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Avoid Subscription to KNR Constructions

January 28, 2008

KNR Construction (KNR) designs, engineers, constructs and maintains roads. The company diversified into construction of irrigation and urban water supply projects in 2005. The execution of infrastructure projects requires significant amount of technical expertise and skill. Pre-qualification for bidding of such projects is often based on past experience of execution is not a problem though it can’t bid for mega construction projects which require minimum net worth criteria.

As on November 30, 2007, it had executed projects estimated at Rs 45.34 crore. The balance order book aggregating approximately Rs 145 crore is under execution.Most of its clients are governmental agencies like the NHAI, and state PWDs.

In view of recent fall in the markets, stock prices of infrastructure contracting companies have corrected sharply and are available at attractive P/E multiples between 12x to 15x, based on FY08 estimates. At the price band of Rs 170-180, the company’s P/E works out to 17x to 18x which is VERY EXPENSIVE for a SMALL-CAP Construction stock. Avoid subscription to the IPO of KNR Constructions.

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