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Decent performance; healthy outlook…

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 24.5% revenue CAGR over FY16-21 and has consistently delivered industry-leading operating margin of ~20% throughout past three years

Prudent management, net debt free, robust return ratios (RoCE: >23%)

Q3FY22 Results: KNR reported a decent set of numbers during Q3FY22.

Standalone revenue improved 11.7% YoY to | 766.3 crore, mainly led by its strong order book position and pick-up in execution

The company delivered industry leading EBITDA margin and was at 20.7% (up 103 bps YoY). Effectively, EBITDA at | 158.9 crore, was up 17.5% YoY

KNR reported PAT of | 100.8 crore (up 29.9% YoY). However, the reported PAT included exceptional gain of | 21.4 crore. Adjusted for this, PAT improved 2.3% YoY to | 79.4 crore

What should investors do? KNR’s share price has grown at 29% CAGR over the past five years (from ~| 88 in February 2016 to ~| 309 levels in February 2021).

We maintain our BUY rating on the company

Target Price and Valuation: We value KNR at | 360/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 17.7% topline CAGR over FY21-24E

Price escalation clause in roads agreement, and higher margins at irrigation projects likely to keep operating margin at an elevated level

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

Alternate Stock Idea: Besides KNR, we like HG Infra in the EPC space.

Strong execution and lean balance sheet

BUY with a target price of | 885/share

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