Kalpataru Power & Transmission - Healthy cashflows, promising growth outlook - ICICI Securities

Kalpataru Power & Transmission (Kalpataru) witnessed healthy cashflows in Q3FY21 due to sales of assets resulting in debt reduction. Company has sold 49% stake in ATL asset and the remaining 51% is pending for sale post approval; it expects ~Rs6bn of cashflows from the same. Net debt as of Dec'20 at Rs6.1bn reduced by Rs2.1bn in Sep'20 and net working capital is at 105 days, which the management expects to normalise to 90-100 days by Mar'21. Factoring-in the healthy cashflows resulting in lower debt and interest cost, we raise standalone earnings by 17% for FY21E; however, given muted execution and order delays, we cut FY22E earnings by 8.6%. The domestic impetus towards capital outlay for transmission, Railways and green energy corridor as highlighted in the FY22 Union Budget is expected to fuel medium to long term growth. We maintain BUY with a revised SoTP-based target price of Rs550 (earlier: Rs526).

- Exceptional gain from sale of ATL asset: Standalone revenues at Rs19.9bn were largely flat at 0.7% YoY whereas T&D grew 5% YoY and Railways and O&G declined slightly in Q3FY21 on a high base. EBITDA margins at 10.4%, was marginally (40bps) lower than our expectations and one-off gains of Rs1.5bn (Rs1.4bn from sale of ATL and Rs70mn from sale of Jhajjar) lifted standalone reported PAT to Rs2.6bn. Despite flat revenues in Q3FY21, management has guided for positive growth in FY21. It expects to maintain EBITDA margins of 10.5% and order intake of Rs90bn-100bn for FY21.

- Kohima and other asset monetisation to continue to aid debt reduction: On a standalone basis, KPTL recognised one off gains of Rs1.47bn (gain on ATL sale of 49% stake and fair value gain on the balance 51% stake). For other assets: i) Jhajjar KT Transco (50% stake) sale to India Grid Trust at an EV of Rs3.1bn was done in Q2FY21 and the company also recognised Rs70mn as a one-off gain in Q3FY21; ii) Kohima-Mariani (KMTL), where Kalpataru has 74% stake, has been commissioned in Nov'20 and the company is pursuing domestic suitors; and (iii) company is exploring options to sell road BoT under JMC projects.

- Promoter pledge overhang to gradually reduce: In Oct'19, the company's borrowings against pledged shares was Rs8.3bn, which reduced to Rs7.2bn in Oct'20 and further to Rs6.84bn currently. As of Dec'20, management has bought back 3.8% of shares and promoter pledge has reduced to 55.3% of promoter holdings from 57.5% in Sep'20 (promoter pledge reduced from Rs7.2bn in Q2FY21 to Rs6.84bn in Dec'20).

- Maintain BUY on benign valuation; new acquisition to be value-accretive: Given healthy cashflows and growth outlook, we reiterate BUY on the stock. The recent acquisition will support expansion towards the lucrative Latam market and Linjemontage has given access to Nordic market. We value Linjemontage at 5x CY22E earnings, JMC at the current listed valuation, and Kohima BOOT assets at 2x book value. With a holding company discount of 20%, we arrive at an SoTP-based target price of Rs550.

Shares of KALPATARU POWER TRANSMISSION LTD. was last trading in BSE at Rs.369.2 as compared to the previous close of Rs. 364.2. The total number of shares traded during the day was 24390 in over 964 trades.

The stock hit an intraday high of Rs. 390.6 and intraday low of 368. The net turnover during the day was Rs. 9208450.

Source : Equity Bulls

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