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Kalpataru Power reported 3QFY11 numbers largely in line in revenue and PAT terms,
driven by stable execution in T&D segment. The company also reported good traction
in new orders for the quarter led by transmission and distribution segment and
expects a further traction in the coming quarter. Company is L1 in Rs 10 bn worth of
contracts in the transmission projects space and is expecting next 4-6 quarters to be
eventful in terms of domestic T&D project awards.
Margins stable for 9MFY11
Kalpataru reported a 30 bps YoY improvement in EBIDTA margins during the
quarter, which on a 9MFY11 basis remained stable at 12.1%. While T&D
segment saw a 54 bps margin pressure on EBIT level, infrastructure division
posted a 200 bps improvement in margins despite a flattish revenue growth in
3QFY11. Management expects OPMs to improve going forward owing to healthy
order book mix.
9MFY11 Standalone order intake flattish; strong 4Q expected
While 3QFY11 order intake for KPTL grew by 56% YoY to Rs 7 bn, it declined
marginally by 6.5% YoY on a 9M basis to Rs 18.6 bn. Management expects an
improving traction in order intake in the next 5-6 weeks from PGCIL and has bid
for Rs 40 bn worth of T&D tenders recently. The company currently has an
outstanding OB of Rs 50 bn on standalone basis and Rs 93 bn (ex L1) on a
consolidated basis, which should be sufficient for the next 18-20 months of
revenues for KPTL. More than 66% of the standalone OB for KPTL comes from
the domestic markets and balance from export markets. Management expects to
conclude FY11 with an outstanding OB of Rs 55 bn, implying a 10% YoY growth.
strong traction expected in JMC
While JMC has reported a flattish PAT growth for 9MFY11, the management
sounded positive about the next 5-6 quarters expecting OPMs to rise from
current levels. JMC is expected to growth by more than 30% in FY12E, given
strong order book at Rs 43 bn (excluding L1 status in Rs 5 bn worth of orders)
Outlook and valuations: Stable earnings; maintain ‘HOLD’
While KPTL management remains optimistic about the next 5-6 quarters in terms of
execution and margins, we believe infrastructure division visibility remains a concern
going ahead. We maintain our HOLD/SP rating for KPTL, the stock currently trades
at a PE of 10.2 & 9.2 for FY11E & FY12E basis, respectively.
Company Description
The company has three business divisions viz. transmission line division, biomass energy
division, and infrastructure division. It has an in-house tower testing station with a
capacity to test square/rectangular base towers of up to 800 kV D/C as well as multicircuit
towers. KPP is exposed to construction segment with a 67% stake in JMC Projects
(JMC); JMC is primarily engaged in the construction of industrial buildings, and
residential and commercial complexes. Off late, JMC has ventured into the infrastructure
segment with projects in roads, bridges, flyovers, and transportation structures.
Investment Theme
India’s inter-regional power transmission capacity is likely to increase from ~20,750 MW
currently to ~37,700 MW at the end of the Eleventh Plan (FY12-end). Power Grid
Corporation of India (PGCIL) is likely to invest ~INR 300 bn over FY10-12E period to
upgrade India’s power transmission network. We expect more than Rs 100 bn worth of
investment by PGCIL in the 12th plan period. Also, expansion in regional transmission
network in Africa and Middle East is likely to supplement domestic demand and present a
large business opportunity. KPP is the front-runner in the power T&D EPC sector, and
hence, is well-placed to leverage from the opportunity. Further, KPP’s pipeline business is
easily scalable. We expect the company to become a strong player in the pipeline
business, going forward.
Key Risks
Power T&D investments are executed by state utilities, which, in turn, are mandated by
the government. Hence, any change in the political environment can potentially impact
the pace of execution in the industry, thus impacting the timing of revenue growth.
