Kalpataru Power Transmission (KPTL) foray into the Nordic region by acquiring 85 percent of Swedish company Linjemontage i Gastorp AB (Linjemontage) for an enterprise value of $24 million has grabbed investors’ as well as brokerages attention.
Most brokerage firms have an aggressive target price of above Rs 540 per share in the next 12 months that translates into an upside of about 16 percent from March 27 closing price of Rs 467.
Although the acquisition is relatively small, experts view this as a positive development for the company because the business is scalable as the replacement opportunity is large (about $1 billion per year). Moreover, KPTL’s expertise will allow it to enter the 400kVA market (50 percent of the existing market).
Also, it is more cost-effective procurement of raw materials and entry into high-value chain implies scope for improvement in EBITDA and PAT margins that are currently 3.7 percent and 2.5 percent, respectively.
Edelweiss Securities, which has a buy rating on KPTL, raised its 12-month target price to Rs 540 from Rs 450 earlier factoring in the buyout. It also raised FY20E and FY21E earnings by 2 percent each.
“We are tweaking the target P/E for KPTL standalone from 12x to 15x, which is towards the high end of its trading band, factoring in the strong business momentum and potential value unlocking from transmission BOOT assets,” it said.
Here what other brokerage firms have to recommend about Kalpataru Power Transmission Ltd:
Anand Rathi: Buy| Target: Rs 548
Kalpataru Power’s robust order book and proven execution capabilities will lead to a healthy 17 percent revenue CAGR over FY18-21. The Linjemontage acquisition is likely to improve its addressable market.
Besides, synergies are likely to improve profitability in the acquired company. The brokerage firm expects the earnings to clock a 20 percent CAGR over FY18-21.
Reliance Securities: Buy| Target: Rs 544
LMG has an asset-light model, differentiated EPC and technological capabilities and RoCE of 25 percent. It has exposure to potentially high-growing markets.
Looking ahead, the brokerage firm expects KPTL to be one of the key beneficiaries of strong transmission capex in both domestic and global markets.
Considering the strong visibility on revenue and order flow front, sustained earnings momentum and likely improvement in return ratios, Reliance Securities maintain their buy recommendation on the stock.
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