Reviews

In this edition, we have reviewed KNR Constructions Ltd. and Equitas Small Finance Bank Ltd. We suggest our reader-investors to HOLD KNR Constructions Ltd. and Equitas Small Finance Bank Ltd. 

We had recommended KNR Constructions Ltd. in Volume 38, Issue No. 19 dated Aug 14, 2023— Aug 27, 2023, under the ‘Choice Scrip’ segment. The recommended price for the stock was ₹243.10. We had recommended the stock based on its rapidly growing order book, strong fundamentals, and ambitious future targets. KNR Construction Limited was established in 1995. The company offers engineering, procurement and construction services in various sectors, including roads, highways, irrigation, and urban water infrastructure management. 

KNRCL’s project execution strength primarily focuses on road transportation engineering projects, including the construction and maintenance of roads, highways, flyovers and bridges. With over two and a half decades of experience, the company has successfully executed complex and high-value projects across various sectors. In Q3FY24, on a consolidated basis, the company reported growth in net sales of 13.84 per cent to ₹996.02 crore as compared to ₹874.93 crore in the same quarter the previous year. On a QoQ basis, its net sales decreased by 4.09 per cent. 

The net profit increased by 26.46 per cent to ₹135.84 crore as compared to ₹107.42 crore in the same quarter the previous year and on a QoQ basis it decreased by 4.70 per cent. The PBIDT excluding other income increased by 14.80 per cent to ₹225.91 crore as compared to ₹196.79 crore in the same quarter the previous year. On a QoQ basis, it decreased by 2.45 per cent. At TTM, the shares of KNR Constructions are trading at a PE of 12.4 times, which is below its three-year median PE of 19.6 times, whereas the industry PE stands at 23.7 times. If we look at its PBV, it is currently at 2.25 times, which is lower than the industry PBV of 2.48 times. The company has a three-year average return on equity (ROE) of 16.5 per cent and a return on capital employed (ROCE) of 21 per cent. 

KNR Constructions appears to be well-positioned for future growth. Its proven track record in completing various infrastructure projects, coupled with a strong order book of ₹49,646 million as of December 31, 2023, indicates a healthy pipeline of work and potential for continued revenue generation in the coming years. The company has executed various infrastructure projects, including flyovers, reservoirs, and a pump house project. This demonstrates its capability to handle diverse and complex construction undertakings. Hence, we recommend HOLD. 

We had recommended Equitas Small Finance Bank Limited in Volume 38, Issue No. 20 dated Aug 29, 2023— Sept 10, 2023, under the ‘Low Price’ segment. The recommended price for the stock was ₹84.70. We had recommended the stock based on its improved customer service, the introduction of a mobile app for asset customers and the bank’s move towards digitalisation. Equitas Small Finance Bank is the largest small finance bank in India. It focuses on serving the financially non-served and underserved customer segments, which include micro, small and medium enterprises (MSMEs), small businesses and lowincome individuals. 

The bank’s strength lies in its ability to promote financial inclusion within these segments. It offers a range of financial products and services that are tailored to the specific needs of such customers. These products include small business loans, microfinance loans, vehicle loans, MSE loans and corporate loans. In Q3FY24, on a standalone basis, the bank reported 34.39 per cent rise in total income to ₹1,634.27 crore as compared to ₹1,216.03 crore in the same quarter the previous year and sequentially increased by 6.10 per cent. The net profit of the bank increased by 18.74 per cent to ₹202 crore as compared to ₹170.13 crore in the same quarter the previous year and sequentially stood at 1.95 per cent. Its NII grew 21 per cent YoY and 3 per cent QoQ. The ROA and ROE for Q3FY24 remained resilient at 1.98 per cent and 14.44 per cent, respectively. At TTM, Equitas Small Finance Bank is trading at a PB of 2.01 times which is higher than its three-year median PB of 1.70 times. The company has maintained a threeyear healthy ROE and ROCE of 10.7 per cent and 8.08 per cent, respectively. The company has a three-year compounded sales and profit growth of 16 per cent and 33 per cent, respectively. The company has ROA of 1.98 per cent. Equitas Small Finance Bank’s GNPA improved significantly YoY to 2.38 per cent in Q3FY24. 

The bank also improved its net NPA by 67 bps YoY to reach 1.06 per cent, indicating a healthier loan portfolio. Gross slippages decreased to 3.99 per cent, indicating a stabilising business environment. The bank’s product portfolio expanded with new offerings like merchant overdrafts and the ‘selfie loans’ mobile app. In addition, the bank expanded its branch network across various states, strengthening its physical presence and wider reach. The bank’s financial performance reflects improvements in key metrics like NPA reduction and decreasing slippages, suggesting a potentially more sustainable future. Hence, we recommend HOLD.