Buy KSK Energy; target Rs 82: Emkay
Emkay Global Financial Services is bullish on KSK Energy and has recommended buy rating on the stock with a target price of Rs 82 in its February 21, 2013 research report.
February 22, 2013 / 12:20 IST
Emkay Global Financial Services is bullish on KSK Energy and has recommended buy rating on the stock with a target price of Rs 82 in its February 21, 2013 research report.
"KSK Energy, earnings upgrade cycle to start from 1QFY14 driven by - 1) lower Wardha fuel cost on no excise duty (from Mar13 as its SEZ), lower transportation cost (due to railway siding) and improvement in coal quality (Wardha PAT Rs1.8bn in FY14E vs. Rs885mn in FY13E), 2) normalized PLF in VS lignite (technical issues in FY13 - PAT Rs100mn vs. Rs300mn normalized), 3) normalized operations in Arasmeta II (loss of Rs180m in FY13) and 4) Mahanadi commissioning. We expect EPS CAGR (FY13E-17E) of 45%.Our estimates factor in 3-4 month delay in Mahanadi commissioning driven by delay in Gare Pelma mine clearance. Hence, poor 3Q13 performance and delay in Mahanadi drives 31% and 10% EPS cut for FY13E and FY14E. Note that we have yet to build in 1) Wardha coal quality improvement (10-15% upside), 2) lower interest (ECB or lower rates - 10-15% upside), 3) coal linkage in lieu of Morga II (with coal pooling approval, there is a reasonable chance of this - can drive huge upgrades) and 4) UP bid Rs5.44/unit despite it being L1 and in top 4000MW (which could again double the profits). Though cash flow situation in FY15 looks a bit tight (for Mahanadi Phase II equity), we do not expect any equity dilution as it is likely to be financed through subordinated debt.With the downgrades/decline for last two yrs behind us and the like start of EPS upgrade cycle from 1Q14 onwards, the stock attractive at 6.4xFY15E EPS and 0.6xFY15E book (esp. given blended core ROE of 13-15%). While the performance has been disappointing for past 8 months post our upgrade, the story remains intact. KSKE could be a multibagger if either coal linkage is received or UP bids get accepted, otherwise 40-50% returns over next 2yrs. Reiterate Buy with revised TP of Rs82/Sh (earlier Rs76/Sh). Key risk - 1) delay in Gare Pelma clearance or Mahanadi commissioning, 2) any duty/tax or open access issues in group captive supplies from Wardha or 3) poorer than expected operational performance (SHR, Aux, O&M expenses)," says Emkay Global Financial Services research report.Public holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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