Upside potential in KNR Constructions: Tulsian

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Upside potential in KNR Constructions: Tulsian

Investment Advisor SP Tulsian is of the view that there is a good upside potential in KNR Constructions.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » ALSO READ See previous views by SP Tulsian See what other Experts & Brokerages are saying about KNR Constructions See messages about KNR Constructions KNR Construct BSE | NSE 31/05/12 Are Mutual Funds betting on KNR Construct?

Investment Advisor SP Tulsian is of the view that there is a good upside potential in KNR Constructions .

Tulsian told CNBC-TV18, "KNR Constructions is into roads, construction and irrigations, mainly in these two areas and they have a strong presence in Andhra Pradesh with a topline of close to Rs 700 crore. They have posted an EPS of Rs 15 for March 2009 and the price right now is Rs 70. The price is way below the book value and they came with a public issue last year at Rs 160 and the share is ruling way below that. They have interest in two BOT road projects in which they have a 40% interest in each along with Patel Engineering, which has 60% stake and those two BOT projects will go on stream, one in the next three months and another one in next 8-9 moths or in the next ten months. The contract for the construction is given to them."

He further added, "The total orderbook with them is close to Rs 1,500 crore and what I have learnt is that recently they have been L1 for a Rs 500 crore Coal India order, plus they will be getting another order of Rs 250 crore, a letter of intent will get issued to them maybe in a week or so which will take them to a total orderbook of close to Rs 2,000 crore, which can easily take care of their next two year execution capabilities. If you see their net profit margin, it is close to 6.75%, while the PBT is close to 10% which is slightly above the industry norms because industry norms ease about 5-6% on the net profit or the PAT margins while PBT margins is close to 8-9% while they have a slightly higher margin."

"Now we see with the new state government coming into the power in Andhra Pradesh, their thrust will be more on the road and irrigation projects in which this company has the specialty though the presence of the company is to the extend of 80-82% in the road construction while about 15% in the irrigation. But those two areas will give good orderbook to the company in the time to come and they will be able to consistently perform. In fact you have seen the run up having taken place in many of these companies, they have been languishing at a PE multiple of close to 3 or 4 and even if you see this share is also available on a Historic PE of less than 5, so you have a good scope of appreciation. The present market cap of Rs 200 crore does not justify the present topline of Rs 300 crore. So you have safety from all the angles with very minimal downside risks but a good upside potential."