KNR Constructions Limited (532942) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to KNR Constructions Limited Q1 FY '27 Earnings Conference Call. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. K. Venkata Rama Rao, General Manager, Finance and Accounts, KNR Constructions Limited. Thank you, and over to you, Mr. Rao.

Good morning, everybody. Thank you for joining us today on the call to discuss the financial results for Q1 FY '27. Along with me, I have Mr. K. Jalandhar Reddy, Executive Director; and Strategic Growth Adviser, our Investor Relations Adviser. We have uploaded results and investor presentation on our stock exchanges as well as on our company website. I hope everyone got an opportunity to go through it. We would like to touch upon a few key company updates and industry posts, which we will have a question-and-answer session. The road sector is currently going through a phase of the recalibration with the project awarding remained subdued in the initial month of FY '27, following the softness witnessed through FY '26. During the quarter, NHAI awarded approximately 107 kilometers of the project, while the execution also moderated to around 638 kilometers. That said, the government continued to back the sector with a strong spending commitment for FY '27. The union budget has allocated close to INR 310,000 crores to the Ministry of Road Transport and Highways, and the road sector CapEx outlay is up around 8% after two relatively subdued years. This gives us confidence that the groundwork is in place for awarding activity to pick up, even though tendering and award has been slower to come through in this first quarter. NHAI has also outlined a revised FY '27 plan to award 54 highways and express project covering through 2,444 kilometers worth of combined INR 180,000 crores across 13 states so that the near-term awarding environment remains measured. This identified pipeline gives us reasonable visibility for coming quarter. Overall, while the sector is seeing some moderation right now, we remain positive on the awarding outlook for the rest of the year and believe that underlying spending pipeline is healthy. Beyond, we are also seeing...

Speaker, sorry for interrupting.

Is it okay, now?

Yes, please go ahead.

