MFS Presentation

KNRCL-Book building Public offer

Group-4

Group Members:
Ankur Khullar
Gaurav Katyal
Gurudutrt Virmani
Kanika Bijlani
Sudhakar Yallapantula
Agenda
Offer of KRNPL
Industry overview
Business & Company overview
IPO Grading
Valuation
Book building
Offer
 Issue Open: Jan 24, 2008 - Jan 29, 2008
  »»  Issue Type: 100% Book Built Issue IPO
  »»  Issue Size: 7,874,570 Equity Shares of Rs. 10
  »»  Issue Size: Rs. 133.87 Crore
  »»  Face Value: Rs. 10 Per Equity Share
  »»  Issue Price: Rs. 170 - Rs. 180 Per Equity Share
  »»  Market Lot: 35 Shares
  »»  Minimum Order Quantity: 35 Shares
  »»  Listing At: BSE, NSE
Objectives of Public offer
Objects of the Issue:
The objects of the Issue are to achieve the benefits of listing on the
Stock Exchanges & to raise capital for :

1. Further Equity investment in BOT projects;

2. Purchase of capital equipment;
3. For meeting working capital requirement;
4. For General Corporate Purpose.
INDUSTRY OVERVIEW
GENERAL ECONOMY AND ROLE OF INFRASTRUCTURE

India Economic growth,2005-06- 9.2%

Aims at Sustainable growth of 10% by the end of 2012
Increased investment in infrastructure in 11th plan(2007-12), from 4.6 % to 8% of GDP
Increased GDP investment rate from 29.1% to 35.1%
Govt. promoting PPP model
ROADS-Golden Quadrangle project.
Up gradation of 52,960 km of roads.
IRRIGATION- Creation of 11 million hectares of new irrigation potential
 BUSINESS OVERVIEW
KNR Constructions Limited is an infrastructure project
development company providing engineering,
procurement and construction services across various fast
growing sectors:
 roads & highways
 irrigation and
 urban water infrastructure management.

KNR's strength is project execution in road transportation

engineering projects construction and maintenance of
roads, highways, flyovers and bridges.
Currently most of the Road projects are under execution
with JV partner Patel Engineering
Ability to bid for medium to large projects
Estimated unexecuted order book is Rs17338 million which
is 5.4 time annual income in FY 06-07.
 BUSINESS RISKS

 Dependency on government agencies/policies.

 Projects included in order book may be delayed and does not necessarily
indicate future earnings.
 High dependency on road transportation projects. Contribute to 95% of
revenues.
 Material price escalation or scarcity of material.
 Uncertainties associated with diversification in power.
 Competition from financially sound companies.
 Operations sensitive to weather conditions.
 Loss of key managerial personnel
 Pending trademark approvals
 Various legal proceeding against the company.
 Que-1 - IPO Grading
IPO grading is a relative assessment of the fundamentals of the equity
security

Problems faced while Arriving at investment decisions

 voluminous and complex disclosure documents.
 Lot of scattered information available these days through free research on
various websites, media and other sources.
 The information available on new companies varies with the size of the
issue , market conditions and the industry.
 Investors often look for structured, consistent and unbiased analysis.

Possible Solution
IPO grading which aims to fill in the gap and help investors arrive at a
more informed decision.
 CRISIL’s IPO Grading Methodology
Emphasis
 To Evaluate the prospects of the industry.

 To Evaluate companies competitive strengths.

 Ability to address risk and effectively capitalize on the opportunities.

 Evaluating the companies financial position.

 To evaluate the risks, profit potential of the projects where the funds

raised will be deployed.

 Evaluation the Ability of companies management to execute projects.

 Evaluation of the corporate governance practices at the company.

 Method
Some key variables (mentioned on the subsequent slide) are rated on
the following scale.

CRISIL’s IPO Grading Scale

 CRISIL IPO Grade 5:Strong fundamentals.

 CRISIL IPO Grade 4:Above average fundamentals.
 CRISIL IPO Grade 3:Average fundamentals.
 CRISIL IPO Grade 2:Below-Average fundamentals.
 Key Variables
Business Prospects
Industry Prospects
 Growth prospects of the industry- High.
 Extent of cyclicality – Low
 Competitive Intensity- Medium to High
 Vulnerability to technological changes- Low
 Regulatory risks- Medium-High
Company Prospects
 Alignment between industry opportunities, the company’s strategy and its capabilities-
High
 Market position indicated by ability to increase/protect market share-Medium
 Command differential pricing and maintain margins at par with or superior to the its
peers- Low.

