This Construction Stock Can Generate 15% Returns

Broking firm, Motilal Oswal has placed a "buy" call on the stock of KNR Construction with a target price of Rs 295 on the stock.

"KNR Construction (KNR) outperformed in terms of execution by reporting revenue growth v/s our expectation of 35% YoY decline. The EBITDA margin expanded YoY on account of the rising share of higher margin irrigation projects, resulting in a strong beat on earnings. Including L1 orders, the order book (OB) stood strong at Rs 78.5 billion, implying OB/rev at 3.5x and providing healthy revenue visibility," the broking firm has stated.

According to it, KNR continues to surprise with its steady performance. However, the working capital cycle has witnessed marginal deterioration.

"This is primarily on account of pending dues from the Telangana government, which have been stalled since Feb'20 and currently stand at INR6.8b. The management hopes to receive INR4.4b within the next few weeks. Factoring the strong performance in 1QFY21, we increase our FY21/FY22E EPS by 28%/7%. We maintain our Buy rating, with target price of Rs 295 (prior: INR280) based on: (a) unchanged 12x Mar'22E EPS to the EPC business and (b) the book value of road assets," Motilal Oswal institutional Equities has stated in its report.

The stock of KNR Construction was last trading at Rs 254 on the National Stock Exchange.