Buy This Infra Stock, It Has A Strong Balance Sheet & Order Book Of Rs 100 Bn

The KNR Constructions Ltd stock is a good play on India's infrastructure growth story. The company is among the few, which has a very comfortable balance sheet, along with a strong order inflow. Here are some of the reasons to be buying the stock.

A strong infra player

KNR Constructions is a multidomain infrastructure project development company providing (EPC) engineering, procurement and construction services across various fast growing sectors namely roads & highways, irrigation and urban water infrastructure management. The hallmark of the company's performance over the last few years has been its strong execution capabilities, which is a must for any company in the infra space.

Buy the stock of KNR Constructions, says Motilal Oswal

According to broking firm, Motilal Oswal, which recently came out with a report on the company KNR Constructions sits on a strong order book of Rs 100 billion (excluding recently won projects), which provides clear revenue visibility for the next three years.

"It has received appointed dates (AD) for two hybrid annuity model projects in Jan'22 and financial closure (FC) in one hybrid annuity model project in Apr'22, which will support execution in FY23E and FY24E," Motilal Oswal has said in its report.

How the stock has moved?

The share price of KNR constructions has hit a 52-week low of Rs 189, while the 52-week high is Rs 329. The stock is currently trading at Rs 277. Based on data from the BSE, the trailing p/e for the company is around 17 times.

Broking firm, Motilal Oswal expects an EPS of Rs 16.8 for 2023, which makes the p/e around 16.48 at the current market price of Rs 277. Construction and infra stocks have a higher p/e, so based on the estimates, the PE looks reasonable, provided the EPS is achieved.

Strengthened balance sheet

According to Motilal Oswal, KNR Constructions has strengthened its Balance Sheet further by monetizing two of its hybrid annuity model projects via stake sale to Cube Highways, which allows it to bid for new projects.

However, the brokerage expects margin to stay elevated, despite inflationary pressures from higher commodity prices, as a sizable portion (26%) of its order book consists of irrigation projects.

Robust order book

With an order book of Rs 100 billion, Motilal Oswal expects the compant to clock 20% revenue growth over FY21-24, with EBITDA margin in the 18-20% range.

"We maintain our Buy rating, with a SoTP-based target price of Rs 360 per share, implying an upside of 29%. Our target price is premised on: a) 16x FY24E EPS for the EPC business, and b) P/Inv of 1.2x for its Road asset," the brokerage has said.