Budget 2022 Pick: Analyst sees up to 20% growth in this infra stock; lists fundamental, technical triggers

The government is likely to make mega announcements for the infrastructure sector in the Budget 2022 with respect to, several analysts estimate. In this regard, the domestic brokerage house ICICI Securities sees a surge up to 20 per cent in infra stock KNR Constructions, it said in its report.

The brokerage in its report lists out both fundamental and technical triggers that make the stock a perfect bet for Budget 2022. It sets a target price of Rs 358 per share.  

The stock on Friday closed over 1 per cent higher to Rs 302.2 per share on the BSE as against 0.13 per cent fall in the S&P BSE Sensex.

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Fundamental Analysis:

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

It has reported 24.5 per cent revenue CAGR (Compound Annual Growth Rate) over FY16-21 and has consistently delivered industry-leading operating margin of 20 per cent throughout past three years.

Strong order book position of Rs 11,594 crore at Q2FY22-end; including L1 projects, receipt of appointed date in most of its projects, and healthy execution pick-up to translate into 18.8 per cent topline CAGR over FY21-23E.  

The price escalation clause in the roads agreement and higher margins at irrigation projects to keep operating margin at an elevated level. Asset-light approach through monetization to bring-in incremental cash flows.  

The company’s net working capital (45 days at Q2 FY22-end) to improve with receipt of irrigation segment’ dues.

Technical Analysis:

The stock has witnessed a change of polarity as a major long-term supply line resistance joining highs since the calendar year 2017 has reversed its role post a breakout in July 2021 and is acting as support signalling positive bias.  

The stock has already taken 20 weeks to retrace just 61.8 per cent of the previous 19 weeks up move (Rs 188-343 per share levels), a shallow retracement signals a higher base formation.
It has recently rebounded taking support at the 52-week EMA and is expected to continue with its up move towards Rs 358 levels being the 123.6 per cent external retracement of the recent breather between Rs 343-242 per share.