Broking firm Sharekhan has listed the stock of KNR Constructions as a buy at the current levels of Rs 320. The brokerage sees an upside to levels of Rs 400, implying gains of more than 20% on the stock, from the current market price of Rs 332.
According to Sharekhan, KNR Constructions is expected to benefit from the government's continued focus on increasing investments in the road sector and significant deleveraging of its consolidated balance sheet, giving further headroom to improve its already strong order backlog.
"The company's board approved the sale of three assets (KNR Srirangam Infra, KNR Tirumala and KNR Shankarampet) for which the company had signed share purchase agreements with Cube Highways during 2019. The three assets are valued at 1.1x P/B at an equity value of Rs. 466 crore to be received by the company," the brokerage has said.
KNR Constructions: Massive road infra push to benefit company
According to Sharekhan, the government's Rs 111 lakh crore worth of investments envisaged over FY2020-FY2025 entails Rs 20.3 lakh crore (18% share) investments in the road sector.
According to it, the government has identified 104 national highways spanning 26,700 kms (22% of the total nation al highways estimated at 1,21,155 kms excluding private BOT projects) which will be monetized by FY2025 under the National Monetization plan.
"The asset divestment would reduce National Highways Authority of India leverage and increase project tendering in the sector, of which KNR constructions, with a strong balance sheet, is expected to be one of the key beneficiaries.
The roads sector saw project awards drop in July 2021 (by 28% y-o-y) after a healthy growth in June 2021 (which saw 12% y-o-y rise in awards at 1018 km). However, construction activities remained strong with road construction during FY2022 till July 2021 rising by 10% y-o-y to 2,927 km. Road project awards is expected to gather pace from as early as next month as per our interaction with industry players, while awarding pipeline for FY2022 remain robust," the brokerage has said.
Strong order book
The company already has a strong order backlog of Rs 11,679 crore, translating to 4x TTM standalone revenues providing strong revenue visibility in the next two years. "Overall, we expect KNR Constructions to benefit from a better outlook for the road sector and strengthening KNR construction's balance sheet. KNR Constructions currently trades at a P/E of 17x FY2024E standalone earnings with enough levers of earnings upgrade going ahead. Hence, we maintain our Buy rating on the stock with a revised price target of Rs 400 on the stock," the brokerage has said.
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