Rating of 5 point scale: 3

Key Variables
Project Related factors
 Company’s ability to successfully execute the project that is being undertaken and
potential upside to the shareholders on the completion and commissioning of the
project- High

 Rating : 4

Financial Performance
sustained shareholder value as reflected by:
 Profit margins- Medium
 EPS growth-High
 Return on capital employed(ROCE)- Medium
 Return on net worth(RONW). High
 Rating: 3
Key Variables
Management Quality
 Ability of management to handle uncertainty in terms of capitalizing on future
business opportunity and mitigating the impact of contingencies.- Medium
Rating: 4

Corporate Governance Practices

 Quality of corporate governance practices- Medium
 Type of Transactions with subsidiaries. And associates-Medium

Rating: 3

Note: CRISIL IPO Grade does not comment on the valuation and pricing of the
issue that has been graded nor does it seek to indicate the likely returns to
shareholders from subscribing to the IPO
IPO Grading
Business Prospects:3
Project Related factors: 4
Financial performance:3
Management Quality: 4
 Corporate Governance Practices:3
Overall Grade: 3.4
Average Fundamentals
Grading of Recent IPOs
Sr. No. Name of the issue Rating agency Grade assigned Over Subsciption
1 SEA TV NETWORK LIMITED ICRA Ltd IPO Grade 1 11 Times
2 RAVI KUMAR DISTILLERIES LIMITED CARE Limited IPO Grade 2 2 Times
Fitch Ratings India
3 R.P.P. INFRA PROJECTS LIMITED Private Limited IPO Grade 2 2 Times
4 GYSCOAL ALLOYS LIMITED CARE IPO Grade 2 9 Times
5 BS TRANSCOMM LIMITED ICRA IPO Grade 2 No Oversubscription
COMMERCIAL ENGINEERS & BODY
6 BUILDERS CO LIMITED CRISIL IPO Grade 2 2 Times
7 BEDMUTHA INDUSTRIES LTD ICRA IPO Grade 2 8 Times
Fitch Ratings India
8 CLARIS LIFESCIENCES LIMITED Private Limited IPO Grade 3 No Oversubscription
Brickwork Ratings
9 GRAVITA INDIA LIMITED India Pvt. Ltd IPO Grade 3 42 Times
10 PRESTIGE ESTATES PROJECTS LIMITED ICRA IPO Grade 3 2 Times
11 PUNJAB & SIND BANK CARE Limited IPO Grade 4 50 Times
A2Z MAINTENANCE & ENGINEERING
12 SERVICES LTD CARE Limited IPO Grade 4 No Oversubscription
13 OBEROI REALTY LIMITED CRISIL IPO Grade 4 10 Times
14 ASHOKA BUILDCON LIMITED CRISIL IPO Grade 4 15 Times
15 TECPRO SYSTEMS LIMITED CRISIL IPO Grade 4 20 Times
16 VA TECH WABAGH LIMITED ICRA LIMITED IPO Grade 4 32 Times
17 MOIL LIMITED CARE IPO Grade 5 56 Times
CRISIL Limited
18 COAL INDIA LIMITED and ICRA Limited IPO Grade 5 15 Times
 Que2
Compute the value of share?
observe whether issue is over priced or under
priced?
Basis of Computation: Price/ Earning Multiple approach
Different valuation parameters
Dividend Discount Model
Discounted Cash Flow
Multiples
Price to Earnings Ratio
Price to Book Value
EV/EBITDA
EV/Sales
Replacement cost method
NAV
 PE Ratio
Powerful tool for valuation
Market orientation
High for High growth Firms
Low for cyclical
Captures essence of effectiveness of business strategy
Trailing PE
Forward PE
Limitations
 Effected by bull & bear phases
 Operator action
 Lack of liquidity in stocks
 Financials of KNRCL
  2002-03 2003-04 2004-05 2005-06 2006-07