Yes. The government continues to focus strongly on the railway capacity expansion and modernization with a record of INR 293,000 crores of the capital expenditure allocated to the Indian Railway for FY '27 going towards capacity augmentation, multitracking, freight corridors, safety, station redevelopment and better rail connectivity. This is creating a healthy pipeline of the project across the rail. The outlook is particularly encouraging for Andhra Pradesh, which has received a record INR 10,134 crores railway allocation for FY '27 and the operationalization of South Coast railway zone, which further strengthen the focus on rail infrastructure in the region and support new project execution. We see this an opportunity to gradually diversify our order book into the railway civil works track infrastructure and related works. With this strong government spending and a growing pipeline across the southern region, railways are gaining increasing importance in our medium-term business mix. Urban mobility is another segment that continues to see healthy activity with the government supporting the expansion of metro and mass rapid transition. New corridors and extension are being planned across key cities, creating a sizable pipeline across elevated corridors, viaduct stations, bridges and related civil work. As part of our medium-term diversification strategy, we are actively evaluating railway and metro projects as they come up for tender though our focus remains on selectively pursuing projects where we see adequate execution visibility, attractive returns and good fit with our existing capacity. Another emerging opportunity is the battery energy storage systems segment, which we are expecting significant growth over the coming year. Overall, we believe that long-term infrastructure opportunity in India remain intact, although the composition of growth is evolving. Railway will continue to remain our core opportunity, but we see the next phase of growth becoming increasingly diversified across expressway, railway, urban mobility, mining, irrigation, logistics and emerging areas such as energy storage. We remain positive on overall opportunity and we will continue to focus on building a strong and diversified order book while maintaining our discipline on the project selection and returns. Now coming to the key updates of the company. The percentage of physical progress as on 30th June 2026 for HAM project is as follows: Ramanattukara to Valanchery, 100% completed; Valanchery to Kappirikkad, 100% completed; Madadi to Somwarpet approximately 91.35%; Marripudi to Somvarappadu approximately 86.03%; Mysore to Kushalnagara, Package 4, around 20%; and Mysore to Kushalnagara, Package 5, around 18.28%. As of 30th June 2026, the company has already invested INR 595 crores out of INR 805 crores revised equity requirement for all the existing HAM projects. The additional equity requirement of INR 210 crores to be infused as INR 125 crores and INR 85 crores is in FY '27 and '28, respectively. You can refer to Slide #26 of the investor presentation for detail on each HAM project. The company may require further additional equity investment of around INR 510 crores for Chennai ECR and Telangana NHAI HAM projects. During the quarter, the company, along with its JV partner, Sushee Infra & Mining Limited, received a letter of acceptance from South Eastern Coalfield Limited for a coal mining project at Kusmunda in Chhattisgarh. The project has a total value of INR 3,361 crores, excluding GST and is to be executed over a period of 8 years. As part of the share purchase agreement with Indus Infra Trust, the company completed the transfer of its 100% stake in KNR Ramagiri Infra Private Limited and KNR Palani Infra Private Limited. In KNR Ramagiri, the company has invested INR 83 crores in SPV through equity and subordinate debt and received a total consideration of INR 227 crores from the purchaser. And for KNR Palani, the company has invested INR 64 crores in SPV through equity and subordinate debt and received a consideration of INR 295 crores, including INR 90 crores of cash surplus as EPC claim from the purchaser. On the credit front, CRISIL rating reaffirmed the company's long-term bank facility rating at CRISIL AA stable and short-term rating at CRISIL A1+, reflecting the company's strong credit profile. Now coming to the order book position. As on 30th June 2026, the company total order book stands at INR 8,667 crores. This order book does not include the recently won 2 HAM project and mining project. Including the HAM project and the mining project, the company's total order book stands at INR 15,234 crores. This is divided into 38% for the road sector, 11% for the irrigation project, 6% for the pipeline project and 45% for the mining project. Client-wide diversification is 71% of the order book is from the third-party client and balance 29% from the captive HAM project. Third-party order book percentage is also split between state government contract is 24%, whereas 46% for the central government, and balance 1% from the other private party. The current order will be executable over a period of 3 to 3.5 years, excluding the mining project. In this line, the company is targeting order inflow of range of around INR 8,000 crores to INR 10,000 crores during FY '27, comprising a healthy mix of NHI projects, irrigation project and other state government infrastructure works. Now let me take through the Q1 FY '27 standalone financial performance first, followed by the consolidated performance. The revenue for the quarter ended stood at INR 436.7 crores. EBITDA for Q1 FY '27 stood at INR 65 crores and EBITDA margin is 15%. Net profit for the quarter was INR 282.3 crores. Now coming to Q1 FY '27 consolidated financial performance. The revenue for the quarter stood at INR 587.9 crores. EBITDA for Q1 FY '27 stood at INR 96.4 crores and EBITDA margin is at 16.4%. Net profit for the quarter was INR 80.7 crores. Now moving on the consolidated stand-alone balance sheet. The company continued to remain in a strong balance sheet. The working capital days stood at 133 days compared to 78 days as of March '26. The consolidated debt as of 30th June 2026 stood at INR 1,975 crores as compared to INR 2,438 crores as of 31st March 2026. The net debt to equity on a consolidated basis as of 30th June 2026 stands at 0.9x as compared to 0.49x as of March '26. With this, we can open the floor for question and answers. Over to you.

[Operator Instructions] First question comes from the line of Niteen S. Dharmawat with Aurum Capital. [Operator Instructions] Since there's no reply from the line of Mr. Dharmawat, we'll move to the next. This is Vaibhav Shah with JM Financial.

Sir, on the execution front, how do we see the entire year for FY '27? And what could be the growth in FY '28?

FY '27 actually, we are targeting because you know that we did last year around INR 2,000 crores. So this year, actually, definitely, we will cross more than INR 2,000 crores, but maybe you can say 10% to 15% more. So maybe around INR 2,200 crores to INR 2,300 crores will be FY '27 because whatever the execution is, it's going to start in our ECR Chennai project and Telangana, Mahabubnagar project and this -- in the Q3 and mining project of Kusmunda Chhattisgarh, that is going to start in next -- you can say by next month. So '27 will be this. And as far as '28 is concerned, definitely, that year should be the good year actually because whatever the projects are there, they will -- everything project will actually completely start in FY '28. So '28 should be more than actually INR 3,000 crores, we will try to achieve.

