KNR Constructions shares spike 14% to 3-week high on robust Q2 numbers

Shares of KNR Constructions, a leading provider of engineering, procurement, and construction (EPC) services, surged 14.31% in intraday trading on Wednesday, November 13 to a three-week high of ₹324.65 per share.

The stock rally followed the company’s strong performance in the quarter ending September. KNR reported an 87% year-on-year (YoY) increase in consolidated revenue to ₹1,944.86 crore. Operating profit jumped 276% YoY to ₹869 crore from ₹231 crore, with margins improving by 2,246 basis points to 44.7%.

Profit after tax (PAT) soared 306% to ₹580 crore, up from ₹142 crore a year earlier. It also witnessed a sequential improvement of 249% from the June quarter, where the net profit stood at ₹165 crore.

As of the end of September 2024, the company’s total order book stood at ₹4,406 crore. The road (HAM) segment contributed 33% to the order book while the irrigation and pipeline sectors accounted for 23% and 25%, respectively, with the remainder coming from other road projects, as per the company's Q2 earnings report. 

KNR Constructions is a leading player in the country’s infrastructure sector, where it mainly focuses on providing infrastructure services for highways, flyovers and bridges, and irrigation sectors. It participates in all the formats of bids, including item rate contracts, EPC contracts, BOT (toll/annuity), and HAM mode.

After three decades of strong performance in roads and irrigation, it is now expanding into new sectors due to a slowdown in project awards in its traditional areas. The company is building expertise in urban infrastructure, pump storage, railways, and tunnel projects, taking on these projects independently or through joint ventures.

Government project awards have been lacklustre for the past 1-2 years, however, given the large infrastructure backlog, analysts expect the National Highways Authority of India (NHAI) to award projects worth ₹2 trillion. State governments of Andhra Pradesh, Telangana, and Tamil Nadu are coming up with large projects on irrigation and urban infrastructure, and L1 companies in some projects are looking to subcontract work to quality EPC firms.

This presents a huge opportunity, and management is confident of achieving ₹60-80 billion inflows in the current fiscal.

Stock up nearly 160% in last 4 years

Over the past four years, the company's shares have risen from ₹124.65 to the current trading price of ₹320.80, delivering a gain of 157%. Earlier in September, domestic brokerage firm Elara Capital retained its 'Accumulate' rating on the stock and revised the target price higher to ₹336 apiece.

"A pickup in inflows and receipt of pending approvals on hybrid annuity model (HAM) projects worth ₹12 billion hold potential to return to a 15%+ growth trajectory from FY26E after muted performance for the past two years," said the brokerage.

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