Buy KNR Constructions; target of Rs 266: YES Securities

YES Securities' research report on KNR Constructions

KNR Constructions (KNR) reported decent set of numbers during Q4 FY20 with standalone revenue de-grew by mere ~6% despite COVID related execution shutdown during 10 days of Mar’ 20. Its operating margin remained robust at 21.7% (up 161bps yoy) backed by improved contribution from high-margin irrigation projects. However, higher interest and tax outgo led to a 29% decline in adjusted net profit. At the end of March, KNR’s order book stood heathy at ~Rs.52 bn (excluding 1 HAM projects estimated to have EPC value of Rs.6.4 bn and two Irrigation projects worth ~Rs.20 bn). Considering the COVID impact on topline and margins, we cut our estimates for FY21 and FY22. Despite strong order book position, we expect revenues to be under pressure in FY21 due to loss of execution during April and May coupled with existing labor shortage. Operating margin is likely to come under pressure during H1 FY21 due to slow execution while fixed costs continue.

Outlook

However, we believe, the Company is well placed to speed up execution as COVID related impact settles. Continued focus on asset monetization and comfortable balance sheet position provide comfort. We maintain our BUY rating on the stock for revised target of Rs.266 (Based on SOTP valuation).

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Read More