Buy KNR Constructions; target of Rs 250: Sunidhi Securities

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Buy KNR Constructions; target of Rs 250: Sunidhi Securities

Sunidhi Securities is bullish on KNR Constructions (KNRCL) and has recommended buy rating on the stock with a target of Rs 250 in its November 16, 2010 research report.

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Sunidhi Securities is bullish on KNR Constructions (KNRCL) and has recommended buy rating on the stock with a target of Rs 250 in its November 16, 2010 research report.

"KNR Constructions (KNRCL) tapped the capital market in January 2008 with an issue of 78, 74,570 shares at a premium of Rs 160 per share aggregating Rs 126 crore. The IPO proceeds are infused in the SPVs that executes BOT projects, contribute towards unsecured loans taken for the BOT project in Andhra Pradesh. The proceeds were also used for purchase of capital equipment and for meeting working capital requirement. KNR Agrotech & Beverage Pvt Ltd (KABPL) and KNR Constructions LLC (Oman) (KCL) are subsidiaries of KNR."

"As part of the NHAI national highway development (NHDP) program, KNRCL has a nine-year relationship with Patel Engineering as a joint venture (JV) partner with 40 per cent stake. The KNR-Patel JV won 10 road construction projects including some build-operate-transfer (BOT) annuity projects as a part of NHDP phased expansion. Infrastructure in general and roads in particular feature on Government of India's immediate execution agenda. The Eleventh Plan had set a target for infrastructure spending at USD 500 billon and this is expected to increase to USD 1 trillion during the Twelfth Plan. Driven by the continued growth in developing and emerging economies, growth in the construction sectors is likely to witness a robust growth. Road development is recognized as essential to sustain India's economic growth. Over USD 50-60 billion investment is required over the next 5 years to improve road infrastructure. The likely investments worth USD 34 billon in irrigation projects augur well. The scale of the opportunity and the need for capital make Build-Operate-Own- Transfer (BOOT) the most favored mode of execution under the current fiscal situation, given the compelling need to upgrade infrastructure."

"The KNR group's business risk profile is expected to improve further over the medium term as its revenues are expected to increase at a healthy rate supported by an order book of about Rs 16 billion as on Q2FY10. Of the current order book, 80% consists of roads construction and rest 20% consists of irrigation and agriculture. Significant successful execution track record, ability to forge joint ventures to foray into larger projects, repeat quality orders on continuous basis from reputed clients such as NHAI, good clientele and strong bill to book ratio of 1.8x give good revenue & earning visibility in the coming years. KNRCL is likely to post consolidated EPS of Rs 33 in FY11 and Rs 41 in FY12. At the CMP of Rs 189, the share is trading at a P/E of 5.7x on FY11E and 4.6x on FY12E. We recommend BUY with a target of Rs 250 in the medium term," says Sunidhi Securities research report.

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To read the full report click on the attachment