A. KNR Construction Limited.

Revenue: ₹655.9 cr (▲11.7%) 
Net Profit: ₹155.2 cr (▲108.0%) 


KNR Construction Limited and Shree Cement Limited- Q2 FY21 Concall Summary.


CONSOLIDATED FINANCIALS

  • The revenue from operations stood at ₹655.9 crore as compared to ₹587.1 crore in the previous year same quarter.
  • EBITDA for Q2 FY21 witnessed a growth of 8% YoY to ₹171.1 crore. EBITDA margin stood at 26.1% as against 27% in Q2 FY20.
  • Profit after tax (PAT) for the quarter was ₹155.2 crore v/s ₹74.6 crore in Q2 FY20.
  • PAT (after exceptional items) stood at ₹153.8 crore in Q2 FY21 against ₹83.1 crore in Q2 FY20.
  • In H1 FY21, revenue from operations stood at ₹1,178.4 crore against ₹1,117.8 crore in H2 FY20.
  • EBITDA witnessed a growth of 10% YoY from ₹274.1 crore in H1 FY20 to ₹301.2 crore in H1 FY21 and EBITDA margin expanded by 104 bps YoY to 25.6%. PAT (after exceptional items) in H1 FY21 stood at ₹195.5 crore.
  • Total debt as on 30 September 2020 was ₹800 crore and the debt to equity stands at 0.42 as compared to 0.48 as on 31 March 2020.


STANDALONE FINANCIALS

  • In Q2 FY21, the total revenue grew by 10% YoY to ₹601.2 crore.
  • EBITDA stood at 124.1 crore in Q2 FY21 and the EBITDA margin was at 20.6%.
  • PAT (after exceptional items) was ₹49.7 crore in Q2 FY21 against ₹70.1 crore in Q2 FY20.
  • Revenue from operation in H1 FY21 was up by 7% YoY to ₹1,080.6 crore from ₹1,010.8 crore in H2 FY20. PAT in H1 FY21 was registered as ₹89.6 crore against ₹117.8 crore in H1 FY20.
  • EBITDA saw a marginal growth of 1% YoY to ₹218.4 crore in H1 FY21 and EBITDA margin stood at 20.2%.

INDUSTRY HIGHLIGHTS

  1. In H1 FY21, National Highway Authority of India (NHAI) had awarded road contracts for building 1,330 km of highways worth ₹47,289 crore which is 1.6 times higher of the 828 km awarded in H1 FY20 and 3.5 times higher of the 373 km awarded in H1 FY19. For the awarded projects, NHAI has already completed at least 80%-90% of the land acquisition. It has set a target of awarding 4,500 km of projects during FY21.
  2. NHAI has plans to award contracts worth 2 lakh crore in H2 FY21. It has proactively used digital banking to disperse ~₹10,000 crore to contractors.
  3. After a dismal toll collection in Q1, the road traffic has recovered and toll collection has picked up strongly in Q2. Toll revenue recorded in September 2020 was highest in the calendar year. Despite reduced recovery in passenger traffic movement, toll collection reached 114% of the pre-Covid levels.

OPERATIONAL HIGHLIGHTS

  • Average operational effectiveness in the quarter stood at 80%. During the quarter, the execution was primarily driven by Trichy to Kallagam, Chittor to Mallavaram, Ramsanpalle to Mangloor road project and two of its irrigation projects.
  • Toll collection for KNR Muzaffarpur Barauni project in Q2 FY21 was ₹12 crore.
  • The working capital improved to 44 days as on 30 September 2020 on account of improved receivables.
  • The company was presented with Top Challenger award at the 18th Construction World Annual Awards in October 2020.

ORDER BOOK

  • During the quarter, the company received an order for construction of elevated highway along Avinashi Road in Coimbatore city worth ₹1,157.4 crore from the Government of Tamil Nadu. It is expected to complete in 48 months from the appointment date.
  • As of 30 September, 2020 outstanding order book position of ₹8,554.5 crore was registered.
  • Engineering, procurement and construction (EPC) and hybrid annuity model (HAM) projects constitute 55% of the total order book while the irrigation projects constitute 45%.
  • Client-wise, 69% of the order book is from the third party clients and the remaining 31% came from the captive HAM projects.
  • The non-captive orders (69%) is skewed as 49% from the State Government, 4% from the Central Government and 16% from others.

UPDATE ON PROJECTS

  • There had been delays in collection of dues for the irrigation projects from the Telangana Government as it has diversified its funding towards other essential sectors and services.
  • The total exposure to the Telangana Government projects was ₹740 crore as on 30 September 2020. This includes built, unbuilt and work in progress projects. The company expects a receipt of payment of approximately ₹300 crore from the Telangana Government by the end of November 2020 and the remaining is expected in Q4 FY21.
  • The percentage physical progress as on 30 September 2020 for the company’s 4 HAM projects was: Chittor to Mallavaram at 64%, Ramsanpalle to Mangloor at 56%, Trichy to Kallagam at 50% and Magadi to Somwarpeth at 14%. 
  • On 5 October 2020, the company also received the appointed date for Oddanchatram to Madathukulam project which has ₹920 crore bid project cost (BPC).
  • Out of ₹624.28 crore requirement for all the HAM projects, the company has already invested ₹226.7 crore as on 30 September 2020.

