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KALPATARU POWER TRANSMISSION LTD (KPTL)
RECOMMENDATION: BUY
TARGET PRICE: RS.262
FY12E P/E: 8.8X
q KPTL reported decent set of nos. for Q3FY11. Numbers are in line with
our expectations on revenue front and slightly lower on net profit front.
q Stock has been underperforming the broader market through past two
quarters. Muted order book growth and company's fund raising in this
fiscal that has met with skepticism are the primary reasons for this.
q Continued momentum in investment in transmission towers by state
utilities and order flows from PGCIL would likely remain a key variable
for order book growth of the company and also for the peer group.
q Company is favorably poised in terms of capacity and execution, to benefit
from thrust in T&D spending in India. Significant contributions from
company's key subsidiaries are also expected to add to the free cash flow
generation for the company.
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.
Result Highlights
n Revenue grew by 10.3% YoY at Rs 7.9 bn in Q3FY11 mainly driven by transmission
line division, which grew 13% yoy.
n Company maintained EBITDA% at 12% for the quarter on account of steady
cost management and proficient execution skills.
n Increases in input prices are likely to have a slightly negative impact on the international
business margins. Overseas projects as largely of fixed price in nature.
Recently company has won few large orders in overseas markets which include
setting up of 400KV-279 Kms DC transmission line in Congo on turnkey basis.
n We reiterate that the company has been adopting selective bidding strategy and
is likely to maintain margins amidst competition originating from fringe and other
unorganized players
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 Depreciation expense increased by 11% YoY to Rs 118 mn in Q3FY11 vis-à-vis
Rs. 107 mn last year. Company incurred capex in infrastructure division for buying
new pipe laying machinery thus resulting gross block to go up.
n Company reported muted growth in the energy and infrastructure space with
revenues of Rs 906 mn in the infrastructure segment.
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 FY12
n We expect revenues to grow by 16.5% 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 FY12 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.135, the stock trades at 5.1x EV/EBITDA and 8.8x 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.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
KALPATARU POWER TRANSMISSION LTD (KPTL)
RECOMMENDATION: BUY
TARGET PRICE: RS.262
FY12E P/E: 8.8X
q KPTL reported decent set of nos. for Q3FY11. Numbers are in line with
our expectations on revenue front and slightly lower on net profit front.
q Stock has been underperforming the broader market through past two
quarters. Muted order book growth and company's fund raising in this
fiscal that has met with skepticism are the primary reasons for this.
q Continued momentum in investment in transmission towers by state
utilities and order flows from PGCIL would likely remain a key variable
for order book growth of the company and also for the peer group.
q Company is favorably poised in terms of capacity and execution, to benefit
from thrust in T&D spending in India. Significant contributions from
company's key subsidiaries are also expected to add to the free cash flow
generation for the company.
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.
Result Highlights
n Revenue grew by 10.3% YoY at Rs 7.9 bn in Q3FY11 mainly driven by transmission
line division, which grew 13% yoy.
n Company maintained EBITDA% at 12% for the quarter on account of steady
cost management and proficient execution skills.
n Increases in input prices are likely to have a slightly negative impact on the international
business margins. Overseas projects as largely of fixed price in nature.
Recently company has won few large orders in overseas markets which include
setting up of 400KV-279 Kms DC transmission line in Congo on turnkey basis.
n We reiterate that the company has been adopting selective bidding strategy and
is likely to maintain margins amidst competition originating from fringe and other
unorganized players
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 Depreciation expense increased by 11% YoY to Rs 118 mn in Q3FY11 vis-à-vis
Rs. 107 mn last year. Company incurred capex in infrastructure division for buying
new pipe laying machinery thus resulting gross block to go up.
n Company reported muted growth in the energy and infrastructure space with
revenues of Rs 906 mn in the infrastructure segment.
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 FY12
n We expect revenues to grow by 16.5% 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 FY12 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.135, the stock trades at 5.1x EV/EBITDA and 8.8x 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.
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