125 305 315 337

EBIT 841 845 1,428 1,819 2,263

Interest 172 122 126 215 286

PBT 669 723 1,301 1,604 1,977

Tax 59 (7) (310) 350 422

Extra-ord (inc)/exp 0 0 0 0 0

Adjusted PAT 610 730 1,611 1,254 1,555

% growth 17.0 19.7 120.7 (22.2) 24.1


Exhibit 11: Balance sheet


Cash & cash equivalents 112 157 161 559 427

Trade receivables 1,171 1,765 1,294 2,394 3,048

Inventories 341 359 353 625 796

Loans & advances 3,136 3,292 6,178 5,458 6,226

Other assets 1,628 1,638 1,617 2,374 2,988

Investments 400 315 434 944 1,054

Deferred tax assets (Net) 118 239 276 307 349

Fixed Assets 2,640 2,269 2,468 2,743 2,914

Total assets 9,546 10,035 12,781 15,406 17,802

Current liabilities & provisions 1,223 1,014 1,653 2,154 2,737

Other liabilities 2,282 2,368 2,733 3,451 3,835

Debt 908 960 1,125 1,310 1,250

Total liabilities 4,412 4,343 5,511 6,915 7,822

Shareholders' equity 281 281 281 281 281

Reserves & surpluses 4,852 5,411 6,988 8,209 9,699

Shareholders' funds 5,133 5,692 7,270 8,490 9,980

Total Equity and Liabilities 9,546 10,035 12,781 15,406 17,802


24

January 03, 2017

KNR Construction

Exhibit 12: Cash flow statement


PBT 669 723 1,301 1,604 1,977

Depreciation 572 541 431 425 529

Interest/Financial Charges 175 122 126 215 286

Other income (4) (125) (305) (315) (337)

Other non-cash adjustments (9) (138) - - -

Tax paid (235) (114) (246) (350) (422)

Change in working capital 165 (965) (2,621) 57 (1,237)

Cash flow from operating activities 1,332 44 (1,312) 1,636 797

(Incr) / decr in capital expenditure (277) (169) (630) (700) (700)

(Incr) / decr in investments 83 85 (119) (510) (110)

Others (605) 255 349 (234) 34

Cash flow from investing activities (799) 171 (401) (1,444) (776)

Incr / (decr) in borrowings 197 (14) 1,358 485 240

Issuance of equity (0) - 0 - -

Dividend paid (33) (33) (33) (33) (66)

Interest paid (172) (122) (126) (215) (286)

Others (486) - 518 (31) (42)

Cash flow from financing activities (493) (169) 1,717 206 (154)

Net change in cash 40 45 4 398 (133)

Opening Cash 72 112 157 161 559

Closing Cash 112 157 161 559 427


Exhibit 13: Ratios

Y/E Mar (%) FY14 FY15 FY16 FY17E FY18E

EBITDA margin 15.1 14.4 17.2 14.5 14.5

EBIT margin 10.1 9.6 15.8 13.7 13.4

Net profit margin 7.2 8.2 17.3 9.2 9.0

Dividend payout ratio 7.1 4.5 2.0 2.6 4.2

Net debt: equity (x) 0.2 0.1 0.1 0.1 0.1

RoCE 14.9 13.3 19.0 20.0 21.5

RoE 12.6 13.5 24.9 15.9 16.8


Exhibit 14: Valuations

Y/E Mar FY14 FY15 FY16 FY17E FY18E

EPS (Rs) 4.3 5.2 11.5 8.9 11.1

DPS (Rs) 1.0 0.3 0.2 0.2 0.2

Book value per share (Rs) 182.5 202.4 258.5 301.9 354.9

P/E (x) 39.2 32.7 14.8 19.1 15.4

P/BV (x) 0.9 0.8 0.7 0.6 0.5

EV/EBITDA (x) 19.6 19.6 16.0 12.8 10.1

EV/Sales (x) 2.9 2.8 2.7 1.9 1.5



NCC

Bloomberg: NJCC IN Reuters: NGCN.BO

BUY

India Research

COMPANY UPDATE

Recommendation

CMP: Rs84

Target Price: Rs97


Upside (%) 16%


52-week High/Low (Rs) 95.7/55.8


Beta 1.3




Absolute 8.4 1.8 8.3 3.7

Rel. to Sensex 6.9 6.6 6.5 3.8

Performance

Source: Bloomberg


022 6176 0828

[email protected]