UPDATE ON SALE OF KNR WALAYAR TOLLWAYS PVT LTD

  1. In September 2020 the company completed the sale of 100% stake in KNR Walayar Tollways Private Limited (SPV) to Cube Highways and Infrastructure III Pvt Ltd. at an enterprise value of ₹511.8 crore.
  2. Debt on the project stands at ₹127.1 crore and equity valuation at ₹384.7 crore. Out of the total equity value, the company realized payment of ₹308 crore in the month of September 2020 while the remaining is expected to be realized over the next 2 years.
  3. Around ₹210 crore of the procedure was used to repay the unsecured loan of promoters and the remaining was employed towards the working capital. There has been an exceptional income of ₹85 crore.
  4. The SPV received an arbitration award of ₹170.6 crore from NHAI. Provision of ₹5.2 crore has been made in Q2.

FUTURE ROADMAP

  • Around 80% of the manpower was available in Q2 FY21 and it is expected to return to the earlier levels post the festive season.
  • Sustainable margin is expected to be around 17%-18% and depreciation is expected to rise in the coming quarters.
  • The management plans to complete 3 HAM projects by the next 2 years which will help the company to free up the equity for new projects.
  • Incremental equity requirement stands at ₹240 crore, ₹108 crore and ₹50 crore for the FY21, FY22 and FY23 respectively.
  • The current order book provides visibility of execution over the next 3 years. The project rewarding activity is expected to accelerate in H2 FY21.
  • The company is targeting a further project inflow of ₹2,000-₹2,500 crore in H2 FY21.
  • The sale of the SPV has further strengthened the company’s balance sheet enabling the company to bid for more HAM projects going forward.
  • The ongoing irrigation project is expected to be complete in a year.
  • New set of irrigation projects are expected to start in the next two months. Effects of the same would be reflected in Q4.


B. SHREE CEMENT LIMITED

Revenue: ₹3,249.9 cr (▲8.2%) 
Net Profit: ₹527.9 cr (▲68.5%) 


FINANCIAL PERFORMANCE

  • The revenue from operations was ₹3,249.9 crore in Q2 FY21 as against ₹3,004.5 crore in Q2 FY20 which increased by 8.2% YoY.
  • During the quarter, the net profit grew by 68.5% to ₹527.9 crore from ₹313.3 crore in Q2 FY20.

OPERATIONAL PERFORMANCE

  • The CAPEX plan for the year was ₹1,200-₹1,400 crore.
  • The product mix of various segments during September 2020 were as follows: PPC at 73%, OPC at 25% and PSC at 2%.
  • The company witnessed an incentive backlog of 2-3 years from some of the states. The incentives for the last 3 years were ~₹220-₹250 crore.
  • The cost of petro coke and coal during the quarter had been more than $100 per tonne, while the thermal cost was 8%-10% lower. The landed cost of coal in Q2 FY21 was ₹6,700 per tonne. Going forward, the product mix would be 70:30.
  • The freight cost had declined during the quarter on account of change in lead distance from 473 km during Q1 FY21 to 452 km in Q2 FY21.
  • The sales contribution from various regions are as follows: North ~65%-66%, East at 25% and South at 8%. The utilization levels had increased in the Southern region from 30%-40% in last quarter to 68%- 70% during September 2020. Northern region has a brand sales mix of 65% from trade and 35% from non-trade segments, the eastern region had 100% sales through trade, while the southern region had 85-90% from trade and rest 10% from non-trade segments.
  • The company had waste heat recovery (WHR) plants installed in most of its units with total renewable power capacity at 750 megawatt (MW) comprising of 508 MW in thermal plant, 211 MW in waste heat recovery, 29 MW in wind energy and 2 MW in solar plants. It recently installed 20 MW in the Maharashtra plant.

BUSINESS PERFORMANCE

  • The demand grew by 14.1% YoY from 57.2 lac tonne in Q2 FY20 to 65.3 lac tonne in Q2 FY21. The demand was mainly driven by rural & semi-urban areas and from government infrastructure segments. The urban demand remained subdued because of a lack of orders from big real estate players.
  • The Pune and Odisha plant is on the completion phase and the company would start commissioning from it from December 2020.
  • The Middle East regions (UAE) had been witnessing a decline in demand since a year on account of volatility in oil prices.
  • The trade sales during Q2 FY21 was 76%, the non-trade sales started to improve because of government spending towards the development of infrastructural segments. The premium brands contributed 6.5% towards revenue during Q2 FY21 as against 4% during Q1 FY21 with a production of 4 lac tonne during the quarter.
  • The current capacity from clinker was 25.6 million tonne and grinding capacity was 40 million tonne. The production from clinker during September 2020 was 50.86 million tonne. The clinker ramp-up of 12,000-tonne production is under approval process, which is expected to be approved in 1-2 months, after which the expansion in production would start from that plant.
  • The company’s 46% of power requirements is met by renewable energy resources which it plans to bring up to 50%. The variable cost had been lower.
  • The mines in Gujarat, Andhra Pradesh and Rajasthan is in the planning stage presently, the timeline of commissioning would be declared based on approvals.
  • The operational production units were producing 10,000 ton/day, which had been increased to 14,000 tonne/day. The company underwent various cost optimization measures of ~₹200 crore and significantly reduced its overall power cost.

FUTURE OUTLOOK

  • The company plans to double its capacity to 57 million tonnes in 3 years and 80 million tonne in 6 years, the process of expansion is already started.
  • Employee cost was ₹175 crore during the quarter and the company expects it to be at similar levels going forward.
  • The grinding unit of Orissa would begin to commission soon, while the company is looking to set up a new grinding unit in Bengal.
  • It has a number of projects in its pipeline going forward.



Disclaimer:

This document has been prepared to provide a brief summary of the conference call conducted by the companies and is intended to be used for learning enhancements. Nothing contained herein should be construed as a recommendation on any stock or sector.