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Kalpataru Power Transmission
OW: Good visibility at attractive valuations
Q4 performance largely positive; record order book provides
good visibility of up to two years of revenues
Margin pressure dampens outlook; we cut FY13-14e EPS by
c9-15% and position ourselves modestly below guidance
Driven by recent weakness, stock remains attractive on our
lower estimates; maintain OW; cut TP to INR135 from INR150
Q4 performance largely positive: Barring a seemingly temporary fallout in margins in
the standalone business, KPP reported a broadly strong set of Q4 results. The order intake
in Q4 remained strong at both entities (KPTL and JMC) and the order book reached an all
time high of INR116bn. Execution in the standalone business – a concern for investors –
also picked up in Q4, driving sales growth of c20%. Execution at JMC continued to
remain strong, beating our sales estimates by c11%. As such, the strong order book
provides good sales visibility of up to two years and is likely to drive consolidated sales
growth of high teens if not 20%+, which KPP is currently guiding to.
Margin pressure dampens the outlook: While management attributed the margin fallout in
Q4 to a couple of exceptional factors, i.e. 1) cINR150-160m due to steel price volatility, and 2)
cINR80m due to forex losses on foreign payables, it acknowledged that margins in general
remain under pressure. In our opinion, this is driven largely by the pricing pressure in domestic
market, increasing labour costs, and increasing competition in the international markets. As
such, management has lowered its standalone EBITDA margin guidance to c10.0-10.5% from
c11%+ and consol. margin guidance to c9.0-9.5% from c10%+ earlier. This coupled with
increasing debt at the consolidated level is likely to offset some portion of revenue growth in
FY13. We forecast consol. EBITDA margin to fall to c9.0% in FY13e and c8.9% in FY14e
and lower our FY13/14e EPS by c15%/9% to INR14.1/17.9.
Stock remains attractive on valuation; maintain OW: KPP has fallen c21% in last one
month (including today’s fall) and remains attractive on our lower estimates, trading at c6.0x
FY13e PE and c4.7x FY14e PE. KPP is currently trading largely in line with its closest peer
KEC but continues to trade below its average trough multiple of c6.5x during 2008-09 crisis.
Given strong order book and hence good visibility on revenues, we continue to find the stock
attractive and maintain our OW rating on the stock. However, driven by our earnings estimate
cut, we lower our TP to INR135 from INR150. Our TP is derived from our preferred EVA
valuation methodology and implies that 12 month from now, the stock should be trading at a
12 month forward PE of c7.5x on FY14e EPS of INR17.9.
Key takeaways from Q4 earnings call
Q4 Performance
There was strong order inflow of INR20.5bn in KPTL and INR8.5bn in JMC. At KPTL, the company
booked its biggest order ever of INR9bn from Congo. At JMC, the Q4 order inflow was driven
largely by F&B segment
Consol. OB is now at INR116bn, of which cINR55bn is JMC and cINR61bn is KPTL. Around half
of the KPTL order book is now international. c70% of KPTL OB and c65% of JMC OB has variable
price contracts
Around INR10bn worth of orders at JMC pertain to the internal BOT projects
Margins in Q4 came in c100-150bp below internal expectations. Two factors contributed to the miss:
1) Significant steel price volatility in Q4 and the lag effect associated with price escalations, and 2)
forex losses on revaluation of foreign payables
Competition remains high in both PGCIL and SEB orders. SEB ordering activity is reducing
KPTL inventories in Q4 went up because the company bought all the steel related to a couple of short
lead-time orders from US/Canada
KPTL tax rate was lower in Q4 due to revenue mix
Outlook
Guiding for sales growth of c15%+ for standalone business and c20%+ growth for consolidated business
EBITDA margin guidance for standalone lowered to c10.0-10.5% from 11%+ earlier and for consol.
