We have been fortunate enough to buy many multi-baggers over the past two decades. I have talked about some in the past and this time I shall choose one which is more recent rather than the biggest one. KNR Constructions is a mid-sized EPC player based out of Andhra Pradesh (AP). A construction company from AP is enough to scare most people away, including myself. As they say, sirf naam hi kaafi hai. But this idea came up while we were invested in another EPC company in the private space. So to better understand how other companies are conducting their business, we were looking at listed peers.
KNR IPO-ed in early 2008 at Rs.170 (pre-split). As is usually the case, any IPO comes when the sector is the talk of the town. The sector was buzzing with activity in light of new policy initiatives from the government and the banks liberally funding any infrastructure project. KNR is run by the founder along with his family in key positions including tendering/bidding and project management. The company focused on its core markets while expanding slowly into other geographies. Its focus was on growing profitably, or consciously waiting when the environment did not present opportunities. After doubling topline between 2008 and 2010, its topline remained more or less stagnant. Its accounting was also very conservative, and balance sheet relatively impeccable. It didn’t spread itself too thin nor did it bid for unviable projects. That was the time when the markets were focused on growth at any cost/risk/debt. There was scant regard for the durability of cash flows or balance sheet quality. Perhaps because of this reason, its stock price hardly moved.
Between 2010 and 2014, the EPS went nowhere, and in the absence of growth, the market punished the stock for not growing its business, unlike its peers. In 2011, the stock crashed below its IPO price and kept falling. We initiated buying in May 2011 when the price was Rs.100 (pre-split). It was trading at a P/E of 5x and at a discount to its book value of Rs.135. The stock was very illiquid and we kept accumulating in the range of Rs.120-105 in early 2013. As we paused, the st