- EBITDA fell 74% YoY to INR 306 m, far below estimates.
- EBITDA margin shrank 1,140 bps to just 5.2%.
- Profit after tax slumped 81% to INR 176 m, missing forecasts.
- Sub‑contracting cost surge is the primary margin killer.
- Motilal Oswal keeps a Neutral rating with a target price of INR 160.
- Valuation hinges on a 9x FY28E P/E for EPC and 1x investment value for BOT assets.
You missed the warning signs in KNR Constructions' latest earnings—now's the time to act.
KNR Constructions' EBITDA Margin Collapse: Why It Matters
The 3QFY26 results revealed a staggering 1,140‑basis‑point erosion in EBITDA margin, dropping from a healthy double‑digit range to a razor‑thin 5.2%. The primary culprit was an unexpected spike in subcontracting expenses, which ate into gross profit and left the bottom line gasping for air. For investors, a margin this thin signals reduced pricing power and heightened cost volatility—red flags that often precede broader earnings weakness.
KNR Constructions in the Broader Indian EPC Sector
The EPC (Engineering, Procurement, Construction) segment in India is currently wrestling with rising input costs, tighter credit conditions, and a slowdown in public‑sector project pipelines. KNR’s margin compression mirrors a sector‑wide trend where many mid‑tier contractors are seeing EBITDA margins dip below 10% for the first time in a decade. This environment amplifies the importance of cash‑flow resilience; firms that cannot absorb cost spikes may face liquidity strains, especially when payment cycles lengthen on large government contracts.
KNR Constructions vs. Tata Projects & Adani: Competitive Landscape
While KNR stumbled, Tata Projects reported a relatively stable margin of 12% in the same quarter, benefitting from a diversified portfolio that includes higher‑margin petrochemical and power projects. Adani’s construction arm, meanwhile, leveraged its vertically integrated supply chain to keep subcontractor spend under control, preserving a 9% EBITDA margin. The contrast highlights that firms with broader asset bases or in‑house capabilities can better weather cost inflation, a competitive advantage that KNR currently lacks.
Historical Echo: KNR Constructions and the 2018 Infrastructure Slowdown
Back in 2018, a similar earnings dip occurred when the Indian government delayed several highway and rail projects. KNR’s share price fell 27% over six months, but the company rebounded after securing two large BOT (Build‑Operate‑Transfer) concessions that restored cash flow. The lesson? A temporary earnings dip can be mitigated if a firm has a pipeline of long‑term, revenue‑stable BOT assets. Motilal Oswal’s valuation model still assigns a 1× investment value to KNR’s BOT portfolio, implying that these assets could act as a cushion if the EPC business stabilizes.
KNR Constructions Valuation: P/E 9x and BOT 1x Explained
Motilal Oswal values the EPC business at a forward P/E of 9× FY28E earnings, markedly lower than the sector average of 13‑15×, reflecting the margin pressure. Conversely, the BOT assets are priced at 1× their investment value, essentially a break‑even multiple, suggesting that investors are only paying for the capital deployed without expecting premium earnings growth. This dual‑track valuation underscores the market’s skepticism about the EPC recovery while still acknowledging the long‑run cash‑generating potential of BOT projects.
Investor Playbook for KNR Constructions: Bull and Bear Cases
Bull Case: If KNR can rein in subcontractor costs and secure additional BOT contracts, the EPC margin could climb back toward 9‑10% by FY28. A successful cost‑control program would validate the 9× P/E multiple, potentially pushing the stock toward the INR 160 target price.
Bear Case: Continued cost inflation, delayed government spend, or loss of key contracts could push margins below 5% and force the company into working‑capital distress. In that scenario, the market may re‑price the EPC business at sub‑7× P/E, driving the stock well below the current target.
For disciplined investors, the key is to monitor subcontractor expense trends, the pipeline of BOT concessions, and macro‑policy signals on infrastructure spending. A clear read on these variables will determine whether KNR Constructions is a temporary dip or a structural weakness.