Prabhudas Lilladher's research report on Kalpataru Power Transmission
We cut our FY23 earnings estimate by 5.4% given weak H1FY23 performance and downgrade to ‘Accumulate’ (Buy earlier), even as we roll forward to FY25E with revised SoTP of Rs549 (Rs442 earlier). Kalpataru Power Transmission (KPTL) reported subdued quarterly performance with standalone revenue decline of 5.6% YoY and EBITDA margin contraction of 8.2%. Margins impacted due to execution of legacy orders and elevated logistic cost. However, with completion of legacy orders, softening commodity and logistics costs, margins will likely improve from Q4FY23, in our view. Order pipeline remains healthy with strong traction seen in International T&D, Oil & Gas (domestic and international) and railways (orders ~Rs100bn to be tendered in next 4-5 months). Net debt remains at elevated level of Rs12.5bn (vs Rs9.3bn in Q1FY23) owing to higher working capital requirement. However, it is likely to reduce, led by better cash collections, softening commodity prices and prudent working capital management. Management guided revenue growth of ~7.5-10% for FY23. We remain positive on KPP in the long run owing to 1) robust order backlog, 2) strong outlook for international markets, 3) revival in domestic T&D along with growth emerging in segments such as Railways/ O&G, deleveraging backed by asset monetization (Indore project), 4) expected strong performance in International Subsidiaries (Linjemontage, Fasttel) and 5) likely synergy benefits post JMC merger. The stock is currently trading at PE of 20.2x/14.8x/11.9x FY23/24/25E. Downgrade to ‘Accumulate’, also factoring recent rally in stock.
We cut our FY23 earnings estimate by 5.4% given weak H1FY23 performance and downgrade to ‘Accumulate’ (Buy earlier), even as we roll forward to FY25E with revised SoTP of Rs549 (Rs442 earlier).