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KALPATARU POWER TRANSMISSION LTD (KPTL)
PRICE: RS.110 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.130 FY13E P/E: 9X
q KPTL reported Q3FY12 nos lower than our estimates on revenue and
profitability front. Slower execution in domestic T&D projects has led to
the significant drop in PAT in 9MFY12.
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 We reduce our earnings estimate for FY13 to factor in 1) increasing competition
leading to pricing pressure in new orders 2) increase in input
prices 3) continuing wage inflation.
q We change our recommendation to 'ACCUMULATE' (from BUY earlier)
and arrive at a DCF based target price of Rs.130 (Rs 140 earlier).
n KPTL reported muted revenue growth at Rs 8 bn in Q3FY12 mainly due to sluggish
revenue accretion in transmission line business. Transmission business that
constitutes to about 80% of the revenue pie has reported 2% YoY growth in the
quarter.
n Company reported EBITDA margin at 11.3% vis-à-vis 11.7% in Q3FY11. Company
has started to show stabilizing employee expense. Lower EPC work in the
quarter has accounted for YoY reduction in job charges.
n Increases in input prices have had negative impact on the international business
margins. Overseas projects as largely of fixed price in nature. 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
in the domestic market.
n We believe that delays in order execution from client's side, increasing competition
in the industry and increase in interest rates have been negatively affecting
company's profitability
n Company reported muted revenue growth in energy segment. Infrastructure segment
has reported decline of 8.6% in the quarter.
n Company has reported significant rise of 51% YoY in interest expense for the
quarter at Rs 335 mn on account of increase in interest rates negatively affecting
funding of the working capital.
n Company has been deploying significant resources in its subsidiary JMC projects
involved in road construction projects. We believe that increasing competition in
road projects and increase in interest rates are likely to pose downside risk to our
estimates.
Order book at 1.5x FY13E sales offers meaningful visibility; increasing
competition in the industry especially from fringe players
remains a concern for the industry
n KPTL current standalone order book stands at over Rs 55 bn vis-à-vis Rs 60 bn at
the end of Q2FY12. 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 FY13E sales provides visibility for
next two years. However we believe that slower execution in the T&D sector is
likely to have a negative effect on company's growth for FY13..
Earnings Outlook: increase in execution cycle, rising input prices,
labour cost and interest rates likely to hamper growth in medium
term; revise earnings estimate downward for FY13
n In our projected financials, we build revenue growth at 10.8% CAGR between
FY11-13E. We believe that the execution of orders in the T&D segment would
pick up in 2HFY13.
n We reduce our earnings estimate for FY13 to factor in moderation in operating
margins on account of 1) increasing competition leading to pricing pressure in
new orders 2) increase in input prices 3) continuing wage inflation.
n In our estimates we build EBITDA margin of 11.1% in FY13E. We also opine that
elevated interest rates is likely to increase finance charges for the funding of
working capital in the same period.
n In view of the changes we have made to our DCF, we arrive at a one year price
target of Rs 130 (Rs 140 earlier) on company's stock.
Valuation & Recommendation
n At CMP of Rs.110, the stock is trading at 5.5x EV/EBITDA and 9x P/E based on
FY13E earnings.
n We change our recommendation to 'ACCUMULATE' (from BUY earlier) on
company's stock and arrive at a DCF based target price of Rs.130 (Rs 140 earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
KALPATARU POWER TRANSMISSION LTD (KPTL)
PRICE: RS.110 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.130 FY13E P/E: 9X
q KPTL reported Q3FY12 nos lower than our estimates on revenue and
profitability front. Slower execution in domestic T&D projects has led to
the significant drop in PAT in 9MFY12.
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 We reduce our earnings estimate for FY13 to factor in 1) increasing competition
leading to pricing pressure in new orders 2) increase in input
prices 3) continuing wage inflation.
q We change our recommendation to 'ACCUMULATE' (from BUY earlier)
and arrive at a DCF based target price of Rs.130 (Rs 140 earlier).
n KPTL reported muted revenue growth at Rs 8 bn in Q3FY12 mainly due to sluggish
revenue accretion in transmission line business. Transmission business that
constitutes to about 80% of the revenue pie has reported 2% YoY growth in the
quarter.
n Company reported EBITDA margin at 11.3% vis-à-vis 11.7% in Q3FY11. Company
has started to show stabilizing employee expense. Lower EPC work in the
quarter has accounted for YoY reduction in job charges.
n Increases in input prices have had negative impact on the international business
margins. Overseas projects as largely of fixed price in nature. 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
in the domestic market.
n We believe that delays in order execution from client's side, increasing competition
in the industry and increase in interest rates have been negatively affecting
company's profitability
n Company reported muted revenue growth in energy segment. Infrastructure segment
has reported decline of 8.6% in the quarter.
n Company has reported significant rise of 51% YoY in interest expense for the
quarter at Rs 335 mn on account of increase in interest rates negatively affecting
funding of the working capital.
n Company has been deploying significant resources in its subsidiary JMC projects
involved in road construction projects. We believe that increasing competition in
road projects and increase in interest rates are likely to pose downside risk to our
estimates.
Order book at 1.5x FY13E sales offers meaningful visibility; increasing
competition in the industry especially from fringe players
remains a concern for the industry
n KPTL current standalone order book stands at over Rs 55 bn vis-à-vis Rs 60 bn at
the end of Q2FY12. 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 FY13E sales provides visibility for
next two years. However we believe that slower execution in the T&D sector is
likely to have a negative effect on company's growth for FY13..
Earnings Outlook: increase in execution cycle, rising input prices,
labour cost and interest rates likely to hamper growth in medium
term; revise earnings estimate downward for FY13
n In our projected financials, we build revenue growth at 10.8% CAGR between
FY11-13E. We believe that the execution of orders in the T&D segment would
pick up in 2HFY13.
n We reduce our earnings estimate for FY13 to factor in moderation in operating
margins on account of 1) increasing competition leading to pricing pressure in
new orders 2) increase in input prices 3) continuing wage inflation.
n In our estimates we build EBITDA margin of 11.1% in FY13E. We also opine that
elevated interest rates is likely to increase finance charges for the funding of
working capital in the same period.
n In view of the changes we have made to our DCF, we arrive at a one year price
target of Rs 130 (Rs 140 earlier) on company's stock.
Valuation & Recommendation
n At CMP of Rs.110, the stock is trading at 5.5x EV/EBITDA and 9x P/E based on
FY13E earnings.
n We change our recommendation to 'ACCUMULATE' (from BUY earlier) on
company's stock and arrive at a DCF based target price of Rs.130 (Rs 140 earlier).
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