1030507090110

15,000

19,000

23,000

27,000

31,000

Jan

-16

Feb

-16

Mar

-16

May

-16

Jun

-16

Jul-

16

Sep

-16

Oct

-16

No

v-1

6

Dec

-16

Sensex (LHS) NCC (RHS)

Execution pick-up, Debt reduction to drive earnings

NCC is well placed to get benefits from improving environment for

Infrastructure companies. Increase in order inflows, debt reduction through

asset monetization would drive the companys earnings going ahead.

Management states that the impact of demonetization is limited as most of the

transactions happen through cheques. Valuation looks attractive considering

strong visibility of earnings rebound. Maintain Buy with revised TP of Rs 97.

Order book at 2.4x FY17E revenues

Post the order inflows of Rs 77.5bn during YTDFY17, the order book has reached

Rs 210 bn which provides strong revenue visibility (book to bill at 2.5x). Buildings

& Roads segment accounts for ~48% of the order book while Water & irrigation

contributes ~34% of order book. Apart from this, the company has also received a

Mining development & Operation (MDO) order of Rs 176 bn (NCCs stake) in

Oct-16 with a concession period of 29 years.

Focus on debt reduction

The gross debt currently stands at Rs 20.6 bn which increased by Rs 1.8 bn in

H1FY17 due to working capital requirements. However, the companys focus is

on reduction in debt through asset monetization in Road BoT, Power and Real

estate. It has already realized Rs 2.7 bn from monetization of power project (Rs 2

bn in FY16 and Rs 0.7 bn in H1FY17). It expects to receive Rs 1 bn from Bangalore

Tollway project and Rs 1-1.5 bn from NCC Urban (Real estate arm). We expect the

gross debt to come down to Rs 16.1 bn by FY18E with net debt/equity at 0.4x.


We expect revenue CAGR at ~7% during FY16-18E with margins to sustain at 9.1-

9.2%. Other income is expected to come down during FY17E-18E due to

monetization of BoT projects. We expect interest cost to decline further on

account of repayment of expensive debt, leading to ~14% PAT CAGR during the

period. Balance sheet remains strong with net debt/equity at 0.4x by FY18E

(Interest coverage ratio expected to improve to 2.2x by FY18E from 1.6x in FY16).

Implied valuation at 10.2x P/E on FY18E standalone earnings looks attractive. We

raise our target multiple to 14x P/E (from 12x earlier) to value FY18E standalone

earnings considering strong earnings visibility and balance sheet improvement.

We maintain our Buy rating on NCC with a revised TP of Rs 97.

Key Financials Y/E March (Rs mn) FY14 FY15 FY16 FY17E FY18E

Revenue 61,173 82,969 83,252 88,342 95,814

EBITDA 4,049 6,493 7,374 8,039 8,815

EBITDA margin (%) 6.6 7.8 8.9 9.1 9.2

Adj. Net profit 405 1,118 2,432 2,629 3,138

EPS (Rs) 0.7 2.0 4.0 4.7 5.6

RoE (%) 1.6 3.9 6.7 7.5 8.3

RoCE (%) 9.6 14.3 15.7 15.0 15.8

P/E (x) 110.9 40.2 20.2 17.1 14.3

P/BV (x) 1.8 1.4 1.3 1.2 1.2

EV/EBITDA (x) 16.7 10.2 8.5 7.6 6.8


26

January 03, 2017

NCC

NCC targets FY17E order inflow of Rs 120 bn; YTDFY17 order

inflows stands at Rs 77 bn NCC targets total order inflow of Rs 120 bn in FY17E (against Rs 73.9 bn in FY16).

During YTDFY17, the company has achieved Rs 77 bn of orders. The company

expects huge order inflows opportunity from irrigation and buildings segments

from Telangana and AP.

