KNR Constructions is an attractive small cap stock from infrastructure sector. The company caters to construction of roads, bridges and water infrastructure businesses.
Low debt and strong execution skills are KNR Constructions (KNRC) key positives as part investment rationale and makes it a good stock to buy from infrastructure space. The company's current order book stands at Rs.2,800 crore. It is 2.7 times its FY11 revenues.
Stock Analysis:
Company's debt-to-equity is 0.48 as in march 2011 and it is one of the lowest ratio among its peers that shows it has the least leveraged balance sheet. Company follows conservative approach for bidding cautiously and selectively for new projects. This conservative approach has helped company when most infrastructure companies have reported huge losses. KNR Constructions gave a decent performance even in troubled times.
In the December quarter, the company had posted a PAT of Rs.16.1 crores compared to Rs.5.5 crores in the same period an year ago. In present high interest rate regime, KNR Constructions with a low leverage would be insulated and benefitted compared to other infrastructure businesses.
KNRC have integrated it's businesses backward for construction activities. This helps company in maintaining a healthy operating margin. KNRC has captive quarrying mines and crusher units that reduces operating expenses for it. The major road developers such as GMR Infrastructure, Sadbhav Engineering and Patel Engineering are among company's clients.
It is expected that significant number of road projects would be awarded over the next few years as infrastructure sector is the sector that needs big improvement in India, KNRC with its execution skills and strong balance sheet will be in a comfortable position to grab at least a few projects. Growth of company seems to be comfortable.
Stock Valuations
At current stock price of Rs.137, the stock trades at a price-to-earnings multiple of 5.85. The stock had a good run since January 2012. Considering above discussed positives for the company, the stock has some potential to run up further. if it corrects from current levels to Rs.100 levels, it is definitely a good stock to buy for medium term.
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