KNR Constructions Ltd Management Discussions.


The year 2017 marked a decade of the global economy collapse. The global economy has been on a steady revival path since then. The major economies have expanded, there has been a growth in the Euro-zone, modest growth in Japan, late revival in China and improving realities in Russia and Brazil. The latest World Bank report suggest easing out of the global economic growth is projected to reach 3.1% in 2018 fiscal. Accordingly, after reaching 3.1% in 2018, global growth is projected to moderate in 2019-20, edging down to 2.9%, as global slack dissipates, trade and investment moderate and financing conditions tighten. The capacity constraints will become more binding and infl ation will continue to rise. In emerging market and developing economies (EMDEs), growth in commodity importers will remain strong, while the rebound in commodity exporters is projected to mature over the next two years.


India has once again emerged as the fastest growing global major economy. As per the Central Statistics Organization (CSO) and International Monetary Fund (IMF), it is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by its strong democracy and partnerships. Indias GDP was recorded at 6.7% in 2017-18. A3 er bo3 oming out in the middle of 2017 and slowing for five consecutive quarters, the GDP has since improved significantly, with momentum carrying over into 2018 on the back of a recovery in investment. This growth has been supported by prudent macroeconomic policy: a new infl ation targeting framework, energy subsidy reforms, fiscal consolidation, higher quality of public expenditure and a stable balance of payment situation. In addition, recent policy reforms have helped India improve the business environment, ease inflows of foreign direct investment (FDI) and improve credit behaviour.

Indias gross domestic product (GDP) is expected to reach US$ 6 trillion by FY27 and achieve upper-middle income status on the back of digitisation, globalisation, favourable demographics and reforms. The Union Budget for 2018-19 laid strong emphasis on upli3 ing economy by promoting growth boosting measures for the agricultural sector, health care for economically privileged, education and infrastructure creation. There was an all-time high allocation of different 5.97 lakh crores for infrastructure and road sectors development. Despite the recent momentum, the economy requires addressing several structural challenges. India needs to durably recover its two lagging engines of growth – private investments and exports – while maintaining its hard-won macroeconomic stability. Crucial steps in this process include cleaning up banks balance sheets, realising the expected growth and fiscal dividend from the GST, and continuing the integration into the global economy. Rising crude oil prices and infl ation also remain to be a cause of concern for sustaining the growth momentum in the long run. Going ahead, IMF has projected a growth rate of 7.3% in 2018 and 7.5% in 2019, refl ecting negative effects of higher oil prices on domestic demand and faster than-anticipated monetary policy tightening due to higher expected infl ation.

Indian Economy update by the World Bank

According to the June 2018 World Bank update, Indias economy is robust, resilient and has potential to deliver sustained growth.

Indias growth potential is about 7%, and it is currently growing at a pace above its potential, largely a3 ributable to the major economic reforms and fiscal measures undertaken by the Government. The economy has also moved past the disruptions caused by GST implementation. Adverse global conditions like an abrupt tightening of global financial conditions and escalating trade protectionism could also spell bad news for India and rest of the region even though the region is relatively less open to trade. World bank has further emphasised that spur in private investments, reviving banking credit to support growth, making exports competitive, momentum in structural reforms, generation of resources by domestic disinvestment, accelerate spending on infrastructure are the potential pathways to achieve the desired and sustainable growth momentum.

Indian Infrastructure forecasts for FY 2018-19

Infrastructure development is key to Indias economic growth. India has a requirement of investment worth different 50 trillion (US$ 777.73 billion) in infrastructure by 2022 to have sustainable development in the country. India is witnessing significant interest from international investors in the infrastructure space. Sectors like power transmission, roads & highways and renewable energy will drive the investments in the coming years. Only 24% of the National Highway network in India is four-lane, therefore there is immense scope for improvement. Some of the recent investments include: Private equity and venture capital (PE/VC) investments in the infrastructure sector reached US$ 3.3 billion with 25 deals during January-May 2018 In January 2018, the National Investment and Infrastructure Fund (NIIF) partnered with UAE-based DP World to create a platform that will mobilise investments worth US$ 3 billion into ports, terminals, transportation, and logistics businesses in India In February 2018, the Government of India signed a loan agreement worth US$ 345 million with the New Development Bank (NDB) for the Rajasthan Water Sector Restructuring Project for desert areas In June 2018, the Asian Infrastructure Investment Bank (AIIB) has announced US$ 200 million investment into the National Investment & Infrastructure Fund (NIIF)

Indian Road Construction Sector

Road infrastructure is the backbone of the Indian economy. Roads and highways form one of the core areas under the infrastructure sector. The Government has been taking meausred e3 orts in providing more e3 cient transportation, for which they have significantly stepped up the highway development and road building program. The Governments thrust on the Infrastructure sector has remained strong in the Union Budget 2018-19. The total capital outlay planned by the Ministry of Road Transport and Highways stands at approximately different 1.21 Lakh Crores which is higher by 10% as compared to the previous years outlay of different 1.10 Lakh Crores. The outlay comprises of different 59,000 crores through Gross Budgetary

