Multi Baggers

KNR Constructions is an infrastructure development company providing engineering, procurement and construction for roads & highways, irrigation and urban water infrastructure management. Its project break up is over 88% for road transportation engineering projects while remaining 12% is of irrigation and water supply and urban water infrastructure management.

The company has posted good FY09 results with total income at Rs. 648 crores (after deducting share in JV projects, of JV partners, of Rs. 121 crores)against Rs. 476 crores of FY 08, while PAT is placed at Rs. 43.65 crores resulting in an EPS of Rs. 15.52 against Rs. 13.83 crores of FY08.

The present paid up equity of the company is at Rs. 28.12 crores with high promoters stake of 73% with over 10% held by the institutional investors with 17% held by the public. This equity base is backed by free reserves of Rs. 235 crores as at 31-03-09, giving a book value per share of Rs. 94.

The company went public in January 08 and made a public issue of 79 lakh equity share at Rs. 170 per share and mobilized Rs. 135 crores. Due to this, the present debt of the company is quite low at just Rs. 80 crores.

The tax burden of the company is about 33.96% as evident with FY09 results, wherein total tax liability was at Rs. 22.46 crores on PBT of Rs. 66.11 crores. Hence, the recent clarification made by the budget with respect to contracting companies for the benefits available in  section 80 IA, is not going to impact the company, as no benefits were availed by the company, under these provisions.

The company has strong presence in Andhra Pradesh and carries a good name of timely completion of projects with quality. With  government in place in the State and with the crisis of Maytas Infra, many projects by the state governments may get re-initiated and the company will thus have an advantage to bag them in the near future.

The PAT margin of the company is at 6.75% and  PBT margin at over 10% for FY09, which at present is better than its peers and would most likely improve with renewed thrust of the government.

The company has declared 20% dividend for FY09 which looks reasonable considering share price of Rs. 65.

The present order book of the company is at over Rs. 2,000 crores, including its 51% share in 51 : 49 JV of GVR Infra Project, of Rs. 576 crores, of 8 lane expressway projects at Hyderabad

The company has also entered into 2 road BOT projects with minority stake of 40%. Total costs of both these projects are at Rs. 1,050 crores and equity contribution of the company in both these BOT projects are of Rs. 105 crores. Though the contract for construction of these gets reflected in the topline of the company, present value of ownership, does not get properly reflected.

The present market capitalization of the company is quite low at Rs. 180 crores while enterprise value is just at Rs. 260 crores. The value of BOT Projects, of the company share, could be estimated at Rs. 200 crores, as of date. So the core business of the company, comes at very low valuations.

As we have recommended Unity Infra about 4 months back which almost tripled, this share also holds huge potential to rise.

Share ruling at 65, qualifies a safe and excellent bet which can touch three digit by year end with virtually no downward risk.

Disclaimer: The writer may be deemed to be concerned or interested in the recommendation as he and his clients are invested in this scrip.