Buy This Small Cap Infra Stock, Target Price Rs 340: Axis Securities

CMP, 52 Week Low/High, Returns, & potential gains

Tuesday, 27 September, KNR Constructions current Market price (CMP) stood at Rs 234.50 apiece on NSE. Its 52-week low level is Rs 207.50, recorded in June 2022 and the 52-week high is Rs 329.85 recorded in February 2022, respectively.

The share price of KNR Construction in the past 1 week has fallen 2.9%, whereas, in the past 1 month it has fallen 10.39%, respectively. In the past 1 year, the share fell 19.66%. However, in the past 3 and 5 years, it has given positive returns of 99.66% and 128.56%, respectively.

According to the brokerage's estimated target price, the stock of the company is likely to surge 45% in 12 months. 

Robust Order Book; Superior Execution to Drive Growth

KNR Constructions achieved a turnover of Rs 3,273 Cr in FY22, delivering an impressive growth of 21% YOY. The company's EBITDA margin for the year stood at 20.7% as against 19.8% in FY21. Its net profit stood at Rs 382 Cr as against Rs 244 Cr in FY21, implying a robust growth of 57% YoY. Moreover, the company has a healthy Book-to-Bill ratio of 2.75x of FY22 revenue. 

As on March 31, 2022, the company has an outstanding order book position of Rs 9,000 Cr. EPC road projects and HAM projects constituted 75% of the total order book while irrigation projects constituted the remainder 25%. Currently, the company is executing 8 HAM projects with a total bid project cost of Rs 11,598 Cr and aims to bag sizable orders with decent margins in FY23. 

During the year, KNR Constructions won two projects - one from NHAI under Bharatmala Pariyojna on HAM mode worth Rs 765 Cr, and another on EPC mode from Hyderabad Growth Corridor Limited worth Rs 313 Cr.

Key Highlights

On 21st Jan'22, the company received the appointed date for the six-laning of Ramanattukara under the Bharatmala on HAM mode and six-laning for the start of Valanchery bypass to Kappirikkad under the Bharatmala Pariyojana on HAM mode. 

The company has received financial closure from the NHAI for the HAM project, i.e., KNR Ramagiri Infra Private Limited on March 30, 2022. 

The company achieved a Zero debt level on a standalone basis during the year. It has transferred its 49% stake in KNR Tirumala Infra Pvt. Ltd. and KNR Shankarampet Projects Pvt. Ltd on 30th Dec'21 for a value of Rs 137 Cr and Rs 108 Cr respectively. This includes repayment of 100% sub-debt infused by KNRCL of Rs 89 Cr and Rs 75 Cr respectively.

Key Competitive Strengths

a) Extensive experience in executing road projects.
b) Strong project management led by an experienced professional team.
c) Capabilities to execute projects in difficult terrains and conditions.
d) Robust financial position.
e) Timely project deliveries driven by the company's execution prowess

Strategies Implemented

a) Maintained a lean balance sheet.
b) Implemented asset-light policy through monetisation of HAM assets.
c) Maintained project selection discipline.
d) Leveraged project management platform to augment the company's technological capabilities.

Growth Drivers

a) The government's thrust on developing the road sector.

b) The National Infrastructure Pipeline allocating 20% of the total Capex to the road sector.

c) Rising opportunities in Metro, Civil, and Urban Infrastructure development.

Key Focus Areas Moving Forward

a) To maintain and bolster its reputation as a trusted and reliable construction partner.

b) Bagging sizable orders under the Bharatmala project.

c) Adding more business verticals to the organisation in the fields of construction such as Elevated Metro Rail and Railway Projects.

d) Focusing on maintaining and improving margins.

Outlook & Recommendation

KNRCL has an order book of Rs 8,586 Cr (as of 30th Jun'22), implying revenue visibility of over 2-3 years as over 90% of the order book is executable. The Road sector is gaining significant traction on account of the central government's proactive push for infrastructure development and incumbents like KNRCL are likely to be the key beneficiaries of the structural growth opportunities available in the sector. 

"With prevailing development in the infrastructure space, a strong and diversified order book position, efficient execution prowess, asset monetization of HAM projects and a lean balance sheet, we expect the company to post Revenues/EBITDA/APAT growth of 18%/17%/26% CAGR respectively over FY21-24E. We maintain a BUY rating on the KNRCL and value the company at 17x FY24E EPS and HAM projects at 1.2x book value to arrive at a target price of Rs 340 /share, implying an upside of 44% from the CMP," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Axis 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.