And for the 2 new HAMs, when do we expect the AD?

They will start in Q3, actually, that's right.

We expect in AD -- in Q3, the ADs for 2 new HAM.

[Foreign Language] Yes, yes. Q3, we are expecting AD.

And the older mining project, last year's mining project?

So last year, mining project in the Chhattisgarh actually. So this project has got only the forest clearance, one stage only cleared. The stage clearance 2 has not come. So it will take further actually around 8 to 10 months to start the project. But whatever the project in Kusmunda, Chhattisgarh recently, we got actually. That project is going to start in within 1 month actually.

The older one will start in FY '28 only probably?

For that '28 only, actually.

So how is the execution going on in the water pipeline order? And what revenue we target for next 2 years, '27, '28?

Water pipeline project is now -- initially, there were some challenges in that project, but that project is doing good actually. So order book is left out around INR 830 crores is there. So this year, definitely, we are targeting to do somewhere around INR 300 crores to INR 400 crores in this year and balance in the next year.

For year as a whole, what margin are we targeting for '27 and '28?

Really because this -- you have seen the Q1 as well as Q2 also, the margin will be the same only. But definitely from Q3 onwards, the execution of this our HAM project and our mining project will start. So Q3, Q4 margin should be good actually. So -- but our -- it will be somewhere range of around 11% to 12% EBITDA will be there in Q3, Q4. And definitely in next year, actually, it should be better because once all projects will be in the full operational capacity, then definitely once turnover will be more. So corresponding, our EBITDA will be more, but average around 12% to 13% of EBITDA we can achieve.

In next year?

Yes.

And for FY '25, it would be something around 9%, 10%?

[Foreign Language] 9%, because Q3, Q4 will be only around 10% to 11%. So average will be around, you can say, 8% to 9% will be there.

Sir, lastly, on the irrigation recoveries, so what are our expectations? How do you see those coming down? Do we have any talks recently with the ministry?

Yes, yes. The recent talks, [Foreign Language] this week developments we speak about, there had been a positive discussion with the Finance Ministry as well with the Irrigation Department as -- because of the lesser rains that are happening and expecting huge crisis of water into Hyderabad city kind of thing. And our project, one of that Package 4 stands very suitable for them to pump out some water in emergencies and all that. So they are now considering to speed it up actually. So for that, they thought they will pay in installments. They even asked us to continue for a speedy working up. So I think -- earlier also, this discussion was done by CMO, but right now, they are very serious. They are talking about installment payments, there was -- they said every month, they will be paying us around INR 80 crores, INR 90 crores kind of arrangement, which they said within, I think, almost INR 650 crores is outstanding on that project. And again, there is some RE, the revised estimate is also there, which is more than INR 700 crores, INR 800 crores. So I think this INR 650 crores part, they said they'll be paying in 6, 7 installments. Maybe they have spoken about 10 installments, but we said it's not possible if you go for 10 installment, it will run in a year time, and we'll be losing a lot of money towards the interest payments only because the delays have been so much and further delay is not acceptable to us. So they said that they will try to adjust in 5 to 6 installments. I think some positive news if they pay first installment, then definitely, we will see that something is happening on that front, actually. So again, some positive discussion is there that's -- which I'm sharing. Later, we have to see what happens. But I think this time, they are serious. This time, they are serious, I think.

So this year, we can expect something around INR 600 crores from the government in '27?

INR 600 crores. Yes, actually, but they said about, say, 5, 6 installments, they were talking about the INR 650 crores only. And that RE concerned, I have a submission that there is a committee -- the technical committee has cleared that the revised estimate has to be sanctioned by the government. So I think that is constituted by the same government itself. So they have decided that this is a genuine thing and it could be paid. So I think it needs a Finance Ministry approval as well as Irrigation Ministry approval after that committee, then they should make a G.O., then it will come into for payment. So that may take 5, 6 months process. So I think once they get over with these payments, they will start doing that also, can have that.

At least INR 500 crores.

Right now only this such news is with me, sir.

Can we expect INR 400 crores to INR 500 crores coming in this year?

Yes, of course, I'm expecting.

