Buy This Mid-Cap Construction Stock For High Return, PAT Grew Strongly By 38% YoY: IDBI Capital

Top brokerage firm IDBI Capital recommends investors to buy the stock of KNR Constructions. The company's PAT increased strongly at 38% YoY, led by a lower tax rate at 25% vs 36% YoY.

Stock To Buy: Target Price & Financial Result

The Current Market Price (CMP) of KNR Constructions (KNRC) is Rs. 260. IDBI Capital has estimated a Target Price for the stock at Rs. 310. This stock has the potential to give a 19% return, in the upcoming 1 year. It is a mid-cap stock with a market capitalization of around Rs. 7,153 crore.

Stock Outlook
Current Market Price (CMP)	Rs. 260
Target Price	Rs. 310
Potential 1 year return	19.00%
52 week high share price	Rs. 343.90
52 week low share price	Rs. 207.50

KNR Constructions' revenue increased by 20% YoY and absolute EBITDA saw an increase of 15% YoY. EBITDA margin decreased marginally by 40bps YoY. Consolidated level, revenue increased by 22% YoY with EBITDA increasing 4% YoY. Net working capital days stood at 60 days in Q1FY23 vs 63 days in Q4FY22.

Advantages Of The Stock: IDBI Capital

Commenting on the stock, IDBI Capital stated, "KNR Constructions Q1FY23 (standalone) PAT came in-line with our estimates. But high margin irrigation execution has been curtailed by the company in Q2FY23 as no payment is received by KNR Constructions in the last 6 months against irrigation order execution. This has made us to cut revenue and margin estimates, leading to cut in EPS by 13/15% for FY23E/24E."

"The target price is revised to Rs. 310. Order book at Rs. 86bn provides execution visibility at ~3x TTM revenue. This is making us to retain a Buy rating, stock catalyst is order inflow as the order book is declining from the last 3 quarters and commencement of execution of irrigation order. The company currently has 26% of the Order Book in irrigation projects (~22bn). In Q1FY23, KNRC executed Rs. 3bn of these projects and outstanding receivables from state government against these projects increased to Rs. 8.5bn," the firm added.

Company Portfolio:

KNR constructions Limited is a multi-domain 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. Their project execution strength primarily is in road transportation engineering projects namely construction and maintenance of roads, highways, flyovers, and bridges wherever integral to the projects undertaken.

The company's Capex for Q1FY23 stood at Rs. 600mn and the company has guided FY23E Capex at Rs1.5bn. Its consolidated debt stood at Rs. 1.6bn in Q1FY23 vs. Rs. 1.4bn in Q4FY22. Consolidated Net debt /equity stood at 0.66x vs. 0.49x in Q4FY22.

Disclaimer

The above stock was picked from the brokerage report of IDBI Capital. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.