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Wednesday, July 29, 2009

Outlook for the day,KNR Constructions Ltd:-Future growth propsects and outlook

Concerns that the Chinese banks may tighten the credit which have been flowing free like the Yangtze so far this year, made the global markets shiver yesterday. Both Roach and Grantham have voiced their concerns on the Chinese and the global markets respectively, which may have impacted the global sentiment.However, today the Dalal Street punters are likely to fence themselves against global news and get down to business of settling the July scores. The puts in the August series are being written at 4400 and 4300, and that too in small numbers. The discount of 1 point in the July Nifty and 9 point premium in the August Nifty indicate that the underlying data is still positive. But the massive FII sales across all segments and sharp fall in crude does not augur well. So even if the punters try and take the Nifty higher, don’t fall into the trap. Cut down on roll overs.Though I wont be surprised if market ridicules facts and analysis and make a 200 odd points upmove at the end of the day.


Scripscan:KNR Constructions Ltd
cmp:79
Traded in:Nse-bse

Story:India has the second-largest road network in the world. However, only 6% of the roads are well developed. Indian agriculture is plagued by poor irrigation. The government has set a target of irrigating 10 million hectares by 2012. One company that is poised to take advantage of this is KNR Constructions. It is into engineering, procurement and construction services, in sectors such as roads, highways, irrigation and urban water infrastructure projects. The company has gradually moved up from undertaking pure fixed-rated contracts to contracts based on engineering-procurement-construction.KNR has also entered into joint ventures (JV) with other engineering companies which have helped it to bid for large projects. As part of the National Highway Authority of India’s (NHAI) national highway development programme, KNR has a seven-year relationship with Patel Engineering as a JV partner. The KNR-Patel JV has won 10 road construction projects including two build-operate-transfer (BOT) annuity projects as a part of NHDP 2. In irrigation, it has a JV with Backbone Projects and Sri Laxmi Engineering. There is a significant opportunity in the road sector, as NHAI has a plan of investing Rs220,000 crore up to 2012.However, progress has been slow so far. Last year, out of the 60 projects offered, only 10 had attracted bids. It is expected that a hybrid model proposed by NHAI recently allowing it to offer higher level of viability gap funding to the infrastructure companies will be helpful. Dependence on the road sector may be a concern for the company, as any delay in picking up new projects might affect its revenue. Given that KNR is still a mid-sized company, compared to other construction companies, it cannot bid for the big projects alone but, for now, it has enough on its plate.Apart from construction work, the company has also diversified into BOT projects and has the following two projects under implementation:Bengaluru Project:The total capital expenditure is Rs442 crore. This BOT project is a JV with Patel Engineering, in which KNR holds a 40% stake. The project stretches from the Bengaluru International Airport at Devanahalli to the Andhra Pradesh border, on National Highway-7. KNR has already contributed Rs45 crore towards equity. The concession period is 18 years. Total annuity will be Rs66 crore, of which KNR will get 40%. This BOT project is likely to be completed by August 2009.Adilabad:This BOT project – to construct the Hyderabad-Nagpur Highway – is being implemented at a cost of Rs592 crore. KNR has a 40% stake in this JV and Patel Engineering has 60%. KNR has already put in its equity contribution of Rs148 crore. The concession period is 18 years with an annuity of Rs88 crore. This project will be completed by May 2010. KNR has also formed a JV with GMR Infrastructure and has bagged an order worth Rs576 crore for constructing an eight-lane expressway in Hyderabad, in which KNR holds a 51% interest.In 2008-09, KNR’s turnover was up 40% and net profit was up 47%. In the December and March quarters, revenues have grown 35% and 29%, respectively, compared to the same periods last year. Operating profit has grown by 55% and 34%, respectively, in the same periods. The average margin in the past two quarters was 15%. A confident management has doubled its dividend to 20%. According to market sources, the current order book is around Rs1,300 crore. The promoters’ holding is a high 73%. Patel Engineering holds around 7%. Another 10% is held by institutional investors. So, only about 9% is with retail investors. The P/E ratio is 4.17 at the current market price of Rs65. The management expects revenue to hit Rs950 crore in 2010 – a jump of 47% – and net profit to go up to Rs53 crore – a rise of 22%.Looks a great buy at dips.

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