INVESTMENT STOCK IDEA

• HOLDING PERIOD – THREE MONTHS PLUS

• KNR CONSTRUCTION
• Present Price – Rs.112 , Projected price – Rs.175

KNR Construction (KNRC) is one of the smaller players in the Construction space having healthy margins owing to its backward integration. Its ability to forge joint ventures to foray into large projects provides Earnings visibility over the medium term. The company clocked OPM of 15.2% in FY2009, which is reasonably high compared to industry standards. This was largely due to savings derived from investments in construction equipment and captive quarries. The company has an order book position of over Rs.4000 cr ( as per company website) which is 6x of its FY09 revenues. KNRC's JV with Patel Engineering to execute BOT projects on annuity basis is expected to assure it stable cash inflows going ahead. The two projects bagged by the JV are expected to earn annuity of Rs155cr for the JV FY2010 onwards. It has an Equity Capital of Rs.28.12 cr. It reported an EPS of Rs.15.4 for FY09 and paid a dividend of 20%. It had sales of Rs.649.6 cr for FY09 and earned a Net Profit of Rs.44.4 cr. In the first quarter ending June 09, it reported sales of Rs.127.10 cr and a Net Profit of Rs.10.7 cr. We expect the company to report EPS of around Rs.21 for the year FY10.