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KALPATARU POWER TRANSMISSION LTD (KPTL)
PRICE: RS.123 RECOMMENDATION: BUY
TARGET PRICE: RS.200 FY12E P/E: 8.2X
q KPTL reported Q1FY12 nos lower than our estimates.
q Stock has been underperforming the broader market through past two
quarters. Muted order book growth and company's fund raising in last
fiscal that has met with skepticism are the primary reasons for this.
q Sluggish momentum in investment in transmission towers by state utilities
and order flows from PGCIL has been negatively affecting the
growth of the company and also for the peer group.
q Company is favorably poised in terms of capacity and execution and is
likely to benefit from thrust in T&D spending in India.
q Reduce earnings estimate; maintain BUY rating on the company's stock
in view of adequate upside to our DCF based target price of Rs.200 (Rs
255 earlier).
n Revenue grew by 7% YoY at Rs 5.8 bn in Q1FY12 mainly driven by transmission
line and energy divisions that grew 8.5% and 46% YoY respectively.
n EBITDA margin dropped to 11.4% vis-à-vis 13% in Q1FY11 on account of higher
input prices. Employee expense and job charges have stabilized at current levels.
Management has been highlighting availability of labour as an area of concern
through FY11.
n Increases in input prices have had negative impact on the international business
margins. Overseas projects as largely of fixed price in nature.
n We reiterate that the company has been adopting selective bidding strategy and
is likely to protect margins amidst competition originating from fringe and other
unorganized players.
n Company has been experiencing a hold up in the order book growth. Competition
has increased in the recent past between the established players and also
from the unorganized sector
n Other income has gone up by 72% YoY on account of the investments that the
company has made from the proceeds of the sum raised through QIP in the last
fiscal.
Order book at 1.5x 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 59 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 1.5x 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 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.
Target revision
n We believe that the company is likely to report increase in working capital over
FY12E due to delays in key clients taking product delivery.
n We believe that even after revival of demand, it would be difficult for the company
to maintain pricing in view of increasing competitive intensity in the industry.
Therefore, in our DCF assumptions, we have lowered our long term growth
projections for the company from 15% between FY13E-FY15E to 12% in the
same period.
Valuation & Recommendation
n At CMP of Rs.123, the stock is trading at 6.1x EV/EBITDA and 8.2x P/E based on
FY12E earnings.
n We believe that company is likely to observe raw material pressure over FY12E
and also expect working capital to increase considerably.
n In our projections, we build 15.5% CAGR in revenues between FY10-12E, 12%
growth between FY13-15E, beta of 0.8 and terminal growth of 3%. We arrive at
a one year price target of Rs 200 on company's stock.
n We maintain BUY rating with a one year DCF based revised price target of
Rs.200 (Rs 255 earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
KALPATARU POWER TRANSMISSION LTD (KPTL)
PRICE: RS.123 RECOMMENDATION: BUY
TARGET PRICE: RS.200 FY12E P/E: 8.2X
q KPTL reported Q1FY12 nos lower than our estimates.
q Stock has been underperforming the broader market through past two
quarters. Muted order book growth and company's fund raising in last
fiscal that has met with skepticism are the primary reasons for this.
q Sluggish momentum in investment in transmission towers by state utilities
and order flows from PGCIL has been negatively affecting the
growth of the company and also for the peer group.
q Company is favorably poised in terms of capacity and execution and is
likely to benefit from thrust in T&D spending in India.
q Reduce earnings estimate; maintain BUY rating on the company's stock
in view of adequate upside to our DCF based target price of Rs.200 (Rs
255 earlier).
n Revenue grew by 7% YoY at Rs 5.8 bn in Q1FY12 mainly driven by transmission
line and energy divisions that grew 8.5% and 46% YoY respectively.
n EBITDA margin dropped to 11.4% vis-à-vis 13% in Q1FY11 on account of higher
input prices. Employee expense and job charges have stabilized at current levels.
Management has been highlighting availability of labour as an area of concern
through FY11.
n Increases in input prices have had negative impact on the international business
margins. Overseas projects as largely of fixed price in nature.
n We reiterate that the company has been adopting selective bidding strategy and
is likely to protect margins amidst competition originating from fringe and other
unorganized players.
n Company has been experiencing a hold up in the order book growth. Competition
has increased in the recent past between the established players and also
from the unorganized sector
n Other income has gone up by 72% YoY on account of the investments that the
company has made from the proceeds of the sum raised through QIP in the last
fiscal.
Order book at 1.5x 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 59 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 1.5x 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 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.
Target revision
n We believe that the company is likely to report increase in working capital over
FY12E due to delays in key clients taking product delivery.
n We believe that even after revival of demand, it would be difficult for the company
to maintain pricing in view of increasing competitive intensity in the industry.
Therefore, in our DCF assumptions, we have lowered our long term growth
projections for the company from 15% between FY13E-FY15E to 12% in the
same period.
Valuation & Recommendation
n At CMP of Rs.123, the stock is trading at 6.1x EV/EBITDA and 8.2x P/E based on
FY12E earnings.
n We believe that company is likely to observe raw material pressure over FY12E
and also expect working capital to increase considerably.
n In our projections, we build 15.5% CAGR in revenues between FY10-12E, 12%
growth between FY13-15E, beta of 0.8 and terminal growth of 3%. We arrive at
a one year price target of Rs 200 on company's stock.
n We maintain BUY rating with a one year DCF based revised price target of
Rs.200 (Rs 255 earlier).
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