Exhibit 1: Order book trend


Alluring Valuations; Maintain Buy We believe that improvement in balance sheet quality, shift towards asset light

model and increase in profitability (on reduction in interest cost) to support

valuations for NCC. The implied valuation at 10.2x P/E on FY18E standalone

earnings looks attractive considering improvement in earnings going ahead.

Though we reduce value of investments in other businesses (International

construction, Reality projects, Road BoTs) to Rs 18/share (from Rs 22/share earlier)

on account of monetization of power assets, we raise our target multiple to 14x P/E

(from 12x earlier) to value FY18E standalone earnings considering strong earnings

visibility and balance sheet improvement. Thus, we maintain Buy rating on NCC

with revised TP of Rs 97.

Exhibit 2: SOTP Valuation

Components Valuation Method Revised Earlier

Standalone Construction 14x FY18E EPS 79 68

Development business 1x Book Value 18 22

Total 97 90


202 186

210 193

181 188

101

48

94 74 82

108

1.5

2.0

2.5

3.0

3.5

0

50

100

150

200

250

FY12 FY13 FY14 FY15 FY16E FY17E

Order book Order inflow Order book /sales (x)

Rsbn (x)

27

January 03, 2017

NCC

Exhibit 3: Revenue expected at 7% CAGR (Rs mn)


Exhibit 4: EBITDA expected to grow 9% CAGR (Rs mn)


Exhibit 5: PAT expected at 19% CAGR




Exhibit 7: Cash conversion cycle (days)


Exhibit 8: Return ratios


(5.0)

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

0

20,000

40,000

60,000

80,000

100,000

120,000



0.0

2.0

4.0

6.0

8.0

10.0

0.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0



(100)

(50)

0

50

100

150

200

0

500

1,000

1,500

2,000

2,500

3,000

3,500



%Rs mn

0.0

0.2

0.4

0.6

0.8

1.0

1.2


Net debt/Equity

95

79 77

62

49

34 36

0

20

40

60

80

100

120



1.5 2.6

1.6

3.9

6.7 7.5 8.3 9.0

10.8 9.6

14.3 15.7 15.0 15.8

0.0

4.0

8.0

12.0

16.0

20.0

FY12 FY13 FY14 FY15 FY16E FY17E FY18E

RoE (%) RoCE (%)

28

January 03, 2017

NCC



Net Sales 61,173 82,969 83,252 88,342 95,814

% growth 6.9 35.6 0.3 6.1 8.5


EBITDA 4,049 6,493 7,374 8,039 8,815

% growth (14.0) 60.4 13.6 9.0 9.6

Depreciation 895 1,118 1,100 1,181 1,251

Other income 1,535 1,951 1,965 1,144 1,023

EBIT 4,689 7,326 8,239 8,002 8,587

Interest 4,660 5,736 5,076 4,076 3,896

Exceptional items 0 0 203 0 0

PBT 29 1,590 3,163 3,926 4,691

Tax (376) 472 731 1,298 1,553

Reported PAT 405 1,118 2,432 2,629 3,138

% growth (35) 176 99 18 19




Cash & cash equivalents 688 1,127 2,158 2,225 680


Inventories 15,988 18,031 16,568 17,667 19,140

Loans & advances 30,739 28,953 28,475 31,720 34,365

Other assets 11,787 14,619 17,204 18,827 19,605

Investments 11,643 11,568 10,313 8,313 8,313

Fixed Assets 7,020 6,401 6,274 5,885 5,434

Total assets 91,275 94,332 94,237 98,771 102,866



Debt 24,746 19,951 18,836 17,200 16,150

Net deferred tax liabilities 125 142 (208) (208) (208)


Shareholders' equity 513 1,112 1,112 1,112 1,112





29

January 03, 2017

NCC



PBT 29 1,590 2,960 3,926 4,691

Depreciation 895 1,118 1,100 1,181 1,251

Interest/Financial Charges 4,660 5,736 5,076 4,076 3,896

Other income (1,392) (1,951) (1,965) (1,144) (1,023)

