Buy This Infra Stock For A Potential Gain Of 23%, Gave over 135% Return In 5 Years

Leading Brokerage firm Geojit Financial Services Limited has given a buy call to KNR Constructions Ltd for a potential gain of 23%. Geojit has suggested that if investors buy the stock for the current market price of Rs 250 apiece they can get a target price of Rs 309 apiece. Meanwhile, KNR reported better than expected revenue and Adj.PAT growth of 8% /31% YoY respectively supported strong execution and margins.

2. KNR Construction performance

EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) margin expanded by 111bps YoY to 20.6% despite inflationary pressure and Covid led restrictions, leading to 14% YoY growth in EBITDA. During the last two quarters KNR has not received any orders, however, the current order book is strong at Rs9,001cr and provides strong revenue visibility over the next few years.

Balance sheet continues to improve on account of healthy operating cash flow and reported a healthy ROE of 17.5% in FY22 vs 14.5% in FY21. Q4FY22 revenue grew by 8% YoY to Rs1,011cr due to higher execution in irrigation projects. During the quarter, the income tax department carried out a search operation at KNR's various business premises. Management is of the view that this will not have any impact on the company's financial position. Hence, no provision is made for any liability.

Despite the management's conservative view, we expect the top-line to grow by approximately 19% in FY23 with superior order book and execution capability. EBITDA margin improved by 111bps YoY to 20.6% mainly due to the execution of high margin (24%) irrigation projects and a fall in other expenses (-11% YoY).

3.Order Book

The company's total order book stands at Rs9,766cr including L1 orders of Rs765cr which is 3x FY22 revenue and provides strong revenue visibility for the next two to three years. During the last two quarters, the company has not received any orders due to higher competition and unwillingness to compromise on margins.

The company has received Rs1,073cr of orders in FY22 and for FY23, KNR has guided for Rs4,000cr to Rs5,000cr of order inflows with contribution from road HAM and EPC projects.

4. Valuation

According to Geojit, "We remain positive on long term basis, given its strong order book, debt-free on standalone level (Consol D/E 0.6x) and strong execution track record. However, a short to medium term volatility in the sector cannot be ruled out due to rising interest rates, and inflation. We reiterate Buy rating and value the core business at a P/E of 16x on FY24E EPS and BOT/HAM projects at 0.5xP/B to arrive at SOTP target price of Rs309."

5. About the company

KNR Constructions Ltd (KNR) is a leading EPC player largely focusing on national and state highway projects. KNR has successfully executed approximately 7,500 lane km road projects across 12 states in India. The market capitalization of the company is Rs 7,046 crore.

Disclaimer

The stock has been picked from the brokerage report of Geojit Financial Services. 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 taking any investment decision.