Sales 1876.53 2200.98 1115.99 1710.68 3318.39

PAT* 45.12 67.76 41.19 80.72 205.4

Paid up Capital 67.5 72.39 67.5 202.49 202.49

No. of shres OS 6.75 7.239 6.75 20.249 20.249

EPS 6.68 9.36 6.10 3.99 10.14

EPS Growth   40.0% -34.8% -34.7% 154.5%

Networth 234.43 307.12 335.75 393.41 573.96

RONW%   25% 13% 22% 42%

BVPS 34.73 42.43 49.74 19.43 28.35

* Restated PAT
 Valuation of KNRCL
Pre-issue Weighted PAT = (3*205.4 +2* 80.72+1* 41.19 )/6
= 136.47
Pre- issue Weighted EPS = 136.47/20.249 =6.74
RONW = Wt PAT / NW = 136.47 / 573.96 = 23.78%
Minimum PAT (Post issue) to maintain same EPS
= Pre-Issue EPS * Post Issue No. of Shares= 6.74*28.124= 189.55
PAT of FY 2007-08 = 2* 135.55= 271.1
NW of 2007-08 = PAT (07-08)+ NW of 06-07+ Net IPO proceeds
Expanded NW in 2007-08= 2092.84
PAT in 2008-09 =PAT in 2007-08 +15% of IPO proceeds= 458.26
Minimum %RONW required to maintain Pre-issue EPS = 189.55/2092.84=9.06%
Actual ROWN in 2007-08 = 271.1/2092.84 =12.95%
Therefore KNRCL can maintain the EPS in spite of dilution
Projections of Earnings of 2007-08
& 2008-09
  2002-03 2003-04 2004-05 2005-06 2006-07 2007-08* 2008-09
Restated
Profits 45.12 67.76 41.19 80.72 205.4 271.1 458.27
Paid up Capital 67.5 72.39 67.5 202.49 202.49 281.24 281.24
No. of shres OS 6.75 7.239 6.75 20.249 20.249 28.12 28.124
EPS 6.68 9.36 6.10 3.99 10.14 13.39 16.29
EPS Growth   40.0% -34.8% -34.7% 154.5% 32.0% 21.7%
Networth 234.43 307.12 335.75 393.41 573.96 2092.84 2551.10
RONW%   25% 13% 22% 42% 20% 20%
NAVPS 34.73 42.43 49.74 19.43 28.35 32.85 49.14
 Industry Peers
  EPS P/E RONW% NAV Price P/NAV

J Kumar Infraproject Ltd. 6.41 11 37.47% 17.1 70.51 4.12

Kaushaly Infrastructure
Development corp Ltd 3.44 8 17.65% 21.43 27.52 1.28
Supreme Infrastructure Ltd 12.27 5 32.21% 38.07 61.35 1.61
MSK Project India Ltd 6 12 8.10% 19.7 72.00 3.65

Industry Average 7.03 9 24% 24.075  2.67

KNRCL @ Rs 170 6.74 25.2 23.78% 49.14 170 3.46

Average PE 9 Price based on FY2008-09 EPS and highest PE =195.5

Highest PE 12 Price based on FY2008-09 EPS and Av PE =146.65
Lowest PE 5
Q3- Justification of Issue Price
Qualitative Factors
Professionally managed company with more than 10 yrs of existence.
Strong track record in timely and successful execution of projects.
Strong order book of RS 17,338.24 Million as on 30-November-2007.
Executing 25 contracts in various states across India.
Expertise in sourcing and maintaining supply chain for raw materials.
With the focus on Infrastructure development in India, the company is in a strong
position to get more projects in roads, urban infrastructure and power sectors.
Consistent Profit growth – Profits have grown at CAGR of 43.1% during past 5
years.
Quantitative factors discussed along with valuation
 IPO Subscription
No. of No. of Equity Subscription
Category Bids/Applications Shares (no. of times)
Retail Individual 5847 644910 0.2382
bidders
Non-Institutional
28* 3683995 3.1754
bidders
Qualified Institutional
22 5317445 1.375
Buyers
Employee bidders 51 82845 0.5918
Total Demand For Shares 9729195
Issue Size 7874570
No of times over subscribed 1.235
 Book Building
No. of % to Cumulative Cumulative
Bid Price Shares Total Total % to Total
170 259420 2.6212 9897090 100
171 140 0.0014 9637670 97.3788
172 525 0.0053 9637530 97.3774
173 105 0.0011 9637005 97.3721
174 35 0.0004 9636900 97.371
175 7035 0.0711 9636865 97.3707
176 245 0.0025 9629830 97.2996
179 35 0.0004 9629585 97.2971
180 8944600 90.3761 9629550 97.2968
CUTOFF 684950 6.9207 684950 6.9207
Stock Performance Of KNR
Thank you