KALPATARU POWER- Weak quarter; H2 likely to be strong::Edelweiss

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KALPATARU POWER TRANSMISSION
Weak quarter; H2 likely to be strong



Kalpataru Power Transmission’s (KPP) Q2FY11 numbers were below expectations.
While revenue and PAT grew 14% and 12% Y-o-Y, respectively, EBIDTA remained
flattish due a 136bps margin decline on the back of revenue mix. While new orders
declined 34% Y-o-Y to INR 8.3 bn, H1FY11 orders dipped 25% Y-o-Y to INR 11.6 bn
for the standalone entity.



􀂃 Margin pressure in T&D segment
KPP reported EBIDTA growth of a mere 2.3% Y-o-Y due to a 187bps Y-o-Y
decline in the T&D segment. This was due to change in the revenue mix during
the quarter. EBIT from the segment grew a mere 3.3% Y-o-Y despite a 22%.
revenue growth.

􀂃 Infrastructure segment’s visibility declining
The company posted 17% Y-o-Y decline in infrastructure revenues, which for
H1FY11 dipped 29% Y-o-Y. This was primarily due to a dip in the segment’s
overall order book, which currently stands at INR 3 bn. Management expects
new order traction to improve in the next few months.

􀂃 Standalone OB declines 9% Y-o-Y to INR 50 bn
KPP currently has an outstanding order book of INR 50 bn, of which INR 16 bn
comes from international transmission, INR 30 bn from the domestic
transmission segment, INR 3 bn from pipeline, and the balance from the
distribution space.

􀂃 Strong pipeline; US market to see some traction
The company has submitted bids for 15 PGCIL tenders worth INR 20 bn, of
which it is L1 in two projects. It is further expecting a decent traction from the
export market; is L1 in tower supply business worth USD 70 mn.

􀂃 Outlook and valuations: Healthy traction in order pipeline; maintain ‘HOLD’
KPP’s new orders in H1FY11 were muted, which has led to huge expectations from
H2FY11. Management expects to maintain 20% revenue CAGR over next two years.
The company intends to utilize INR 1 bn for the Rohtak Bawal road project won by
JMC, INR 500 mn is scheduled to be utilized towards the Jhajjar transmission project,
and INR 750 mn towards the new tower plant in Raipur. The stock currently trades
at a PE of 12.4x and 11.2x for FY11E and FY12E, respectively. We maintain our
‘HOLD/Sector Performer’ recommendation/rating on the stock.