Kalpataru Power Transmission - 3QFY17 Result Update - Growth Momentum Continues; Strong Order Book Offers High Revenue Visibility - Reliance Securities

Kalpataru Power Transmission (KPTL) has delivered a strong performance in 3QFY17, aided by better execution of projects. Though its standalone revenue grew by 29% YoY, its subsidiaries reported decline in revenue. JMC Projects' revenue declined by 4.8% YoY with margins at 8.8%, while Shree Shubham Logistics' revenue plunged by 55% impacted by demonetization. We expect KPTL to be a key beneficiary of strong transmission capex in both domestic and global markets. Backed by strong order book, KPTL is expected to sustain growth momentum in revenue and earnings, going forward, which would lead to improvement in return ratios in next two years. We maintain our BUY recommendation on the stock with an SOTP-based revised Target Price of Rs342.

Key Highlights

- Better Execution Boosts Standalone Net Sales: KPTL's standalone revenue grew by 29% YoY led by better execution (especially the international projects), while it expects revenue growth at 15-20% with margin of ~10.5% in FY17E. However, its subsidiaries i.e. JMC Projects (JMC) and Shree Shubham Logistics (SSL) reported revenue decline of 4.8% YoY and 55%, YoY respectively. Looking ahead, JMC is expected to report healthy growth led by pick-up in execution in infra orders and other government projects, while we expect SSL's would recover from Q1FY18 onwards owing to higher availability of crops during Rabi season.

- Standalone EBIDTA Margin at 10.3%; PAT Zooms: KPTL's standalone EBITDA margin improved by 22bps YoY to 103%, while PAT margins increased by 92bps to 5.0%. Its reported standalone PAT increased by 58.2% YoY to Rs574mn. Looking ahead, Management does not see any impact on margins due to rise in commodity prices as ~60% of order book is pass-through and 40% is fixed in nature. EBITDA margin & PAT margin of JMC stood at 8.8% and 1.3%, respectively.

- Order Book: As of Dec'16, KPTL has standalone order book in excess of Rs83bn, with 55% of order book from international markets, In 4QFY17 QTD, it secured orders worth >Rs16.5bn while JMC's order book stands at ~Rs68bn (including fresh orders of >Rs20.5bn).

Outlook & Valuation

We believe that strong order book and improving margins would drive 16.5% CAGR in KPTL's earnings in FY16-19E. Valuing KPTL's standalone business at Rs308 (15x FY19E standalone operational EPS), we have assigned Rs26.0 per share (applying 25% holding company discount) of value for its 67% equity in JMC. We have valued SSL on EV/EBITDA multiple at Rs8.0/share. We maintain our BUY recommendation on the stock with an SOTP-based Target Price of Rs342.

Shares of KALPATARU POWER TRANSMISSION LTD. was last trading in BSE at Rs.281.5 as compared to the previous close of Rs. 281.1. The total number of shares traded during the day was 2174 in over 148 trades.

The stock hit an intraday high of Rs. 285.45 and intraday low of 279.8. The net turnover during the day was Rs. 612690.

Source : Equity Bulls

Keywords