KNR Construction

BUY Call - A Better Contracting Play KNR Construction

KNR Constructions a contracting company, executing road and irrigation projects with orders in hand of about Rs.1,900 crores, of which about 85% are for road transportation engineering projects. The company has strong presence in Southern region with about 75% of its orders coming in from there while two-third of the total orders are flowing in from the Central Government. It’s good investment call right now, read below why.

• The company went public in January 08, with an issue of 79 lakh equity shares and shares were issued at Rs.170 per share, at the lower band, in February 08.
• The company came out with improved financial results for the year ended 31st March, 08, with total income, on consolidated basis at Rs.549 crores with PBT of Rs.47.50 crores and PAT of Rs.30.70 crores, resulting into an EPS of Rs.11 for FY 08 on fully diluted equity of Rs.28.12 crores.
• The IPO proceeds of Rs.134 crores collected by the company has been utilised to the extent of Rs.72 crores upto March 08, which has been instrumental in improving its working during March 08 quarters.
• The company has been moving from pure contracting company to executing BOT projects and have acquired 40% interests in two BOT road projects. 60% interest is held by Patel Engg. Ltd. Both the BOT projects have a length of about 124 kms. with cost of Rs.1,043 crores. Of this, the company got the contract for Rs.816 crores to be completed in two phases by March 09 and March 10. Investments of Rs.78 crores to be made in both these projects. The entire amount was mobilized by the company from IPO and Rs.24 crores has been deployed till March 08. Hence, balance amount of Rs.54 crores would also get employed in the next 12 – 24 months which is lying with banks and invested in debt mutual funds.
• The present shareholding of the company is at Rs.28.12 crores divided into 2.81 crore shares of Rs.10 each. Of this, promoters stake is 72% while 28% is held by the public.
• The present net worth of the company, as at 31-03-08 is close to Rs.230 crores, translating into a book value per share of Rs.80. This improved net worth would now entitle the company to bid for larger projects which has better profitability.
• Considering pending orders in hand, FY 09 may result in a total income of Rs.880 crores with PAT of close to Rs.50, translates into an EPS of Rs.18.
• Share is now ruling at Rs.110 against its IPO price of Rs.170, discounting FY 08 EPS by about 10 times on fully diluted equity, while PE multiple works out at about 6 times based on expected FY 09 EPS which is very low compared to the industry peers.
• Promoters stake of 72% also instill confidence which is very high, while comparing it with its pees.
• Share now ruling at Rs.110 looks a safe and decent buy which has potential to rise to Rs.150 by the year end. Remember, we recommended to avoid the issue at the time of the company’s IPO in January 08. The same is now available about 35% lower to its issue price.
• Total market capitalization of Rs.300 crores is quite low of the company, considering its topline and orders in hand. Share has minimum downside risk and looks a good buy at Rs.110 for about 35% return in the next 6 – 8 months.