Okay. And sir, lastly, out of the irrigation book of INR 685 crores as of June, what would be the unbilled portion where revenue has already been recognized?

Around INR 825 crores is there.

INR 825 crores recognized already.

Yes, yes.

Okay. And sir, what would be the HAM debtors as of June?

HAM debtors as of June is INR 178 crores.

Next question comes from the line of Shravan Shah, Dolat Capital.

Sir, a couple of questions. [Foreign Language] Sir, couple of things, so first, what is the value of L1 currently? Second, how many value of projects that we have bidded and where bid is yet to open?

Sir, around INR 1,500 crores, we have L1, sir, announced, but I think LOA is yet to issue. A few are in Chennai and few are in Hyderabad City actually. So apart from that, pipeline [Foreign Language] we have submitted a couple of bids. I don't know, I'm not very sure about things what is happening there. Yes, sir.

Second, sir, in terms of CapEx in Q1, how much we have done? And now this -- for Kusmunda, mining will also start. So overall, in both the mining, how much CapEx we need to do? And in FY '27, how much and in FY '28, how much we are planning to do the CapEx for that?

Yes, sir. Actually, that -- the first Banhardih mine, we speak about, sir. There some land acquisition is still going on, sir. I think we expect around 5 months to 6 months that can happen for the land acquisition. So after that, I think we'll have to deploy equipment and all that. There also, we'll be needing about, say, INR 300 crores, INR 400 crores -- INR 350 crores to INR 400 crores roughly the equipment will be required. Second, I talked about the Kusmunda mine, which is now on execution. I think we have been issued LOA 1.5 months back. And now it's -- they are insisting us to start the work, but they have given that 100-tonne dumpers the minimum capacity to be started with the OB removals. So those equipment, which we don't have, we have started procuring them. Right now, I think appointed date is expected in first week of September. In fact, they are insisting us to take from August itself, but August, in Kusmunda, there's a big rain that is happening. I think nonstop rains are happening there. We are trying to prepare that road widening and all because that haul road, we call it as haul road. Haul road is not prepared. So that widening we are doing because 100-tonne movement [Foreign Language] will be needing 30-meter wider road, is required. That we are unable to do because daily there is rain going on. So then we are refusing to take the appointed date because you cannot insist us to take an appointed date in the rainy season and ask us to do some progress by which we will fall into issues. So which they are considering, I think first week, they are talking about appointed date to happen. Most probably, I think September, first week onwards, it should go dry. We are also expecting that. So definitely, I think that will come into operation from second week of September, sir. And equipment also, we have purchased enough. I think around INR 500 crores to INR 600 crores equipment need to be deployed. Certain, we are planning old. That's why I'm saying that vague word between INR 500 crores and INR 600 crores. So certain old equipments are -- can be used for coal transportation and all, so which we are trying to use.

So total CapEx for Kusmunda is INR 500 crores to INR 600 crores or INR 500 crores to INR 600 crores dumpers we are saying?

No, sir, everything. Actually, it's put together. There is -- we need surface miners, dumpers, excavators and then dozers, haul road preparation and maintenance of the road will be used by the graders and supporting other equipment like lighting equipment and then the other, what you call, coal dumpers and then surface miners, all that put together, we are talking about.

Okay. So both put together close to kind of INR 900 crores, INR 1,000 crores CapEx is there. So in Q1, how much, sir, we have already spent and for full year FY '27, how we look at in terms of CapEx for this?

Actually, sir, Q1, we spent nothing. I think Q2, these things are coming up. I think almost around INR 200 crores, INR 250 crores, we have already given orders. Rest of it, we'll be giving it because the land is not fully available there also. But in available land, we are trying to start, around 46 hectares they are supposed to give us, which will run our show for 1 to 1.5 years. So meanwhile, that Risdi village is there. Risdi village need to be acquired. That will -- if you acquire Risdi village in 1 year time, definitely, we'll be able to make a clear stretch for another 2, 2.5 years. So it goes like that, sir, actually.

Q1, we did only INR 14 crores of the CapEx.