Other non-cash adjustments 254 156.49 (274.54) - -

Tax paid 170 (615) (731) (1,315) (1,571)

Change in working capital (916) (2,319) (929) (3,055) (3,306)

Cash flow from operating activities 3,699 3,716 5,236 3,669 3,937

(Incr) / decr in capital expenditure (762) (500) (972) (792) (800)

(Incr) / decr in investments (2,635) 75 1,255 2,000 0

Others 1,753 1,951 1,965 1,144 1,023

Cash flow from investing activities (1,644) 1,526 2,247 2,352 223

Incr / (decr) in borrowings 2,496 (4,795) (1,116) (1,636) (1,050)

Issuance of equity - 5,987 0.03 - -

Dividend paid (90) (260) (260) (243) (760)

Interest paid (4,574) (5,736) (5,076) (4,076) (3,896)

Others - - - - -

Cash flow from financing activities (2,167) (4,804) (6,452) (5,954) (5,706)

Net change in cash (112) 439 1,032 67 (1,545)

Opening Cash 800 688 1,127 2,158 2,225

Closing Cash 688 1,127 2,158 2,225 680


Exhibit 12: Ratios


EBITDA margin 6.6 7.8 8.9 9.1 9.2

EBIT margin 7.7 8.8 9.9 9.1 9.0

Net profit margin 0.6 1.3 2.6 2.9 3.2

Dividend payout ratio 14.8 23.3 11.7 9.9 24.8

Net debt: equity (x) 1.0 0.6 0.5 0.4 0.4

Interest/EBIT (x) 99.4 78.3 61.6 50.9 45.4

RoCE 9.6 14.3 15.7 15.0 15.8

RoE 1.6 3.9 6.7 7.5 8.3


Exhibit 13: Valuations

Y/E Mar FY14 FY15 FY16 FY17E FY18E

EPS (Rs) 0.7 2.0 4.0 4.7 5.6

DPS (Rs) 0.2 0.4 0.4 0.4 1.4

Book value per share (Rs) 45.3 57.6 61.3 65.6 69.8

P/E (x) 110.9 40.2 20.2 17.1 14.3

P/BV (x) 1.8 1.4 1.3 1.2 1.2

EV/EBITDA (x) 16.7 10.2 8.5 7.6 6.8

EV/Sales (x) 1.1 0.8 0.8 0.7 0.6



J.Kumar Infraprojects

Bloomberg: JKIL IN Reuters: JKIP.BO

BUY

India Research

COMPANY UPDATE

Recommendation

CMP: Rs211

Target Price: Rs258


Upside (%) 22%


52-week High/Low (Rs) 399/105


Beta 1.2




Absolute 13.2 16.2 (43.6) 3.4

Rel. to Sensex 11.7 21.8 (44.5) 3.6

Performance

Source: Bloomberg


022 6176 0828

[email protected]

100150200250300350400

15,500

19,500

23,500

27,500

31,500

Jan

-16

Feb

-16

Mar

-16

May

-16

Jun

-16

Jul-

16

Sep

-16

Oct

-16

No

v-1

6

Dec

-16

Sensex (LHS) J Kumar Infra

Mumbai Metro orders key to drive growth

J Kumar (JKIL) provides strong earnings visibility backed by the large order-

book of Rs 100 bn (6x FY17 revenues) which will be executed over the next 3-5

years. Execution of Mumbai metro orders (67% of total order book) would be

the key driver going ahead. The company has already started booking revenues

from metro projects (Rs 700 mn in H1FY17) and expects the revenue share from

metros will increase from 2HFY17E onwards. We expect PAT to grow at ~21%

CAGR during FY16-18E. Balance sheet is strong with net D/E at 0.2x and would

help in execution of the existing orders. Maintain Buy with TP of 258.

