98% upside potential? JM Financial bets on this small-cap diagnostic stock; here's why

JM Financial, in its recent report, has maintained its bullish stance on Krsnaa Diagnostics. The brokerage remains confident of Krsnaa’s robust execution and believes there is significant scope to re-rate.

About Krsnaa Diagnostics

Krsnaa Diagnostics is India’s diagnostic services provider, both in Radiology and Pathology. The company started its journey in 2011 with 2 radiology centre. Presently, it has 51 CT scan units, 2 MRI machines, establish 168 labs and 3,705 collection centres, all under various contractual agreements.

Krsnaa Diagnostics on D-Street

The smallcap stock hit its 52-week high of Rs 609.15 on June 12, 2023, and a 52-week low of Rs 354 on February 28, 2023. It has delivered over 35 per cent return in the last six months.

98% upside potential?

JM Financial has maintained its 'Buy' rating on the stock with a target price of Rs 960, suggesting an upside potential of around 98 per cent from Thursday's closing price of Rs 485.9.

It said that Krsnaa has operationalised nearly all BMC and Orissa collection centres with ramp up over the next few quarters. The company is also participating in new large tenders and will disclose them in subsequent quarters. Also, the management expects revenue growth of 30-35% (excl. Rajasthan). The contribution of Rajasthan tender expected in the fourth quarter is Rs 25 crore.

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The brokerage noted that Krsnaa, after the expiry of an earlier Rajasthan tender in Aug’22 and 2 fresh rounds of bidding, emerged as the L1 bidder and received the Letter of Award (‘LOA’). Surprisingly, the department cancelled the LOA due to disagreements over the submission of the performance guarantee (which the company was willing to provide).

"Aggrieved by the department’s action, Krsnaa filed a writ petition in the Rajasthan High Court wherein the Hon’ble Court ruled in favour of the company. Krsnaa has submitted the additional performance guarantees as directed by the Court and they believe that the agreement will be executed by Aug-end," it added.

JM Financial further added that the Rajasthan tender size was increased to cover 50 districts vs. 35 earlier and hence anticipates Rs 300 crore contribution in FY25. "While this is significantly ahead of our expectations, we have conservatively built-in Rs 150 crore from the same and increased our revenue/ earnings to that extent. The tenure of this contract is 5 years. This project has an outlay of Rs 200 crore and the company is exploring vendor financing options as well," it said.

Disclaimer: The stocks mentioned in the story are for information purposes only. Investors or market participants should consult their financial advisors before taking any position

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