Support and different 62,000 crores through Internal and Extra Budgetary Resources. The Government has also announced the Bharatmala Pariyojana Scheme Phase I with an investment of different 5.35 lakh crores for development National Highways totalling to 34,800 kms over a period of 5 years ending in 2021-22. The project will be taken up by the ministry in two phases of 24,800 kilometre and 30,600 km each. The Government has also approved development of another 48,877 Kms of projects totalling to different 1.57 lakh crores under other ongoing schemes like NH(O), Special Accelerated Road Development Programme in North East (SARDP-NE), Externally Aided Projects (EAP) and Roads Projects in Le3 Wing Extremism A3 ected Areas (LWE) to be completed by 2021-22. The road ministry has recorded highest ever awarding of 17,055km in Financial Year 2018 which grew by 7% over Financial Year 2017. Out of these, NHAI has awarded 7,396 km in Financial Year 2018 which is 72% higher over the previous year and MoRTH has awarded 9,659 km in Financial Year 2018 which is drop of 17% over the previous year. Out of the total awarded projects worth

different 1,220 billion by NHAI in Financial Year 2018, different 765 billion has been awarded on HAM mode (63%), different 427 billion on EPC mode (35%) and remaining on BOT mode (2%). The awarding of contracts led by HAM and toll-operate-transfer models is expected to continue given the announcement and subsequent implementation of the Bharatmala project. Road construction touched a high of 9,829 km in Financial Year 2018 indicating a growth of 19% over the previous year, out of which NHAI has constructed 3,071 km which is 17% higher over the previous year and MORTH has constructed 6,758 km in Financial Year 2018 which is higher by 21% over the previous year.


KNR Constructions Limited (KNRCL) is a dominant player in infrastructure projects such as expressways, national highway including BOT toll, Annuity, HAM projects, state highways, fl yovers, bridges, irrigation and water management works. KNRCL maintain its market position by continuously focusing on engineering excellence, improving and sharpening competencies, adapting latest construction technologies, deployment of sophisticated construction equipment and timely delivery. With plethora of opportunities in the infrastructure segment, KNRCL is perfectly poised to gain from this development.

Order Book

KNRCLs outstanding orderbook as on March 31, 2018, stood at

different 23,266 million, comprising different 16,561 million in road sector, different 6,688 million in irrigation projects and different 17 million in other projects, with 54% Central Government Projects, 45.99% State Government Projects and .01% in other projects. The Company also received LOA for 4 HAM projects of different 44,667 million (BPC) from NHAI, and LOA for 1 HAM project of different 11,445 million (BPC) from Karnataka State. The total estimated EPC in all the 5 HAM projects amounted to different 39,750 million. Inclusive of EPC portion from HAM projects, the total EPC value on hand amounted to different 63,016 million which is an all-time high order book.


The Company has been awarded as the "2ndFastest Growing Construction Company (Medium Category)" at Construction World Annual Awards 2017 The Major Projects Awarded as under:-

Project Project Award Date Project Completion Client Value (different in Million)
Kaleshwaram Project - Formation of Konda Pochamma Sagar for a capacity of 15.00 TMC near Pamulaparthi (V), Markook (M), Siddipet District- Reach-1 from Km 0.000 to Km 5.500 with all associated components. November 10, 2017 18 months from the date of signing of Agreement Irrigation and CAD Department, Government of Telangana 8,845 (KNRCLs share 5,600)

Hybrid Annuity Model (HAM) Projects

Project Description Concession Agreement date Project Completion Period from Appointed date


Bid Project Cost

(different in Million)

Four laning of Trichy to Kallagam in the State of Tamil Nadu (Km 38.70) April 11, 2018 24 Months



Two laning with paved shoulder of Meensuruti to Chidambaram the State of Tamil Nadu (km 31.53) April 11, 2018 24 Months



Six laning of Chitoor to Mallavaram in the State of Andhra Pradesh (Km 61.128) May 9, 2018 30 Months



Four laning of Ramsanpalle to Mangloor in the State of Telangana (km 46.81) May 9, 2018 24 Months



Two Laning with Paved Shoulder of Magadi to near Somwarpeth in the State of Karnataka, (km 166) LOA Received dated May 29, 2018 24 Months




At KNRCL, we recognise that every business has its inherent risks and it is required to possess a proactive approach to identify and mitigate them. The Company has embedded an e3 cient Enterprise Risk Management System (ERMS), which regularly scans the internal and external environment to identify risks, decide on possible mitigation plans and incorporate them in its strategic plans.

Competition Risk:

With increased project awarding by the government, the road and construction industry is expected to a3 ract several domestic as well as international players. This increase in competition may lead to an aggressive bidding environment, resulting in price cut and low operating margins as well as lower market share of project awards.

