Kalpataru Power's Swedish acquisition will prove value accretive

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26 Aug, 2025 12:21

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Jitendra Kumar GuptaMoneycontrol Research

Domestic power T&D market opportunities are shrinking and companies are gradually looking for the overseas markets. While Kalpataru Power Transmission already has a presence in the overseas markets, the company announced the acquisition of Swedish EPC company Linjemontage iGrastrop AB (LGAB), which will further expand its reach in some of the growing European markets.

Small but scalable

In terms of size, the Sweden-based company is about one-tenth of Kalpataru. It operates in a growing market and has an annual sales turnover of Rs 500 crore. LGAB, founded in 1993, is engaged in EPC, T&D network and O&M of the existing electricity networks. Its presence is spread across Sweden and Norway, which are fairly developed markets. However, because of the technological advances in the transmission sector and other changes, there is a good opportunity for the replacement of the existing infrastructure in these markets.

LGAB has a technological advantage, which is also reflected in its growth. During the calendar years 2015-18, the company’s sales grew 26 percent annually. Today, it has an order book of close to $77 million, which is about one time its sales. Importantly, the size of the opportunity is estimated to be big with annual opportunities of about $800-900 million for the next few years. For Kalpataru, it is a small investment but this would expand its markets, strengthen its international operations and provide growth visibility.

Valuations: Value accretive

Kalpataru entered into an agreement to acquire 85 percent stake in the company for an enterprise value of $24 million or about Rs 165 crore. The deal is valued at six to seven times its CY19 EBITDA and 0.3 times its annual sales of $75 million or Rs 516 crore. This is quite attractive in the light of the asset-light business model, close to 25 percent return on equity (RoE) and inherent growth in the existing markets. The acquisition will be value accretive considering Kalpataru’s own return ratios are relatively low (RoE of 12 percent) and growing moderately at about 14-16 percent annually.