Buy Kalpataru Power; target of Rs 500: ICICI Direct

ICICI Direct's research report on Kalpataru Power

Kalpataru Power (KPTL) has acquired an 85% stake in Linjemontage I Grastorp AB (LG), a Swedish EPC company specialised in T&D EPC and power supply solutions at an enterprise value of $24 million in an all-cash deal, translating to ~Rs 165 crore of enterprise value and Rs 141 crore for acquisition of 85% stake in rupee terms. The transaction will be financed through internal accrual and some short-term debt, if required. KPTL will have right to acquire remaining 15% stake in future. The transaction is expected to be closed in Q1FY20. Linjemontage’s CY18 revenue was at $75.1 mn (Rs 518 crore) indicating EV to sales of 0.3x and EV to EBITDA of 8.6x for acquisition. However, valuations ascribed seem a tad expensive given LG’s low margins of 3-4%.

Outlook

However, better procurement efficiencies and change in product mix (high focus on 400 KV projects) will aid KPTL to scale up the PAT margins of Linjemontage to 5% over the next two to three years.