First, a quick word on PN Vijay’s last stock pick, Natco Pharma, which he recommended a few days ago.
Today, everybody made a beeline for Natco Pharma, causing it to surge and trip the upper circuit. What caused the euphoria was the news that the abbreviated new drug application (ANDA) filed by its’ marketing partner in the USA, Mylan Inc, for a three-times-a-week generic Copaxone (glatiramer acetate injection, 40 mg/ml) has been accepted by the US Food and Drug Administration (US FDA).
Natco Pharma has already given gains of 16% since PN Vijay’s recommendation and looks set for more gains.
PN Vijay has now recommended KNR Constructions for investment.
KNR Constructions is a medium sized company in the field of surface transport infrastructure. It specializes in construction of Expressways, National Highways, Rural roads, Flyovers and Commercial/Residential projects on EPC and BOT basis. KNR has around 20 years of experience in project execution and has executed about 5400 lane km road projects spread across 12 states in India. It has completed 670 lane km of BOT (Build-Operate-Transfer) projects in Andhra Pradesh, Karnataka, Kerala which include two completed annuity based projects and one Toll based project under construction. It has got a strong EPC order book of more than Rs.1200 crores as on June 30, 2014.
PN Vijay points out that KNR Constructions has quite a good financial track record. For the first quarter of FY15, KNR Constructions had total revenue of Rs.236.5 crore which is a 14% increase over the corresponding quarter of the previous year. The profit after tax showed an impressive rise of 78% to Rs.19.8 crore in the same quarter (including a tax claim of Rs.4.35 crore).
For the full FY2013-14, KNR reported a turnover of Rs.835 crore and profit after tax was Rs.60.9 crore which were also impressive in their growth. The full year EPS (Earnings per share) was Rs.21.68.
As regards valuations, PN Vijay explains that at the CMP of Rs 230, KNR is trading at a PE of 10.2 based on FY2013-14 EPS and at a PE of 8.06 based on annualized FY2014-15 EPS. This is very reasonable given the strong growth, good order book and high standards of project completion, PN Vijay says.
PN Vijay has identified three reasons why an investment in KNR Constructions would be rewarding:
(1) Impressive growth in turnover and profits especially in a difficult environment;
(2) Strong Balance sheet with low interest cost and low debt of equity (0.13);
(3) Strong project implementation skills with capacity to complete projects even ahead of schedule.
PN Vijay calls KNR Constructions “one of the one top picks in the infrastructure space“. He foresees a target price of Rs 450 in 12-18 months, which is a whopping 100% from the CMP of Rs. 230.