Risk Mitigation:

With two decades of industry experience and led by a proven management team, who have honed their project managing skills right from the drawing board to the final execution, the Company is confident of meeting present and future competition and enjoy continued growth. To further mitigate this risk, where considered prudent, the Company forms strategic partnerships and joint ventures with quality players. This facilitates synergies both in the financial and technical arenas and enables it to compete with the larger players.

Slow-down in Road Sector:

Any slowdown on part of the government to award road projects could adversely affect growth prospects.

Risk Mitigation:

The present government has taken focused steps to ensure that infrastructure creation moves at an accelerated pace, thus reducing the possibility of this risk to a considerable extent. Moreover, the Company already has sufficient order backlog to ensure growth momentum in the medium term.

Construction Risk:

Infrastructure projects involve complex design and engineering, significant procurement of equipment and supplies and extensive construction management and other activities conducted over extended time periods, sometimes in remote locations. This could lead to cost-time overruns, thereby impacting profitability.

Risk Mitigation: KNRCL with its vast experience of project management, balanced capital structuring and efficient cost control measures is well geared to mitigate this risk. Further, inhouse repository of specialised construction equipment reduces dependence on external sources, expedite execution and sustain margins.

Raw Material Risk: Increase in the cost of raw materials, particularly steel and cement, or their unavailability over the tenor of the contract can impact schedules and profit margins.

Risk Mitigation: The Company enters into long-term arrangement with suppliers for requisite raw materials for the tenure of the project, thus guaranteeing a continuous flow. Backward integration by sourcing aggregates from its mines, for road projects under execution also enables it to control costs. Also, leveraging its industry experience, the Company effectively supervises the availability of raw materials thus keeping the cost escalation risk to a minimum.

Interest Rates: Rising interest rates during the life span of a project, fuelled by infl ation, can decrease profit margins. Risk Mitigation: The Company factors this risk into the cost of project before bidding for it. Despite this, the Company is open to resorting to interest rate hedging in case the need arises.

Traffic Growth Risk: Revenue from the Companys Toll-based BOT projects are subject to risks associated with unpredictability of traffic growth. Risk Mitigation: The Companys operational toll-based BOT project caters to traffic plying between South Indias economically vibrant cities and towns. Major industries are also located on this stretch. With the anticipated uptick in economic activity, commercial traffic is expected to maintain a positive growth momentum, thus reducing the possibility of low toll revenues.

Regulatory Risk: The complex nature of infrastructure projects means that the Company has to interface with various regulatory authorities throughout the project life cycle, making them especially vulnerable to regulatory action. These requirements are complex and subject to frequent changes as well as new restrictions. Failure to comply with these requirements may result in significant liability to the Company.

Risk Mitigation:

To deal with this risk effectively, the Company has a regulatory compliance review mechanism in place. Through this the Company gets regular updates and makes changes in its compliance on a real time basis.

Political Risk:

Political disharmony can interrupt or disturb the se3 led commercial terms of a project, as infrastructure projects with their high visibility have a strong element of public interest.

Risk Mitigation:

With greater thrust on infrastructure by successive governments, this risk has been alleviated to a considerable extent. Further to ensure minimal intrusion from the political machinery, the Company ensures that its work speaks for itself. Also, years of experience in working with various Governments and its agencies in its life span, has made KNRCL fully capable of handling any changes in the political setup.


The total income from the operations posted by the company on standalone basis for the year ended March 31, 2018, is different 1,931.65 Crores as against different 1,541.05 Crores during the same period in the last financial year thereby recording an increase in turnover of

different 390.60 Crores (about 25.35%).


EBITDA increased from different 218.71 crores for the year ended March 31, 2017 to different 386.13 Crores in the current year ended March 31, 2018. EBITDA on turnover has been increased from 14.19% to 19.98%. The net profit after tax or the current year ended is different 272.09 Crores as against different 157.25 Crores in the corresponding previous year. The profit after tax as a percentage of turnovers has gone up from 10.20% to 14.09%.

Net Worth

The Net Worth has gone up from different 895.47 Crores to different 1,157.83 Crores in the current year thereby recording an increase of about 29.30%.Earnings per Share is up from different 11.18 to different 19.35 in the current year due to reason mentioned above.

Loan Funds

The Debt-Equity ratio has remained almost the same as 0.19 times.


The Human Resource (HR) strategy at KNRCL is focused on creating a performance-driven culture in the Company, where innovation is encouraged, performance is recognised and employees are motivated, to realize their potential. Companys HR department co-creates all HR strategies along with senior management and BOD so as to influence change, a3 ract talent and build capabilities. HR department is fully specialized to respond to varied human resource needs of KNRCLs business units to enable each division to maintain the human strategic advantage. The Company employed a total of 1020 employees during the year.

Cautionary Statement

Statements in the Management Discussion and Analysis describing the KNRCLs objectives, projections, estimates, expectations may be forward-looking statements. Actual results may di3 er materially from those expressed or implied. Important factors that could make difference to the KNRCLs operations include economic conditions in which the KNRCL operates, change in government regulations, tax laws, statutes and other incidental factors.