Stock To Buy: Buy This Infrastructure Stock For 25% Returns, Revenue Grew 8% YoY

Leading brokerage firm Motilal Oswal Financial Services in its recent report published on 31 May 2021 has suggested investors buy KNR Constructions. The brokerage in its report has stated, that KCR Constructions has transferred its 49% stake in KNR Tirumala and KNR Shankarampet HAM projects to Cube Highways and Infrastructure III Pte. It has received approval from NHAI for the sale of its balance stake in the above two projects. The deal is expected to be closed by 2QFY23.

Stock Overview: CMP, Target Price, Return, 52 Week low & High

The Current Market Price (CMP) of the KNR Constructions is Rs 256.05 after closing on 01 June 2022. It was opened at Rs 257.20. The brokerage has estimated a target price of Rs 320. Looking at the target price and the CMP, the stock has the potential to gain 25%. The 52 week low is Rs 215, and the 52 week high is Rs 343.90.

The Highways segment is in focus; Irrigation facing challenges

Irrigation projects constituted 30% of revenue in FY22. However, pending receivables from irrigation projects in Telangana and AP (the state governments lack funds) stood at Rs 6.5b. It hasn't received any payments from irrigation projects over the last two-to-three months. Irrigation projects constitute 25% of its FY22 order book of Rs 90b (v/s FY21: 44%), and there are not too many high margin projects in the pipeline.

4QFY22 snapshot

According to the brokerage, "Revenue grew 8% YoY and 32% QoQ to ~Rs 10.1b in 4QFY22 and was 7% above our estimate. EBITDA margin was a robust 20.6% in 4QFY22 (up 111bp YoY). EBITDA/PAT grew 14%/46% YoY to Rs2.1b/Rs1.1b (est. Rs1.8b/ Rs 1b). KNR Constructions hasn't bagged any orders in FY22. Its current order book stands ~Rs 90b (excluding recently won projects), with an OB/revenue ratio of 2.8x."

Motilal Oswal suggests 'buy' for a target price of Rs 320

"With the receipt of appointed dates for two projects in Jan'22, the pace of execution will continue in FY23. We expect some pressure on margin, with a decreasing share of irrigation projects in the OB and high commodity prices. We cut our FY23/FY24 EPS estimate by 13%/12% to factor in a slowdown in the Irrigation segment and subdued outlook on order inflows. With an order book of INR90b, we expect KNRC to clock 15% revenue CAGR over FY22-24, with EBITDA margin in the 18-19% range. We maintain our Buy rating with a revised SoTP -based Target Price of Rs 320 per share, implying an upside of 23%," the brokerage has said.

About The Company - KNR Constructions Limited

KNR Constructions Limited, incorporated in 1995, is a multi-domain infrastructure development company with more than 2 decades of experience and executes the construction of technically complex and high-value projects across segments. The company is engaged in infrastructure works such as Expressways, National Highways, Flyovers, Bridges and Viaducts, Irrigation Projects, Urban Development - Civic amenities, and Commercial and Residential Projects.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. 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. Goodreturns.in advises users to check with certified experts before taking any investment decisions.