Okay. So overall if we -- yes, Venkat, sir, so overall, if we have to build in, in terms of number for CapEx, so for FY '27, '28, including this mining and others, how much CapEx one can build in? So accordingly, the question is how one can look at the depreciation and when it will start inching up?

Because all this CapEx, we will take -- start to roll on phase-wise only. So definitely, Kusmunda work is going on. So there will be more and for Jharkhand project because it will take further around 9 to 10 months to start. So as far as Kusmunda is concerned, definitely, that is phase-wise. [Foreign Language] maybe this year, we will do somewhere INR 250 crores to INR 300 crores. And balance if available land is there, [Foreign Language] we will do in the next year.

Actually, the department is insisting us for fully mobilization. They are assuring that we will not keep your equipment idle. We'll even give from -- that is -- actually SECL is doing one patch, out of which they are using only 45% to 50% of their patch only. So other patch is free to do some work. So they are asking us unless your Risdi village is vacated, we'll be accommodating there also. That's what they are saying. So definitely, I think it has some meaning. So 60% to 70%, 80% of mobilization we'll have to do this year if they insist.

So next year, then the CapEx would be INR 500 crores, INR 600 crores kind of a number should be there. Obviously, the phase basis, but broadly, if I have to break it down, so FY '28, roughly INR 400 crores, INR 500 crores or INR 500 crores, INR 600 crores kind of CapEx will be there?

Actually, sir, this year, I think Kusmunda, you can take INR 400 crores, we'll be doing this year, INR 400 crores, INR 450 crores -- up to INR 450 crores, we will touch. Then Banhardih, if it happens, that is around INR 200 crores [Foreign Language] this year, we'll have to do because there we can use a lot of old equipment. There is no restriction on using the high capacity -- higher capacity equipment. So you are free to use whatever equipment you have, you can do the mining. So all our road equipment, which they were working, if they are not busy, I can deploy and do that.

Okay. So sir, the depreciation then how one can look at? So this quarter, INR 10 crores, all that.

Actually, that's what I couldn't get the figure. Actually, I have asked our team to calculate it properly. What happens is around -- on overall, Kusmunda, if you take -- I'm just talking about an example. It is almost around INR 500 crores to INR 600 crores, means INR 550 crores you can take for that matter. But the turnover, you can expect with that equipment is around INR 400 crores. So there the depreciation is charged heavily. So I don't know what sort of EBITDA that will fetch because it's not like roads, we used to deploy 10% of the entire project cost that is this thing. But every year, we used to get -- even if I take a INR 1,500 crores project, INR 700 crores, INR 800 crores will directly come in a year. So that is distributed quite in a proper way for the highways. But here, complete equipment base and labor base and HSD, the diesel, all 3 are major components. Nothing else is other thing. So here, quite difficult for me today, but I'm very sure while quoting the bid or while assessing my -- even after bid, we have done a lot of practical data collected from various other players and all that and with the different manufacturers, we have collected the data. After that data, I'm very confident that we'll be able to make PAT level about, say, 6 plus percent.

But broadly, 7, 8 years, we will be depreciating whatever the CapEx that we do, we will depreciate over 7, 8 years. That's the way one can look at broadly?

Sir, actually, there are -- we are working out different ways. One sort of method, which we got we sorted for this dumpers that Caterpillar is offering every 2 years buyback policy. And that is working out much cheaper for us because the maintenance cost after second year is going up like anything for that dumpers. So what we are also planning to go buyback method only. So -- and they assure around 75% of return to us after 2 years. So completely, we use for 2 years, again, we replaced with the new trucks. So that efficiency of the trucks is good and fuel efficiency is good and maintenance is less. So with that, I think the capital cost, what we are incurring, the differential cost what we are incurring, even we take it into consideration, we are in good profit for that. So such methods are there for Caterpillar equipment. So even the Komatsu dumpers, we have placed an order because of the urgency, we even have to choose that Caterpillar grade equipment also -- the Komatsu equipment. The Komatsu is also offering similar type of buybacks. We have insisted that, they agreed for that. So we will have that. But like certain equipment, the surface miners and then certain dozers and all that, they don't have this type of arrangement. Even for coal equipment is also not having such an arrangement. So there, we'll have to take it for 5 years and then scrap it and then go for the new ones. Every 5-year cycle, we are taking.

