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Strong execution during quarter…

About the stock: KNR Constructions is one of the leading companies in the roads and highways sector having executed 6,000+ lane km of projects across 12 states in India. The company also has an established presence in irrigation and urban water infrastructure management.

* Reported 16.3% revenue CAGR over FY17-22 and has consistently delivered industry-leading operating margin

* Prudent management, robust return ratios (RoCE: 20%+)

Q1FY23 Results: KNR delivered a strong set of numbers aided by execution pickup.

* Standalone revenue improved 20.4% YoY to | 890.6 crore, mainly led by its strong order book position and pick-up in execution

* EBITDA margin moderated to 18.5% (down 84 bps YoY; still best in the industry). Effectively, EBITDA was at | 165 crore, up 15.1% YoY

* PAT improved 38.1% YoY of | 100.8 crore

What should investors do? KNR’s share price has grown at 21% CAGR over the past five years (from ~| 109 in August 2017 to ~| 260 levels in August 2022)

* While near term execution could be muted owing to irrigation segment payment delays, we expect the same to pick up pace by FY23 end. We maintain our BUY rating on the company

Target Price and Valuation: We value KNR at | 310/share

Key triggers for future price performance:

 * KNR is likely to be one of the prime beneficiaries of roads & water segment

*  Strong order book position, receipt of appointed date in most of its projects, and execution pick-up to translate into 13.4% topline CAGR over FY22-24E

* While some near term execution and margin moderation is likely owing to slower irrigation execution; we expect improvement by year end

* Asset-light strategy via monetisation to bring-in incremental cash flows

Alternate Stock Idea: Besides KNR, we like GR Infraprojects in the EPC space

* Heathy order book position, strong execution and lean balance sheet

* BUY with a target price of | 1,690/share

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