S&P Viewpoint

Public issue of 7,874,570 equity shares of face value Rs 10 targeting an issue size in the range of Rs 1,500-Rs 1,750 million.

CRISIL has assigned a CRISIL IPO Grade '3/5' (pronounced 'three on five') to the proposed initial public offer of KNR Constructions Ltd (KNRCL). This grade indicates that the fundamentals of the issue are average, in relation to other listed equity securities in India.

The grading reflects KNRCL's strong track record of project execution in both roads construction and operations and maintenance (O&M). The company has executed many projects as part of the NHAI's NHDP program and has had a 7-year relationship with Patel Engineering as a joint venture partner. The KNR-Patel JV has won 10 road construction projects so far. These include two BOT annuity projects as a part of NHDP Phase II, the combined value of which is Rs 9.6 billion. As of September 2007, KNRCL's order book stood at Rs 16.25 billion, of which the roads sector constituted 89 per cent. The grading is constrained by the relatively underdeveloped state of the company's operating system, which in turn, could constrain its ability to augment the size of its operations. The grading also reflects the uncertainties associated with company's plans to diversify into the power generation and real estate sectors.

About the company
KNRCL is engaged in the business of providing engineering, procurement and construction services in the transportation sector, namely, roads and highways, irrigation and urban water infrastructure management. Roads and highways is the key business of operation, forming 89 per cent of the company's order book as on September 30, 2007. The company has been awarded various projects by both NHAI and state governments.

KNR Constructions Ltd (KNRCL) was incorporated as a public limited company on July 11, 1995. It was promoted by Mr K N Reddy who started as a contractor for small works. KNRCL was primarily a road operation and maintenance company that ventured into road construction 8 years ago and is now diversifying into irrigation and urban sanitation projects. In 2000, KNRCL formed a 50:50 joint venture with Patel Engineering. Since then, the joint venture has bagged several large projects, including two BOT Annuity projects awarded by the NHAI in 2006 and 2007. Projects bagged through joint ventures currently form 74 per cent of the company's total order book.

For the year ended March 31, 2007, KNRCL reported net profits of Rs 198.8 million and turnover of Rs 2,591 million, as compared with net profits of Rs 153.7 million and turnover of Rs 1,261 million in 2005-06.

About CRISIL IPO Grading
CRISIL IPO (Initial Public Offering) Grading is an opinion on the fundamentals of the graded issue that reflects CRISIL's independence and expertise. This opinion is expressed as a relative assessment in relation to other listed equity securities in India. The assessment is based on a grading exercise carried out by industry specialists from CRISIL Research. A CRISIL IPO Grade 5/5 indicates strong fundamentals and a CRISIL IPO Grade 1/5 indicates poor fundamentals. CRISIL IPO Grading reflects its assessment of the graded company's equity fundamentals as distinct from an assessment of debt fundamentals. A CRISIL IPO Grade should not be construed to mean a comment on the price of the graded security nor is it a recommendation to invest or not to invest in the graded security.

About CRISIL Limited
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About CRISIL Research
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