Brokerage house Anand Rathi infrastructure firm KNR Constructions expects to jump by around 33 percent in the next 1 year. The brokerage has upgraded the stock to 'buy' with a target price of ₹334 per share, indicating an upside of over 33 percent as against its current market price (CMP) of ₹250 (as of June 3 closing).
As per the brokerage, except for new orders, KNR's FY22 performance checks all boxes: good project execution, consistent operating profitability, and a sturdy balance sheet. Even with a cautious FY23 guidance given by the firm, the broekrage said that the company's long-term potential is intact.
The missed orders were due to unwillingness to compromise on margins/returns profile only to increase assurance, it noted. The firm hopes to add enough new orders in FY23 to keep the growth going, added Anand Rathi.
With progress at irrigation orders likely to follow payment cycles, the brokerage forecasts modest FY23 revenue growth, and cautious margin guidance takes into account inflation, adding that the near-term challenges appear to be fairly priced.
With irrigation-order execution likely to track payment cycles, the company has conservatively guided to ₹3500 crore FY23 revenues (FY22: ₹3270 crore). The guided-to 15-17 percent margin takes into account persistent price pressures, Anand Rathi pointed out.
"Notwithstanding the year-end surge in awarding, continued keener competition meant KNR failed to find success for a second straight quarter. Management looks to change this and targets ₹4000-5000 crore of orders in FY23. An ample prospect pipeline and expected moderation in competition keep it sanguine," the broekrage said in its report.
Though contracted on a QoQ basis, the year-end (FY22) order book at ₹9700 crore, includes the yet-to-be appointed ₹770 crore, said Anand Rathi. It added that while the year’s order book is good for the immediate future; growth beyond would need more.
As the brokerage adjusted the pace of execution at the irrigation orders (basis management commentary), Anand Rathi cut FY23e and FY24e earnings estimates by around 6 percent. The revision also takes into account inflation, it said.
Slower-than-expected execution is the key risk, said the brokerage.
Incorporated in 1995, KR Constructions is a Mid Cap company with a market cap of ₹7019.62 crore, operating in the infrastructure sector. The Company is a multi-domain infrastructure project development company. The Company undertakes engineering, procurement and construction (EPC) contracts, as well as build-operate-transfer (BOT) projects across various sectors, such as the construction and maintenance of roads, highways, flyovers and bridges. Its range of verticals also includes irrigation projects, water management, agriculture and trading business. It has completed approximately 5,890 kilometers of projects across over 10 states in India.
The stock rose around 9 percent in the last 1 year as against a 6 percent rise in benchmark Nifty. However, in 2022 YTD, it has fallen over 12 percent.
For the March quarter, the company reported a net profit after tax of ₹139.71 crore, up 17 percent YoY. Its consolidated total income came in at ₹1,121.91 crore, up 12.14 percent from ₹1,000.44 crore in the same quarter last year.
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