Kalpataru Power & Transmission - Healthy growth, asset sales to aid cashflow - ICICI Securities

Kalpataru Power & Transmission (Kalpataru) has witnessed healthy growth in Q4FY21, but margins have been impacted due to commodity prices. Domestic order intake and execution are likely to be muted in the near term impacted by the second covid wave. Kohima Mariani BOOT asset sale is awaiting final approval and post this, the company will become net cash at standalone levels. Working capital is expected to ease out as the management decided to support suppliers in the near term and reduced interest carrying advances. Driven by overseas transmission execution and ordering, revival in railways is expected to fuel near-term growth. Factoring in near-term stress due to the second wave, we cut earnings by 10% and 11.6% for FY22E/23E, respectively, and maintain BUY with a revised SoTP-based target price of Rs530 (earlier: Rs550).

- Commodity prices impact margins, near-term stress in domestic growth: Revenue growth was flat, while margins declined 60 bps YoY to 10.4%. Interest cost has reduced tracking reduction in debt, supporting the overall earnings. Tax rate has been high due to booking of higher sales from overseas geographies that has higher tax rate. Nearly 60% of the order book is fixed price and hence, commodity price impact has amounted to Rs1.4bn, ~80% of this in Q4FY21.

- Kohima and other asset monetisation to aid debt reduction: (i) Kohima-Mariani (KMTL), where Kalpataru has 74% stake, has been commissioned in Nov'20 and the company is awaiting final approval and is confident of finalising this deal by September 2021, (ii) sale of Indore real estate is on and is expected to complete in 18 months, (iii) exploring options to sell road BoT under JMC projects and (iv) looking at Shubham Logistics' stake sale.

- Healthy traction expected from overseas markets: There are promising growth opportunities from overseas markets like SAARC, far East, LatAm and Africa. Hence, this will offset the near-term lull in domestic market.

- Strong performance from JMC: JMC posted 43% YoY growth to Rs13.9bn supporting overall adjusted PAT of Rs414mn. The subsidiary had an order intake of Rs84.43bn in FY21 resulting in strong orderbook of Rs140bn. The restructuring of a couple of road BoTs is on cards and this may support the overall cashflow of the subsidiary.

- Maintain BUY on benign valuation, new acquisition to be value-accretive: Given the upside from asset sales, benign valuation and gradual turnaround of subsidiaries, we reiterate our BUY rating on the stock. The recent acquisition will support expansion towards lucrative Latin American market and Linjemontage has given access to Nordic market. We value standalone business at 11x FY23E earnings, Linjemontage at 5x CY22E, JMC is as per 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 Rs530.

Shares of KALPATARU POWER TRANSMISSION LTD. was last trading in BSE at Rs.383.55 as compared to the previous close of Rs. 381.3. The total number of shares traded during the day was 15265 in over 552 trades.

The stock hit an intraday high of Rs. 394.05 and intraday low of 382.45. The net turnover during the day was Rs. 5896466.

Source : Equity Bulls

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