With visible signs of market recovery, the broader market has become a favourable pick for the investors. After a two-year lull in the midcaps and smallcaps, it seems that the gloomy phase for this space is finally over. One midcap stock that is consistently on the rise since last week is KNR Constructions.
The stock crossed its 200 day moving average on August 18, and since then, it has stayed put in the green territory with massive buyers' interest. Today, the stock has gained as much as 3.11 percent to Rs 259.25 on the NSE.
In the last 5 trading sessions, KNR Constructions' share price has zoomed 25 percent already.
Why Sudden Surge?
Prime Minister Narendra Modi's Independence Day speech remains a great trigger for the stock. His new initiatives, 'Vocal for Local' and 'Atmanirbhar Bharat Abhiyaan' are excellent long-term opportunities. Experts believe this can make a big difference in building the 'New India' and put it among other global economics post-COVID.
Prashanth Tapse, associate vice president, research at Mehta Equities said infrastructure stocks are a great pick given government's initiatives for the sector.
Q1 Earnings
The midcap infrastructure company's consolidated net profit jumped 5.51 percent year-on-year (YoY) to Rs 46.68 crore on 1.5 percent decline in the consolidated net revenue in Q1FY21 as against Q1FY20. However, the company's order book remains strong with approximately Rs 2,300 crore during the period which has further augmented its total orders.
In its earnings note, the company mentioned, "Under the Atmanirbhar Bharat Abhiyan, the government has announced relief measures like extending the project completion deadline up to six months and classifying the lockdown event as Force Majeure for the projects impacted due to lockdown. This will help us complete the projects on time without any penalty for the delay."
Brokerages' View
Kotak Securities in its report recommended 'Add' on the stock with target price at Rs 270. According to the brokerage, the current order book and pipeline of new projects in the road sector gives revenue growth visibility. But there is a near term risk on execution due to labour supply issues which can impact the company’s earnings in the near to medium term.
"The current order book is 3.5x FY20 revenue and gives revenue visibility for the next 2-3 years. KNR targets to add another Rs 2,000 crore of new projects in the road segment in M9FY21 based on its bid pipeline from NHAI and state governments in the south," added the brokerage report.
Meanwhile, Antique Broking feels that the trend in roads execution could go down to Rs 1.5 billion. Nearly 50 percent+ of remaining order backlog is now exposed to very tricky irrigation projects, which has state led funding issues, largely driven by political uncertainties.
However, despite all of this, the company has enough leg-room to book Rs 25 billion, at-the least for next three years. "Even with worse case of COVID-19, we anticipate an 2 percent revenue CAGR till FY22E," said the brokerage.
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