Kalpataru Power's (KPP) Q1FY13 numbers were above our estimates adjusting for INR130mn of forex (mark to market) loss. While revenue grew 20% YoY, margin declined 60bps YoY to 10.8% (adjusting for forex loss) primarily due to higher input cost. Order inflow dipped 33% YoY to INR6bn in the absence of any big-ticket order during the quarter. The company has lowered its FY13 EBITDA margin guidance for JMC from 7-8% to 6-7% on back of increased volatility in commodity prices. Maintain 'HOLD' with revised target price of INR 78 (earlier 84).
Margin pressure sustains; execution remains steady
KPP's revenue grew a healthy 20% YoY, better than estimate. Margin (adjusted for forex loss) fell 60bps YoY to 10.8%, owing to higher input costs. Adjusted PAT increased 20% YoY to INR404mn. At JMC, revenue surged 51% YoY to INR5.7bn. However, margin plunged 290bps YoY to 5% due to high volatility in commodity prices primarily in cement and steel. For JMC, management has trimmed its FY13 margin guidance to 6-7% from 7-8% earlier. KPP's capital employed increased 16% YoY as the infra division's capital employed doubled on increased debtor balance.
New orders down 33 % YoY; order book flat at INR 60.5 bn YoY
The company's order inflow declined 33% YoY to INR6bn, owing to weak project awards. KPP stated that the order pipeline is healthy and it anticipates orders from MEENA region and CIS countries apart from PGCIL. The company's standalone and consolidated order backlog stands at INR60.5bn (flat YoY) and INR116bn (up 10% YoY), respectively.
Outlook and valuations: Cautious; maintain 'HOLD'
While we do not expect any upside in KPP's operating profitability in the near to medium term, rising input cost in key subsidiary (JMC Projects) remains a concern, with limited pricing power. We maintain our 'HOLD/SP' recommendation with a Target price of INR 78(earlier 84) as we remain cautious on the company's incremental order intake and margin profile given rising competition and higher working capital issues. The stock, on consolidated basis, is currently trading at P/E of 5.1x and 4.3x on FY13E and FY14E, respectively.