Indian benchmark Nifty hit its record high earlier this month, breaching 20,200 levels. After hitting its new peak, the market started to consolidate to currently trade around 19,600 levels. Going ahead, most market experts see the volatility continuing for the remainder of this year. Further, the surge in crude oil prices and US Bond Yields will keep investors cautious in the near term. Amid this backdrop, domestic brokerage house ICICI Direct has come out with 2 high conviction picks with up to 25 percent potential upside. Let's take a look.
PNC Infratech: The brokerage has a ‘buy’ call on the stock with a target price of ₹460, indicating an upside of 25 percent. PNC has exhibited healthy execution along with a stable margin trajectory. The medium-term trigger is asset monetisation, which would free up capital and drive scalability, it said. Also, a strong order book, which provides healthy revenue visibility is a key positive. It further noted that the company is well-placed to fund HAM projects. As of Q1FY24, the company had infused ₹1712 crore. Going forward, it has a balance equity requirement of ₹1228 crore to be infused over the next two to three years. Despite these, ICICI expects its debt to remain at comfortable levels with healthy operating cash flow generation arising from improved profitability and, better cash flow management.
PNC Infratech has established itself as a strong executor in roads and water infra segments. Additionally, superior execution capabilities via ownership of modern equipment and in-house teams enable PNC to deliver projects on time. It reported a 30.6 percent revenue CAGR in FY18-23; its operating margin has largely been in the range of 13-14 percent and reported robust return ratios (RoCE: 20 percent). Going ahead, in terms of execution, the company has given topline guidance at 10-15 percent YoY growth during FY24. ICICI believes that a healthy order book would ensure healthy topline growth (13.5 percent CAGR over FY23-25E).
KNR Constructions: The brokerage has a ‘buy’ call on the stock with a target price of ₹340, indicating an upside of 25 percent. It likes KNR as it enjoys a strong execution track record with the reputation of completing projects on time/ahead of schedule. The company also enjoys a healthy balance sheet (debt-free and equity requirement for HAM to be funded through internal accruals) and a strong return ratio. ICICI believes that KNR’s focus on diversifying geographically as well as segment-wise, could drive accelerated order inflows and sharply improve growth visibility.
KNR Constructions is one of the leading companies in the roads and highways sector having executed 6,000+ lane km of projects across 12 states in India. The company also has an established presence in irrigation and urban water infrastructure management. It reported a 14.2 percent revenue CAGR over FY18-23 and has consistently delivered an industry-leading operating margin of 20 percent (average in the last five years). It has prudent management, and robust return ratios (RoCE: 20 percent+).
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie. We advise investors to check with certified experts before taking any investment decisions.