Order backlog at 6x FY17E revenues

JKIL order book stands at Rs 100 bn which includes orders worth ~Rs 67 bn of

Mumbai metro (line 2A, 3 & 7). The execution time frame of the three projects is

3-5 years. This provides strong revenue visibility (book to bill ratio stands at ~6x

FY17 revenues). The management states that work at all the three metro orders

(line 2A, 3 and 7) is in full swing and expects meaningful contribution to its

revenues in H2FY17. Governing bodies of the state (MMRDA and MMRC) have

also started giving advances to the company for execution of awarded Metro

orders. Though the company wants to focus on execution of current backlog and

wont be aggressive in gaining further orders in future, it intends to bid for

projects like Mumbai Metro line-4 & 2B, Mumbai Trans Harbor Link, Mumbai

Coastal Road project and Tunnel project at Mumbai-Pune expressway.


JKILs current valuation at 10.6x P/E on FY18E earnings looks attractive even after

the recovery in stock price by ~50% since August 2016 (after the steep correction

seen during Jan-Aug 2016 over the BMC issue). We believe that the issue with

BMC is fully priced in and wont impact execution of the current order book. We

value JKILs FY18E earnings at 13x P/E (still ~15% discount to peers like

Ahluwalia and KNR). We believe that the companys strong earnings visibility,

healthy balance sheet and no exposure towards capital intensive BOT projects

provides possibility of further re-rating. We maintain Buy on JKIL with a target

price of Rs 258.

Key Financials Y/E March (Rs mn) FY14 FY15 FY16 FY17E FY18E

Revenue 11,868 13,432 14,086 16,363 20,708

EBITDA 2,058 2,506 2,484 2,782 3,520

EBITDA margin (%) 17.3 18.7 17.6 17.0 17.0

Adj. Net profit 841 944 1,032 1,114 1,501

EPS (Rs) 11.1 12.5 13.6 14.7 19.9

RoE (%) 15.6 13.8 10.0 8.4 10.6

RoCE (%) 19.3 17.6 14.5 13.5 15.9

P/E (x) 19.0 16.9 15.5 14.3 10.6

P/BV (x) 2.8 2.0 1.2 1.2 1.1

EV/EBITDA (x) 9.1 8.0 7.5 6.4 5.3


31

January 03, 2017


Order Book details JKILs order book of Rs 100 bn contains ~Rs 67 bn worth of orders from Mumbai

Metro (line 2, 3 & 7). Metro Line -3 alone contributes 50% of the total order book.

Mumbai Metro Line-3 order: MML-3 project (connecting from Colaba in South

Mumbai to Seepz in Andheri) is the biggest project of Mumbai metro development

plan with total length of 33.5 kms and estimated cost of Rs 244 bn. JKIL has got

two packages in this project (Package-5 with stations at Dharavi, BKC,

Vidyanagari, Santacruz and Package-6 with stations at Domestic Airport, Sahar

Airport, International Airport). The total value of these two packages is ~Rs 50 bn

(~50% of the total JKILs order book) and execution time is 54 months.

Mumbai Metro Line 2A and 7: Line 7 is connecting Andheri East to Dahisar East

with total length of 16.5 kms and estimated cost of Rs 62 bn. JKIL has got Package-

2 in Line-7 (Mahindra & Mahindra to Aarey section) with order value of Rs 3.6 bn.

Line 2A (part of line-2 which is connecting Dahisar to Mankhurd) is connecting

from Dahisar to DN Nagar (Andheri). The total length of this project is 18.5 kms

and estimated cost of Rs 64 bn. JKIL secured order worth Rs 13.5 bn in line-2A

(design and construction of viaduct and 16 elevated stations at Anand Nagar,

Rushi Sankul, IC Colony, Eksar, Don Bosco, Shimpoli, Mahavir Nagar and Kamraj

Nagar, Charkop, Malad Metro, Kasturi Park, Bangur Nagar, Goregaon Metro,

Adarsha Nagar, Shastri Nagar and DN Nagar) in two phases. The execution time

of these two orders is 30 months.

JNPT Project: Work on JNPT project is on full swing and it has booked revenue to

the tune of ~Rs 400 mn in 2QFY17. JNPT order book has been increased to Rs 17 bn

after inclusion of order worth Rs 700 mn for utilities shifting. Management expects

to book revenue worth Rs 2.5 bn in 2HFY17E.

