KNR Construction (KNRC) is one of the smaller players in the construction space having a robust Rs1,534 crore order book position at 2.8x FY2008 sales. It has healthy margins owing to its backward integration.
With the major drivers contributing to this growth being roads, irrigation and urban infrastructure, we expect the company to benefit from government’s infrastructural expenditure as it is present in all the three verticals.
KNRC is set to clock impressive growth owing to strong order book of Rs1,534cr (24 projects) executable over the next two years. We estimate the company to post a CAGR of 31.9% and 26.9% in topline and bottomline over FY2008-10E, respectively.
On a comparative basis too, KNRC is trading at a substantial discount to its peers. It is available at 0.6x FY2010E BV. We have valued the company based on the P/E parameter. Even on P/BV basis, the company is inexpensive trading below its Book Value.
At Rs64, the stock is trading at 4.7x FY2009E and 3.6x FY2010E Earnings. We initiate coverage on the stock with a BUY recommendation and 12-month target price of Rs88, implying an upside of 38% from current levels.