Buy RPG Transmission; target of Rs 223: Emkay

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Buy RPG Transmission; target of Rs 223: Emkay

Broking house, Emkay Research is bullish on RPG Transmission and has recommended buy rating on the stock with target of Rs 223.

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RPG Transmissio BSE | NSE 01/01/70 Are Mutual Funds betting on RPG Transmissio?

Broking house, Emkay Research is bullish on RPG Transmission and has recommended buy rating on the stock with target of Rs 223.

Emkay Research report on RPG Transmission:

Huge business potential ahead :

In order to meet the demand and ensure power to all, the Government has targeted to invest Rs 8000 bn in the power sector out of which Rs 3000 bn would be invested in development of transmission (Rs 1300bn) and distribution (Rs1700 bn). This huge investment would generate 100000 MW by 2012 which will encomplish the misson of "Power to all". National grid plan to build 37,500 MW (presently 9000 MW) interregional transmission capability by 2012 and Ultra mega power project is likely to create huge opportunity for transmission players in India. SAARC countries like Bangladesh, Bhutan, Nepal, Pakistan have planned huge transmission line for which few Indian transmission players were waiting for. RPGTL with its long experience in transmission line is looking actively at the SAARC markets and expects positive order flows from here to materialize in the next 12 months.

RPGTL's order book is healthy and growing

RPGT's current order book to sales ratio stands at 2.3x FY06 sales and it enjoys a healthy unexecuted order book position of Rs.4500mn indicating strong revenue growth for the next 12-18 months. This order book is expected to increase further with the company participating in all the big size high margin T & D projects. This is quite visible from the fact that RPGTL's order book has continuously increased from FY04 from Rs 0.8 bn to Rs 4.5 bn as on date and we expect further built up in order book considering the government continued thrust in power sector reforms and increased participation of private players.

Financial Impact of New orders :

Recently it bagged two orders from PGCIL worth Rs 1930 mn which increased its order kitty to Rs 4500 mn.The new orders of Rs 1930 mn will be executed by the company through internal accruals. Improvement in margin to the extent of 30 bps to 50 bps is expected in the books from FY08 onwards which will lead to further upside on EPS. 

We continue to be positive on RPGTL long term prospects and believe that company will be tremendously benefited from power reforms in the XI plan by the Govenment. We had earlier recommended the RPGTL stock at Rs.137 on 8th September 2006. At CMP of Rs 185 it discounts FY08E earnings of Rs 22.3 by 8.2x . We retriate our BUY rating on the company with target price of Rs 223.