Buy Kalpataru Power; target of Rs 139: KRChoksey

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Buy Kalpataru Power; target of Rs 139: KRChoksey

KRChoksey is bullish on Kalpataru Power Transmission (KPTL) and has recommended buy rating on the stock with a target of Rs 139 in its September 13, 2011 research report.

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KRChoksey is bullish on Kalpataru Power Transmission (KPTL) and has recommended buy rating on the stock with a target of Rs 139 in its September 13, 2011 research report.

"KPTL is looking to enter into developed markets like US through an inorganic route. Company is planning to debut with tower manufacturing facility and plans to expand the gamut to EPC services later. The management indicated identification of target company with due diligence already in progress. This is a part of KPTL's strategy to reduce its domestic concentration and diversify its presence into different geographies across the world. KPTL is expanding its warehousing and logistics business (through its 85% subsidiary Shree Shubham-SSLL) further. It is creating around ~150,000 MT of warehousing capacity additionally in Madhya Pradesh and Maharashtra at a capex of ~Rs 40 crore over next one and half years.

Moreover, it also looking to tie up with retail superstores like Hyper Mart etc as well. SSLL currently owns 30 Agri-logistics parks with ~190,000 MT of capacity. It also has revenue sharing agreement with Rajasthan Warehousing Corporation (RSWC) on 60%-40% basis for its ~400,000 MT of warehousing capacity. Under the agreement, SSLL will be operating all the warehouses of RSWC and also enjoys the power to fix up the rates."

"The management is expecting robust inflows from PGCIL to continue in the future. However majority of orders are expected to get released in fourth quarter of FY12 with Q2 and Q3 to remain flat. In management's view, the delay in PGCIL ordering can be attributed to Right-of-way issues and slowdown in power generation side. KPTL has participated in PGCIL tenders of around Rs 4,000 crore which are yet to be opened. Management reiterated its top line growth guidance of 15-16% at standalone level and 30-35% at JMC level in FY12. Based on the geographical composition of current backlog, KPTL expects international business to contribute around 35-40% to FY12 revenues. We expect standalone revenues to grow by ~14% while JMC to grow by ~33% in FY12. KPTL is planning to rope in industry professionals in the top management of JMC to increase the bandwidth and bring more accountability. Management of KPTL has expressed the requirement of it with the multifold expansion in JMC activities.

Order book of JMC has grown by 3.5 times since FY07 to Rs 4,150 crore in FY11. Moreover JMC is also looking to further penetrate into Railways segment to explore the opportunities in the sector."

"The stock has outperformed the Sensex in last one and three months mainly on account of strong backlog, increasing penetration into international markets and easing working capital. We believe that focus on diversification, reducing working capital cycle, selective bidding and improving corporate governance augur well for the company. At CMP of Rs 113, the stock is attractively trading at 8x PER FY12e standalone EPS and 6.5x FY13e standalone EPS. We recommend BUY on the stock with SOTP based target price of Rs 139," says KRChoksey research report.

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To read the full report click on the attachment