KNR Construction Ltd. (Rs. 72/-):

Rationale for recommendation:

1) 6% PAT Margin is reasonably good.

2) In 08-09, turnover of 40% and PAT up 47%.

3) BOT Project going on stream next month.

4) Dividend doubled to 20%

5) Current Order Book Rs. 1300 crs.

6) High Promoter Stake.

7) Extremely low P.E. ratio.

In last 2 months, share prices of majority of infrastructure companies have gone up by 100% - 300%. In such a scenario, KNR appears the best bet as scrip is still available at very low P.E. ratio.

Ever since infrastructure, a basic requirement, has become priority of state govts and central govt., prospects for companies in this segment have brightened. India has road network of around 3.3. mn km. which is second largest in the world. However, only 6% of the roads are well developed. Similarly, Indian Agriculture is plagued by poor irrigation infrastructure. Govt. has set out a target of irrigated area of 10 mn. hectares by 2012.

Considering above factors, KNR has a bright future as company is in the business of roads, bridges and irrigation projects etc. It had come out with IPO last year @ Rs. 170/- per share. Its CMP is much lower than IPO price but, company continues to report better performance.

Financial Performance:

E N D E D Y E A R E N D E D
------------31 / 03 / 09 -----------31 / 03 / 08
cr. cr.

Gross Income ----768.65------------------ 547.42

PBT -------------66.29 --------------46.58

PAT----------- 43.65 ---------------29.55

Equity ---------28.12-------------- 28.12

Reserves --235.20

EPS Rs.---------- 15.52--------------- 10.51



For 07-08, company had achieved total sales of 547 crs. with PAT of 29.55 crs.

For Year ended 31/12/09, company has performed extremely well as its total income has gone upto 768 crs. and PAT has zoomed to Rs. 43.65 crs.

Future Prospects:
09 - 10 E
cr.

Gross Sales-- 950.00
PAT-- 53.00
Equity-- 28.12
EPS Rs.-- 19.00
P.E. Ratio --3.80

Apart from construction work, company has also diversified into BOT (Build, Own Transfer) projects and has following 2 projects under implementation:

(A) Bangalore Project: It involves total capex of 442 crs. This BOT Project is JV with Patel Engg. and KNR holds 40% Equity stake. It has already contributed Rs. 45 crs. towards Equity of this project. Concession period is 18 years. Total annuity will be 66 crs. of which KNR will get 40%. This BOT Project is likely to be completed by August '09.

(B) Adilabad: This BOT Project involves total investment of 592 crs. Again, KNR has 40% Equity in this JV and balance 60% with Patel Engg. Company has already contributed 40% to its total Equity of 148 crs. Concession period is 18 years. Annuity will be Rs. 88 crs. This BOT is likely to be completed by May 2010.

KNR has also formed a JV with GVR Infra and has bagged order worth Rs. 576 crs. for constructing 8 lane Express way in Hyderabad. KNR holds 51% stake in the same.

Total Order Book as on date is Rs. 1300 crs.

Valuations:

Promoters stake is around 73%. Patel Engg. holds around 7%. Another 10-11% is held by institutional investors. Thus, retail floating stock is hardly 9%.

KNR has a strong management as promoters believe in taking those projects where they will get minimum 5% PAT margin.

Stock is available at:

a) 4.73 x FY09E EPS.

b) 3.80x FY10E EPS.

Share price has come down as scrip hs been shifted to 'T' category. It provides an excellent opportunity to genuine investors to buy this scrip. Still available at huge discount to IPO price. With BOT Project becoming operational next month, scrip will be re-rated.


Our price target Rs. 95/- in 4-6 weeks and Rs. 135/- in 3-6 months. A strong buy.