This Small Cap Infra Stock Reported 125.47% Growth In 3 Years, Motilal Oswal Recommends Buy

Stock Outlook & Returns

The current market price (CMP) of KNR Construction on NSE is Rs 262.50 apiece, trading 2.48% Up from its previous close. It opened at Rs 255 apiece on NSE today. The 52-week low of the stock is Rs 202.70, recorded on 20 October 2022 and the 52-week high is Rs 329.85 recorded on 1 February 2023, respectively.

The stock has moved down by 2.16% in the last 1 week, whereas, it moved up 6.48% in the last 1 month. It surged by 9.43% in the last 3 months, however, in the last 1 year, it fell by 9.22%. The stock has given 125.47% multibagger returns in the last 3 years. In 5 years, it has given 90.06% positive returns.

Execution set to improve; new order inflows expected

KNR Constructions (KNR)'s order book to bill ratio stood at ~2.5x of FY22 revenue that provides topline visibility over the next two years. Though the company has not won any notable orders in FY23, its tender pipeline is robust. KNR is aiming INR30-40b of order wins in the remaining months of FY23. Management is also looking to bid in other regions within India. However, the focus area would continue to be on the Roads segment. KNR is likely to go slow on bidding for Irrigation projects until its pending Irrigation order book is executed and payments are received. With monsoon impact behind, the execution is likely to pick-up during 2HFY23 propelled by the Road segment, while execution in Irrigation would be slow and subject to receipt of payments from authorities. KNR is targeting to clock a revenue of INR35b for FY23E.

Aggressive competition has impacted order wins adversely; robust tender pipeline should see new order inflows

Bidding in the Roads and Highways segment has been aggressive (even at 20% lower than the NHAI-stated cost), which implies lower order wins for large players. KNR has been very conservative in bidding by not compromising on its margin profile just to add new orders. As of Sep'22, its Road EPC projects constituted 31% of the order book, while Road HAM projects constituted 43%, and the remaining 26% came from the irrigation projects. With new order wins of 3-4 projects, the company is looking to add INR40b of new orders (mainly from the Roads segment) in the next few months.

Focus on asset monetization and execution of HAM projects

KNR successfully transferred 100% stake in three HAM projects - KNR Tirumala, KNR Shankarampet and KNR Sriranagam. Total equity and sub-debt infused in these three HAM projects stood at INR3.7b, against which KNR will receive a total consideration of INR5.2b (of this, INR4.9b has already been received). Going forward, it would continue to focus on asset monetization. KNR has invested ~INR5.3b in equity in its HAM projects until Sep'22. Incremental equity needed for the entire HAM portfolio is INR5.6b of which INR3b will be infused in FY23E, INR1.6b in FY24E, and ~INR1.0b in FY25E.

Strong execution and steady margins to brighten outlook; maintain BUY

While KNR's order inflows have been muted, the tender pipeline appears to be strong that should ensure decent order wins in FY23E. "We expect execution to be strong particularly in FY24 as execution from the existing order-book ramps up. We expect margins to be stable with input costs reducing along with some execution carried out in the high-margin irrigation projects. We maintain our BUY rating with an SoTP-based TP of INR310, implying 21% potential upside," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswalx. 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 consult with certified experts before making any investment decision.