India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
KALPATARU POWER TRANSMISSION
q KPTL is favorably poised in terms of capacity and execution, to benefit
from recent thrust in T&D spending in India.
q Order flows from PGCIL have remained sluggish so far. Continued momentum
in investment in transmission towers by state utilities and
PGCIL is critical and remain as a key variable to monitor for company's
growth.
q Company is likely to maintain its dominant position in the domestic
market amidst stiff competition among various players in the industry.
q Company has been observing traction in its key subsidiaries. Management
expects Shree Shubham logistics to break even this year and envisage
meaningful opportunities for JMC projects in the road BOT space.
q Stock has been underperforming the broader market through past two
quarters. We believe that company's fund raising in last fiscal has met
with skepticism and is the primary reason for this.
q We maintain our BUY rating on the company's stock in view of adequate
upside to our DCF based target price of Rs.262.
Management Meet Highlights
We recently met with the management of KPTL to get a perspective on the overall
business environment unfolding in domestic and overseas markets. Below are the
key highlights of our interaction.
n Company has been experiencing a hold up in the order book growth. This is
likely due to 1) Powergrid has slowed down in awarding new T&D projects 2)
Competition has increased in the recent past between the established players
and also from the unorganized sector.
n Management opines that the current slowdown is a temporary phase and expects
it to recover in Q4FY11 and FY12.
n Management opines that the overall macros favour company's business prospects.
However execution is likely to remain the key challenging and differentiating
factor going ahead.
n Management has reiterated that availability of labour remains challenging. As
an initiative, company has started a training program for its employees as well
as new recruits.
n Management has highlighted that the increase in input prices are likely to have
a slightly negative impact on the international business margins. Overseas
projects are largely of fixed price in nature.
n Recently company has won few large orders to the tune of Rs.6 bn including
setting up of 400KV-279 Kms DC transmission line in Congo on turnkey basis.
n Management expects to maintain its strong position in the domestic markets. It
also expects to maintain margins going ahead. Company is favorably poised to
benefit from spending in T&D with its fully operational capacity that now stands
at 138000 MT per annum with 3000 MT addition at Raipur plant.
Order book at 1.4x FY12E sales offers strong visibility; muted
fresh order flows from Powergrid remains a concern for the industry
n KPTL current standalone order book stands at over Rs 50 bn. The order book
break up comprises 90% of transmission, 5% of distribution and 5% of orders
from infrastructure space.
n We opine that the current order book at 1.4x FY12E sales provides visibility for
next two years. However we believe that delays in fresh order flows from
Powergrid is a matter of concern for the overall growth of industry.
n KPTL participated in more than 22 tenders in this fiscal, the results of which are
expected shortly. PGCIL, which is the central transmission utility and accounts
for roughly 45% of the nationwide power transmission flow, has been sluggish
in allotting new orders in FY11
n Our interaction with key players in the power transmission industry confirms
that PGCIL should be speeding up with the bidding process in next two years
obviating the risk of missing targets set for 11th five year plan.
n We opine that orders flows from PGCIL are critical at this point and KPTL with
its comprehensive domain expertise coupled with timely execution capability will
enormously benefit by securing high-quality power transmission projects in future.
Shree Shubham Logistics (SSLL) to substantially improve profitability
in FY11
n SSLL has entered into a memorandum of understanding (MoU) with Rajasthan
State Warehousing Corporation (RSWC) in Q4FY10 for managing 38 warehouses
of the later with storage capacity of around 405000 MT.
n We believe that this opens a new avenue for Shubham to earn profits with relatively
lower capex outlay for owning infrastructure.
n Management has guided for Rs 1700 mn revenue in FY11 against Rs. 900 mn
in FY10. Margins should also improve from current 5% levels, going ahead.
JMC Projects (52% stake of KPTL) - Revenues to accelerate
n The company has a healthy order backlog of Rs 31 bn, which should grow in
the future as bidding for road projects gains momentum in the current quarter.
For FY11, the company has guided for a 20-25% rise in revenues along with
margin expansion.
n Currently company operates at low margins to the tune of 3-4%. The company
is also L1 in a few orders which will be announced in the next few weeks.
n JMC secured its first road BOOT project from NHAI in consortium with SREI infra
to construct a four-lane highway between Rohtak and Bawal in Haryana. This
project to the tune of Rs 10 bn will be executed on a design, build, finance,
operate and transfer (toll) basis with a concession period of 27-years, including
the construction period.
n We opine that the Government's focus on expediting road projects augurs well
for the subsidiary, offering opportunity in other road projects, both on EPC contracting
and BOOT.
Earnings Outlook - robust growth to continue in FY11
n We expect revenues to grow by 17% CAGR between FY10-12E. Also, we believe
that the company is likely to maintain its margins at current levels of 12%.
n Significant improvement in JMC's numbers is expected in FY11 in view of the
improved margins of its order backlog.
n The net raised sum of Rs 4.2 bn in last fiscal has been utilized in working capital
to the tune of Rs 1.04 bn and remaining is invested in debt funds. Company
intends to utilize the remainder in ramping up its BOOT and JMC operations.
Valuation & Recommendation
n We believe that company's fund raising of Rs 4.2 bn has met with skepticism
and is the primary reason for stock under performance vis-à-vis broader market.
n However, we believe that the company is favorably poised in terms of capacity
and execution, to benefit from recent thrust in T&D spending in India. Significant
contribution from company's key subsidiaries are likely add to cash flow
generation over FY11-12E
n At CMP of Rs.161, the stock trades at 6x EV/EBITDA and 10.2x P/E based on
FY12E earnings.
n We maintain our BUY rating on the stock given adequate upside to our DCF
based target price of Rs.262.
No comments:
Post a Comment