to c9.0-9.5% from c10%+ earlier; for JMC, guiding for a margin of c7.0-7.5%
For Shubham Logistics, expect sales growth of c20% and PAT to double in FY13; Transmission
BOT sales to be cINR540m with EBITDA margin of at least c25%; Road BOTs can contribute
revenues of cINR1.5bn or so from FY14 onwards
Guidance for capex of cINR700-750m at KPTL, cINR500m at both JMC and Shubham Logistics (SSIL)
Road BOTs will require a total equity infusion of around INR4.5bn, of which the company has
already invested cINR2.0bn. They are likely to invest c1bn in FY13, which will come through
internal accruals, and c1.5bn in FY14
Commissioning schedule of Road BOT projects: Rohtak Bawal in Q1 FY14, Agra Aligarh in Q2
FY14 and Nagpur Waiganga in Q2 FY15. For Rewa MP, the concession agreement has just been
signed and the financial closure is expected shortly
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Kalpataru Power Transmission
OW: Good visibility at attractive valuations
Q4 performance largely positive; record order book provides
good visibility of up to two years of revenues
Margin pressure dampens outlook; we cut FY13-14e EPS by
c9-15% and position ourselves modestly below guidance
Driven by recent weakness, stock remains attractive on our
lower estimates; maintain OW; cut TP to INR135 from INR150
Q4 performance largely positive: Barring a seemingly temporary fallout in margins in
the standalone business, KPP reported a broadly strong set of Q4 results. The order intake
in Q4 remained strong at both entities (KPTL and JMC) and the order book reached an all
time high of INR116bn. Execution in the standalone business – a concern for investors –
also picked up in Q4, driving sales growth of c20%. Execution at JMC continued to
remain strong, beating our sales estimates by c11%. As such, the strong order book
provides good sales visibility of up to two years and is likely to drive consolidated sales
growth of high teens if not 20%+, which KPP is currently guiding to.
Margin pressure dampens the outlook: While management attributed the margin fallout in
Q4 to a couple of exceptional factors, i.e. 1) cINR150-160m due to steel price volatility, and 2)
cINR80m due to forex losses on foreign payables, it acknowledged that margins in general
remain under pressure. In our opinion, this is driven largely by the pricing pressure in domestic
market, increasing labour costs, and increasing competition in the international markets. As
such, management has lowered its standalone EBITDA margin guidance to c10.0-10.5% from
c11%+ and consol. margin guidance to c9.0-9.5% from c10%+ earlier. This coupled with
increasing debt at the consolidated level is likely to offset some portion of revenue growth in
FY13. We forecast consol. EBITDA margin to fall to c9.0% in FY13e and c8.9% in FY14e
and lower our FY13/14e EPS by c15%/9% to INR14.1/17.9.
Stock remains attractive on valuation; maintain OW: KPP has fallen c21% in last one
month (including today’s fall) and remains attractive on our lower estimates, trading at c6.0x
FY13e PE and c4.7x FY14e PE. KPP is currently trading largely in line with its closest peer
KEC but continues to trade below its average trough multiple of c6.5x during 2008-09 crisis.
Given strong order book and hence good visibility on revenues, we continue to find the stock
attractive and maintain our OW rating on the stock. However, driven by our earnings estimate
cut, we lower our TP to INR135 from INR150. Our TP is derived from our preferred EVA
valuation methodology and implies that 12 month from now, the stock should be trading at a
12 month forward PE of c7.5x on FY14e EPS of INR17.9.
Key takeaways from Q4 earnings call
Q4 Performance
There was strong order inflow of INR20.5bn in KPTL and INR8.5bn in JMC. At KPTL, the company
booked its biggest order ever of INR9bn from Congo. At JMC, the Q4 order inflow was driven
largely by F&B segment
Consol. OB is now at INR116bn, of which cINR55bn is JMC and cINR61bn is KPTL. Around half
of the KPTL order book is now international. c70% of KPTL OB and c65% of JMC OB has variable
price contracts
Around INR10bn worth of orders at JMC pertain to the internal BOT projects
Margins in Q4 came in c100-150bp below internal expectations. Two factors contributed to the miss:
1) Significant steel price volatility in Q4 and the lag effect associated with price escalations, and 2)
forex losses on revaluation of foreign payables
Competition remains high in both PGCIL and SEB orders. SEB ordering activity is reducing
KPTL inventories in Q4 went up because the company bought all the steel related to a couple of short
lead-time orders from US/Canada
KPTL tax rate was lower in Q4 due to revenue mix
Outlook
Guiding for sales growth of c15%+ for standalone business and c20%+ growth for consolidated business
EBITDA margin guidance for standalone lowered to c10.0-10.5% from 11%+ earlier and for consol.
to c9.0-9.5% from c10%+ earlier; for JMC, guiding for a margin of c7.0-7.5%
For Shubham Logistics, expect sales growth of c20% and PAT to double in FY13; Transmission
BOT sales to be cINR540m with EBITDA margin of at least c25%; Road BOTs can contribute
revenues of cINR1.5bn or so from FY14 onwards
Guidance for capex of cINR700-750m at KPTL, cINR500m at both JMC and Shubham Logistics (SSIL)
Road BOTs will require a total equity infusion of around INR4.5bn, of which the company has
already invested cINR2.0bn. They are likely to invest c1bn in FY13, which will come through
internal accruals, and c1.5bn in FY14
Commissioning schedule of Road BOT projects: Rohtak Bawal in Q1 FY14, Agra Aligarh in Q2
FY14 and Nagpur Waiganga in Q2 FY15. For Rewa MP, the concession agreement has just been
signed and the financial closure is expected shortly
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