Experts/Company

Poll Result

Experts view

R S Iyer

(KR Choksey)

Don’t Apply

Better ignore KNR Constructions IPO. One can consider buying this stock on listing day.

Manish Bhatt

(Prabhudas Lilladher)

Apply

KNR Constructions is a good issue and looks reasonably priced. One can apply for the issue.

SP Tulsian

(Investment Advisor)

Don’t Apply

KNR Constructions is a pure contracting company, executing road and irrigation projects and most of the road projects were executed and are under execution with JV partner Patel Engineering Ltd. The unexecuted order book of the company, as at 30th November 2007, was at Rs 1,734 crore, of which about 89% is for road transportation engineering projects, with 68% of total orders having received from Central Government organizations and about 73% of the contract is from Southern region.

Presently, the company has about 2 BOT road projects on annuity basis, which are essentially assured return, low-risk model.

Now let’s have a look at the valuations of the company. At the upper band of Rs 180, it will have a market capitalization of Rs 510 crore. Adding debt thereto, of Rs 190 crore, EV of the company works out to Rs 700 crore. This translates into order to market cap of about 2.5 times.

On expected EPS of Rs 10 for FY 08 share is valued at a PE of about 18 at the upper band. The construction equipments of over Rs 185 crore at the gross level, gives an added margin and advantage to the company. That could be one of the reasons why large projects are being procured by the company, as average size of each work is of about Rs 70 crore. Promoters’ stake of close to 72% of expanded equity base is also assured feature.

Improved capital base coupled with better net worth of the company, should enable it to go alone, for projects with better margins.

In view of recent fall in the secondary market, existing contracting companies have corrected sharply and are available at a PE multiple of anywhere between 12 to 15, based on FY 08 results. The valuation of this company at the upper band of Rs180, gives a multiple of about 18 times, which is quite expensive.

In this situation, it would be better to go for peers available in the secondary market, as the upper band of Rs 180 is quite expensive. Even lower band of Rs 170 per share results in a multiple of 17 times which is quite high. So now that you know, better to give a pass to this issue.