Maintain BUY on Kalpataru Power Transmission - Robust outperformance - HDFC Securities

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities

Kalpataru Power (KPTL) reported revenue/EBITDA/APAT at Rs 19/2/1.5bn, beating our estimates on all fronts by 2/4/47%. While robust execution amidst a challenging environment was the key positive, chairman's commentary on pledge reduction (50% by Dec-21, from Oct-19 level) provided additional comfort. KPTL has received orders of Rs 32bn and is optimistic on achieving full-year guidance of Rs 90bn. Sale of Jhajjar asset was completed during the quarter, and divestment of other two T&D assets are on track. Restructuring of JMC's BOT road assets is likely to be concluded by Mar-21. We maintain BUY on KPTL with an unchanged target price of Rs 410. Key risk: delay in monetisation/restructuring of assets.

Recovery on expected lines: KPTL reported revenue at Rs 18.8bn (-4/+29% YoY/QoQ, marginal beat). While T&D and railways revenue declined by 5% and 20% respectively, revenue from oil and gas increased by 30. EBITDA margin came in at 10.7%, within the guided range of 10-11%. Finance cost declined by 48/34% YoY/QoQ on the lower interest rate and a higher proportion of foreign currency loans (20-25% vs 10-15% earlier). Other income also rose 48% YoY on higher dividend income from subsidiaries. Adjusting for the Rs 140mn gain on divestment of Jhajjar asset, APAT came in at Rs 1.5bn, 14% increase YoY and 47% ahead of our estimate. Management has guided for 5-10% topline growth and more on the lower side of the band of 5%.

Order inflow driven by international T&D ordering: KPTL has received orders of Rs 32bn so far in FY21, driven by international T&D ordering (76% of total inflows). Excluding the L1 orders of Rs 24bn, the order book stands at Rs 130bn (~1.6x FY20 revenue). Management has retained annual order inflow guidance at Rs 90-100bn and expects to achieve it from a pick-up in domestic T&D, BOT roads and railways segments.

The monetisation of T&D assets expected by FY21-end: KPTL successfully divested Jhajjar asset and has already received the proceeds from the sale. The company has received all the necessary approval for divestment of Alipurduar assets and is expecting to complete the divestment in Nov-20 itself. Physical work on Kohima asset is completed and is likely to be commissioned soon. Management expects this asset to be sold by FY21-end.

On track to zero net debt balance sheet: Standalone net increased to Rs 8.2bn from Rs 7.6bn at the end of 1QFY21, with net D/E at 0.22x. With potential divestment of T&D assets by FY21-end, the company is well on track to achieve its zero net debt target on the standalone level. KPTL has generated positive operating cash flow of Rs 3.1bn during 1HFY21. Of the Rs 2bn share buyback plan announced in Mar-20, KPTL has bought back shares of Rs 1.2bn and is expecting it to be completed by Nov 20-end.

Shares of KALPATARU POWER TRANSMISSION LTD. was last trading in BSE at Rs.254.25 as compared to the previous close of Rs. 251.4. The total number of shares traded during the day was 62737 in over 2873 trades.

The stock hit an intraday high of Rs. 262.6 and intraday low of 252.25. The net turnover during the day was Rs. 16150125.

Source : Equity Bulls

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