Okay, got it, sir.

But surface miner being a higher cost equipment that we are continuing for 8 years. Because that surface miner, each one is costing about, say, INR 13 crores, and we will be requiring 4 numbers right now. And if at all any delay that happens, we'll have to induce one more. So 5 -- up to 5 itself is becoming a bigger ticket. So that we will continue for this thing. So the certain pattern is there, which we have decided by which company can make good margins.

Next question comes from the line of Faisal Hawa with H.G. Hawa and Company.

Sir, now that the CapEx at least for the coming year is only on account of the mining project, why are we not giving a larger dividend or a suitable buyback?

Yes, sir. Buyback, we are considering, sir. We'll come back on it. I think most of the decisions are getting done. The final meeting need to be concluded to come back on that. Second, sir, the CapEx that is happening in -- CapEx thing, sir. CapEx thing concerned, definitely that coal mines we have to do and certain maintenance CapEx is also there in that actually, that most of the projects got completed. And there the equipment, they become a little bit older and not viable for operation, those we are deciding and we are replacing with the new ones. But the -- actually, we have completed the 2 Kerala projects and then Mangalore project and Avinashi also. With all that, those equipments, wherever we can accommodate, we'll try to accommodate. Then after that, whatever we need, then those only we will try to replace. Rest of them, we will just sell it and then be ready for another order to come and then deploy.

Sir, it is very heartening to note that now mining, which was not even a major vertical for us, has now become 45% of our total order book.

Sir, actually, yes, concerned the ticket size looks bigger, but year turnover will become very less actually. INR 3,300 crores is the order size which looks at, but it can give you only INR 400 crores to INR 350 crores turnover. And the Kusmunda mine is also INR 5,000 crores out of which my share is about 75%. That is only stood at INR 3,500 crores. So like this, there are a lot of ifs and buts and those to be completed in 5 years. And Kusmunda is almost 8 years we need to complete. So this is the way that is catering, sir.

So is it like we said say in the future that we have many such sectors entering our order books and they really become quite significant for us, things like solar EPC or even, for example, something to do with data center or even large bridges or dam projects?

Yes, yes, sir. We have -- see, main thing is that most of the flyovers are coming in the EPC mode itself. So the minimal working capital will be required, that's it. And the other highway projects concerned, most of the equipment we own and then wherever there is an equity commitment that we are just keeping it reserved. In fact, not taking the decision early on buyback proposals is one of the reasons that we are keeping preserved with our future requirements on equity as well on the CapEx. So those things we are keeping in mind, then we are moving forward. So this is the cautious call which we are trying to take actually.

And sir, about the Telangana outstanding, do you feel that once at least the first installment comes through, then the rest of the installments will come without follow-up or you will have to make rounds of government every month and try to get this recovered.

Sir, actually, we have decided to make full rounds and get that at least because every time I have to -- and actually, that is need of an hour. Now I'll be needing those -- that money badly. So I'm making a lot of efforts on that actually. I don't want to leave them the committed date, I'll go sit there unless they write the check, I'll not come back. Like that we are planning. Let us see, sir, how it goes.

So, it will not be like an automatic thing. You will have to keep on following every month.

Sir, actually [Foreign Language], see, they say it's an automatic thing. Once we start doing, we'll do every month, we'll be paying you INR 70 crores, INR 80 crores, whatever they're saying. But unless you don't push, things will not happen. You know that in Telangana Government now situation is different. Earlier, sir, we used to get -- actually, we never used to even go for payments. We submit the bill we used to get. That gut feeling, I went on a bigger order book size and I landed into this issue actually.

But to your credit, sir, you have never taken any Andhra Pradesh orders even though you have been so close to the State and I mean...

We'll try to keep a close watch on it, sir, and we'll be pushing that very hard. Pardon, sir, pardon, pardon...

No. It is that you have always avoided even Andhra Pradesh orders. So you have been ever careful with outstanding. But these are accidents which sometimes happen in business, and I don't think we can blame the management for this.

Yes, sir.