Exhibit 1: Order Book trend


25 37 31 30 32

92

110

17 19

5 14 16

76

38

2.0

3.0

4.0

5.0

6.0

0

20

40

60

80

100

120


Order book Order inflow Order book /sales (x)

Rsbn (x)

32

January 03, 2017


Exhibit 2: Net Sales expected at 21% CAGR (FY16-18E)


Exhibit 3: EBITDA CAGR expected at 19% over FY16-18E


Exhibit 4: PAT expected to grow 21% CAGR




Exhibit 6: Ease in Working Capital


Exhibit 7: Cash Conversion cycle (days)


9,316 10,007 11,868

13,432 14,086 16,363

20,708

(5)

0

5

10

15

20

25

30

0

5,000

10,000

15,000

20,000

25,000



%Rs mn

1,499 1,674

2,058

2,506 2,484 2,782

3,520

15

16

17

18

19

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000



%Rs mn

681 757

841 944

1,032 1,114

1,502

(10)

0

10

20

30

40

50

0

200

400

600

800

1,000

1,200

1,400

1,600



%Rs mn

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8


Net debt/Equity

0.20

0.30

0.40

0.50

0.60

0.70

0.0

5.0

10.0

15.0

20.0

FY12 FY13 FY14 FY15E FY16E FY17E

Net WC Revenue Net WC / Revenue (RHS)

Rsbn (x)

118

153 166

177 187 195

182

0

50

100

150

200

250



33

January 03, 2017




Net Sales 11,868 13,432 14,086 16,363 20,708

% growth 18.6 13.2 4.9 16.2 26.6


EBITDA 2,058 2,506 2,484 2,782 3,520

% growth 23.0 21.7 (0.9) 12.0 26.6

Depreciation 348 474 512 628 734

Other income 108 130 177 191 206

EBIT 1,819 2,163 2,148 2,345 2,993

Interest 576 768 611 706 785

PBT 1,242 1,395 1,538 1,639 2,208

Tax 402 451 506 524 706

Adjusted PAT 841 944 1,032 1,114 1,501

% growth 11.0 12.3 9.3 8.0 34.8




Cash & cash equivalents 1,212 1,548 1,736 2,313 1,177


Inventories 5,658 5,431 4,861 6,054 7,248

Loans & advances 1,420 797 1,040 1,222 1,375

Other assets 1,890 2,193 2,282 2,664 3,371

Investments 23 11 1,797 10 1,000

Fixed Assets 5,007 4,933 4,974 5,196 5,962

Total assets 16,531 16,922 19,646 21,551 23,654



Deferred tax liabilities (net) 71 131 169 229 289

Debt 5,571 5,146 3,540 4,377 4,377


Shareholders' equity 278 322 378 378 378





34

January 03, 2017




PAT 841 944 1,032 1,114 1,502

Add: Depn 348 474 512 628 734

Change in WC (1,187) (1,711) (1,857) (2,608) (564)

Cash Flow from operations 2 (293) (313) (866) 1,672

Capex (2,254) (399) (553) (850) (1,500)

Change in Investments (22) 12 (1,786) 1,787 (990)

Deff tax liab 19 61 38 60 60

Cash flow from investing (2,256) (327) (2,301) 997 (2,430)

Change in equity 0 44 56 0 0

Change in debt 2,471 (238) (1,109) 800 0

dividend paid (122) (151) (89) (354) (378)

Others 0 1,301 3,943 0 0

Cash flow from financing 2,349 956 2,802 446 (378)

Net Cash Flow 94 336 188 577 (1,136)

Cash at the beginning 1,119 1,212 1,548 1,736 2,313

Cash at the end 1,212 1,548 1,736 2,313 1,177


Exhibit 11: Ratios


EBITDA margin 17.3 18.7 17.6 17.0 17.0

EBIT ma

Documents

India Research Constructionapp.investmentguruindia.com/mobile/researcharticles/2017/January... · 4 January 03, 2017 Construction Exhibit 4: Road awards by Value during FY05-16 (Rs