Anuj Didwania of Redart Capital Advisors presented his in-depth investment thesis on KNR Constructions (India: KNRCON) at Best Ideas 2018.
KNR Constructions engages in construction activities (EPC segment) focused on the road sector and collecting tolls and maintaining road projects. The road sector in India is one of the focus areas of the government to increase job growth and kick-start the investment cycle, which has been stuck for six to seven years. KNR has demonstrated an ability to deliver steady EBITDA margins of ~15% even through the downcycle. Management continues to follow strict financial discipline in bidding for road projects and has the lowest debt-to-equity of any road company in India (~0.1x). Three-fourths of the order book is from the road sector. The order book provides visibility for 15-18% sales growth for next two years. Strong capital allocation by management has led to steady and healthy ROEs of 15-20% consistently on the back of sales growth of 25+% for the last twelve years. Promoters hold 58% of shares outstanding. The company trades at 19x earnings for FYE March 2018, with the tailwind of being in the right sector and visibility of 17-20% earnings growth for the coming two years.
About the instructor:
Anuj Didwania is the fund manager of Redart Capital, a fundamental value oriented investment management firm based in India. Prior to Redart Capital, from 2004 to 2005, Anuj was a Vice President solely responsible for the India proprietary trading desk at Merrill Lynch in Hong Kong and also assisted with managing Merrill Lynch’s $2 billion P-note product. From 2000 to 2004 Anuj was a proprietary trader for HSBC in Mumbai and was also responsible for setting up the equity derivatives desk for the company in India. From 2005 to 2009 Anuj has been working in the capacity of an executive director in his family business that is focused on logistics. He introduced strong processes and systems which helped increase margins and deliver consistency whereby the profits of the company have increased 800% since his joining. Since 2009 Anuj has been focused on investing proprietary capital of his family and developing his investment and risk management processes. Anuj received his post graduate degree in Business Administration (MBA) from Manchester Business School (UK) in 2000 and received his undergraduate degree in Commerce (B. Com) from Sydenham college in Mumbai.
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