Buy 3 Small Cap Stocks From Real Estate & Infra Sector For Gains Up To 53%, Says HDFC Securities

HDFC Securities in its 16 November 2022 published report has suggested "buy" three small-cap stocks from the Real Estate & Infra sector. These 3 stocks are KNR Construction Limited, PNC Infratech Limited & Sobha Limited. This stock has performed well on long-term investments of 3 & 5 years. Here are the key takeaways of the report by HDFC Securities.

KNR Constructions Limited

KNR Constructions is a Construction company engaged primarily in the construction of roads, bridges, flyovers and irrigation projects. It has a market cap of Rs 6,829.78 crore. 

The brokerage in its recent report has recommended buy the KNR Construction stock with a target price of Rs 367/share. According to the given target price, the stock is likely to give up to 52% returns on investments if the stock is purchased at the current market price. 

The stock at the time of writing is trading at Rs 241.10/share, 2.37% down from its previous close of Rs 246.95/share. Today, the stock opened at Rs 246.85/share. The stock recorded its 52-week high level on 1 February 2022 at Rs 329.85 and 52 week low on 20 October 2022 at Rs 202.70, respectively. 

The stock has given 12.51% positive returns in 1 month, whereas, in 3 months, it has given 5.36% negative returns. In 1 year, it gave 15.75% negative returns. The sock gave maximum 93.25% positive returns in 3 years, whereas, in 5 years it gave 76.31% positive returns. 

Brokerage comments

According to the brokerage, KNR posted a strong quarter; revenue/EBITDA/APAT of INR 8.2/1.6/0.8bn beat our estimates by 5/9/0%. FY23 revenue guidance was unchanged at INR 35bn (with a buffer of +-5%), with EBITDA margin pegged at 18-19%. At the standalone level, the gross/net debt stood at INR2/1.3bn as of Sep'22, with net D/E at 0.05x, vs. INR 1.3/0.8bn and net D/E of 0.03x, as of Jun'22. The balance HAM equity requirement is INR 5.6bn as of Sep'22 with INR 3/1.6/1.1bn to be invested in H2FY23/FY24/FY25. KNR incurred a Capex of INR 750mn in H1 vs. FY23 guidance of INR 1-1.2bn. The NWC days stood at 54 as of Sep'22 (vs. 60 as of Jun'22). The irrigation receivables as of Sep'22 stood at INR 9bn vs. INR8.5bn as of Jun'22. "We maintain a BUY with an increased TP of INR 367/sh (18x Sep-24E EPS, HAM 1x P/BV)," the brokerage has said.

PNC Infratech Limited

PNC Infratech is 2nd Infrastructure company in the list having a market capitalisation of Rs 6,911.17 crore. The company is one of the front-ending construction, infrastructure development, and management companies in the country. The company undertakes infrastructure projects, including industrial area development, highways, flyovers, power transmission lines and towers, bridges, airport runways, and other infrastructure activities.

The brokerage has placed "buy" call on PNC Infratech stock with a target price of Rs 410 per share in a recent report. If the stock is purchased at the current market price, as indicated by the target price, it is anticipated to give returns of up to 53%.

The current market price of PNC Infratech on NSE is Rs 266.60/share, trading 1.76% down from its previous closing of Rs. 270.35/share. The stock's 52-week high is Rs 318 on February 1, 2022, and its 52-week low was Rs 219 on June 17, 2022, respectively.

The stock has given 3.66% positive returns in 1 week. It has given 3.53% positive returns in 1 month and 6.68% positive returns in 3 months, respectively. However, in 1 year, it gave 12.17% negative returns. The sock gave 38.61% positive returns in 3 years, whereas, in 5 years it gave maximum 45.26% positive returns on investments.

Brokerage's comments

According to the HDFC Securities, PNC Infratech (PNC) reported Q2FY23 revenue/EBITDA/APAT at INR 15.6/2.1/1.3bn, missing our estimates on all fronts by 5.5/6.9/4.4%. PNC was impacted by delays in JJM water projects' DPR approvals on INR 80bn OB. About INR 23/40/17bn of DPR approvals are pegged to be secured at start of H1FY23/24/25, which may result in INR 10/25/30bn revenue in FY23/24/25. PNC has maintained its revenue growth guidance of 10-15% YoY and EBITDA margin guidance of 13-13.5% for FY23. With cash balance of INR 5.2bn and standalone gross debt of INR 2.8bn (vs. INR 3bn as of Jun'22), PNC had a net cash balance of INR 2.4bn (vs INR 1.6bn Jun'22), as of Sep'22. Capex guidance for FY23 is INR 1-1.2bn, with INR 220mn incurred in H1FY23. "Given a strong OB and comfortable balance sheet, we maintain BUY, with an increased TP of INR 410/sh (15x Sep-24E; rolled over, 1x P/BV for HAM equity investment)," the brokerage has said. 

Sobha Limited

Sobha is 3rd small cap stock in the list with a buy call. It is a reals estate sector company with a market cap of Rs 5,915.54 crore. The company is engaged in the construction to operations of townships, commercial premises, housing projects, and other related activities. 

HDFC Securities recommended buy the Sobha stock with a target price of Rs 935/share. The brokerage with the given target price claims a potential upside of 51% in the shares from its current level. 

The share price of Sobha is Rs 622.50/share on NSE, trading0.18% up from its previous closing of Rs. 621.40/share. The stock recorded its 52-week high at Rs 1,044.95 on January 19, 2022, and its 52-week low on June 20, 2022, at Rs 488.20, respectively.

The stock in the past 1 year has fallen 28.72%, giving a negative return. In 1 month it has fallen 1.62%, and in 3 months it has fallen 12.74%, respectively. However, it has given positive returns in 3 and 5 years. In 3 years it gave 57.03% and in 5 years, it gave 17.98% positive returns, respectively. 

Brokerage's comments

According to the brokerage firm, Sobha's (SDL) reported revenue/EBITDA/PAT of INR 6.7/0.9/0.2bn (miss)/beat our estimates by 4.3/(16.5)/(32)%. It recorded the highest-ever quarterly presales in value terms at INR 11.6bn (+13/+2% YoY/QoQ). Also, collections were the highest ever at INR 13.3bn, driven by the highest-ever residential collection of 10.8bn. This resulted in net debt reducing to INR 18.9bn (vs. INR 21bn in Q1FY23). SDL doesn't expect any significant improvement in debt, going forward, given the robust BD plan. With an inventory of 23msf (~4 years or current presales), SDL plans to replenish its inventory with 50% coming from its existing land bank and the balance from the new BD. With the robust cash flow, SDL plans to invest INR 3bn towards new land acquisition/annum with INR 20-25bn/annum of GDV addition. "SDL expects to see normalisation in EBITDA margin on account of improving the prospect of contractual business post-COVID. We maintain BUY with an increased TP of INR 935 (rollover to Sep-24E)," the brokerage has said. 

Disclaimer

The stocks have been picked from the brokerage reports of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.