ICICI Direct among India's Best Retail Broker has suggested buying the stocks of KNR Constructions Ltd and Ashok Leyland. KNR Constructions Ltd's stock has a target price of Rs 340, while Ashok Leyland's stock has a target price of Rs 175 set by the brokerage. ICICI Direct forecasts a good upside of 21% in 12 months from the current market price for both stocks.
Q2FY22 results of KNR Constructions Ltd
KNRCL is an ISO 9001:2000 Certified company that offers engineering, procurement, and construction services in a number of fast-growing sectors, including roads and highways, and irrigation. According to the brokerage the company has reported a 24.5% revenue CAGR over FY16-21 and has consistently delivered industry-leading operating margin of ~20% throughout the past three years.
The brokerage has said that KNR's "Standalone revenue improved 25.7% YoY to Rs 755.6 crore, largely backed by its healthy order book position and pick-up in execution post second wave disruptions. On QoQ basis, topline improved by 2.1%. The company delivered industry leading EBITDA margin and was at 22.2% (up 154 bps YoY). Effectively, EBITDA at Rs 167.5 crore, was up 35.1% YoY and PAT improved 91.1% YoY to Rs 59.4 crore."
Key triggers for future price performance of KNR Constructions Ltd according to the brokerage
- KNR is likely to be one of the prime beneficiaries of thriving roads and water segments (Jal Jeevan Mission).
- Strong order book position, receipt of appointed date in most of its projects, and execution pick-up to translate into 18.8% topline CAGR over FY21-23E.
- Price escalation clause in roads agreement, and higher margins at irrigation projects likely to keep operating margin at an elevated level.
- Asset-light strategy via monetisation to bring-in incremental cash flows.
Buy KNR Constructions Ltd with a target price of Rs 340
The brokerage in its research report has claimed that "The company is a focused road based EPC player that enjoys a strong execution track record with the reputation of completing projects on time/ahead of the schedule. KNR also enjoys a very healthy balance sheet and a strong return ratio. With net debt free position at standalone levels (as of date), equity commitment is likely to be supported by internal cash generation, HAM monetisation and irrigation dues recovery and should not entail new debt at standalone levels. Hence, we maintain our BUY recommendation on the stock with a SoTP based revised target price of Rs 340/share. We value its core EPC business at Rs 317/share (20x FY23E P/E)."
Q2FY22 results of Ashok Leyland
Ashok Leyland, the Hinduja group's cornerstone, is India's second-largest commercial vehicle manufacturer, as well as the world's fourth-largest bus manufacturer and 14th-largest truck manufacturer. According to the brokerage, the company's "Standalone operating income came in at Rs 4,458 crore (up 51% QoQ). Total volumes for the quarter were at 27,543 units, up 53% sequentially with ASPs for the quarter coming in at Rs 16.2 lakh/unit, down 1.3% QoQ, M&HCV: LCV mix remained broadly unchanged QoQ at 50:50 and EBITDA for the quarter came in at Rs 135 crore with corresponding margins at 3.0%. Gross margin declined sharply 260 bps QoQ but operating leverage benefits limited the blended margin decline."
According to the Q2FY22 results of Ashok Leyland the consequent reported loss after tax was at Rs 83 crore, says ICICI Direct.
Key triggers for future price performance of Ashok Leyland according to ICICI Direct
- Set to be an outsized beneficiary of impending M&HCV revival riding on government's infra push and pick-up in core industrial activity (mining, construction, road building). LCV to continue to gain from last mile mobility.
- Blended ASPs to rise amid exports push in line with the global top-10 vision.
- We build 23% volume & 30% net sales CAGR over FY21-24E; margins seen rising to 10.5% levels by FY24E on the back of operating leverage benefits and cost, cash, CAPEX actions under Project Reset.
Buy Ashok Leyland with a target price of Rs 175
The brokerage has said, "ALL's share price has grown at ~13% CAGR in last five years (from ~Rs 80 levels in November 2016), outperforming Nifty Auto index."
The company's "board approved the sale of EV business to its subsidiary i.e. Switch Mobility on a slump sale basis & transfer of e-MaaS (E-Mobility as A Service) business to Ohm Global Mobility Pvt Ltd, India, on slump sale basis, to be eventually housed under switch mobility with a majority stake" says ICICI Direct.
ICICI Direct has claimed in its research report that "We retain BUY rating given CV revival play & structural margin tailwinds. We value ALL at revised SOTP based target price of Rs 175 (15x CV FY23-24E avg. EV/EBITDA, 3x P/BV for investments; earlier TP Rs 160)."
The above stocks are picked from the brokerage report of ICICI Direct. 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.