Additionally, customer concentration risk is high in the business, which in turn, impacts
the bargaining power of transmission tower companies. Further, higher than expected
rise in steel prices is likely to negatively impact KPP’s margins.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Kalpataru Power reported 3QFY11 numbers largely in line in revenue and PAT terms,
driven by stable execution in T&D segment. The company also reported good traction
in new orders for the quarter led by transmission and distribution segment and
expects a further traction in the coming quarter. Company is L1 in Rs 10 bn worth of
contracts in the transmission projects space and is expecting next 4-6 quarters to be
eventful in terms of domestic T&D project awards.
Margins stable for 9MFY11
Kalpataru reported a 30 bps YoY improvement in EBIDTA margins during the
quarter, which on a 9MFY11 basis remained stable at 12.1%. While T&D
segment saw a 54 bps margin pressure on EBIT level, infrastructure division
posted a 200 bps improvement in margins despite a flattish revenue growth in
3QFY11. Management expects OPMs to improve going forward owing to healthy
order book mix.
9MFY11 Standalone order intake flattish; strong 4Q expected
While 3QFY11 order intake for KPTL grew by 56% YoY to Rs 7 bn, it declined
marginally by 6.5% YoY on a 9M basis to Rs 18.6 bn. Management expects an
improving traction in order intake in the next 5-6 weeks from PGCIL and has bid
for Rs 40 bn worth of T&D tenders recently. The company currently has an
outstanding OB of Rs 50 bn on standalone basis and Rs 93 bn (ex L1) on a
consolidated basis, which should be sufficient for the next 18-20 months of
revenues for KPTL. More than 66% of the standalone OB for KPTL comes from
the domestic markets and balance from export markets. Management expects to
conclude FY11 with an outstanding OB of Rs 55 bn, implying a 10% YoY growth.
strong traction expected in JMC
While JMC has reported a flattish PAT growth for 9MFY11, the management
sounded positive about the next 5-6 quarters expecting OPMs to rise from
current levels. JMC is expected to growth by more than 30% in FY12E, given
strong order book at Rs 43 bn (excluding L1 status in Rs 5 bn worth of orders)
Outlook and valuations: Stable earnings; maintain ‘HOLD’
While KPTL management remains optimistic about the next 5-6 quarters in terms of
execution and margins, we believe infrastructure division visibility remains a concern
going ahead. We maintain our HOLD/SP rating for KPTL, the stock currently trades
at a PE of 10.2 & 9.2 for FY11E & FY12E basis, respectively.
Company Description
The company has three business divisions viz. transmission line division, biomass energy
division, and infrastructure division. It has an in-house tower testing station with a
capacity to test square/rectangular base towers of up to 800 kV D/C as well as multicircuit
towers. KPP is exposed to construction segment with a 67% stake in JMC Projects
(JMC); JMC is primarily engaged in the construction of industrial buildings, and
residential and commercial complexes. Off late, JMC has ventured into the infrastructure
segment with projects in roads, bridges, flyovers, and transportation structures.
Investment Theme
India’s inter-regional power transmission capacity is likely to increase from ~20,750 MW
currently to ~37,700 MW at the end of the Eleventh Plan (FY12-end). Power Grid
Corporation of India (PGCIL) is likely to invest ~INR 300 bn over FY10-12E period to
upgrade India’s power transmission network. We expect more than Rs 100 bn worth of
investment by PGCIL in the 12th plan period. Also, expansion in regional transmission
network in Africa and Middle East is likely to supplement domestic demand and present a
large business opportunity. KPP is the front-runner in the power T&D EPC sector, and
hence, is well-placed to leverage from the opportunity. Further, KPP’s pipeline business is
easily scalable. We expect the company to become a strong player in the pipeline
business, going forward.
Key Risks
Power T&D investments are executed by state utilities, which, in turn, are mandated by
the government. Hence, any change in the political environment can potentially impact
the pace of execution in the industry, thus impacting the timing of revenue growth.
Additionally, customer concentration risk is high in the business, which in turn, impacts
the bargaining power of transmission tower companies. Further, higher than expected
rise in steel prices is likely to negatively impact KPP’s margins.
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