YES Securities is bullish on Kalpataru Power Transmission has recommended buy rating on the stock with a target price of Rs 313 in its research report dated May 21, 2020.
YES Securities' research report on Kalpataru Power Transmission
KPP’s PBT came in line with our estimates as EBITDAM surprised positively (+98bps vs est.) while sales got impacted by ~Rs3bn due to 2-weeks of lockdown (-6.4% vs est.). Rail /Oil-Gas segments revenues grew by 75%/20% yoy while T&D revenues (ex- Linjemontage) declined during Q4FY20. KPP is aiming for net cash balance sheet by FY21-end through an expected cash flow of ~Rs10bn from sale of transmission assets. Its standalone debt stood at ~Rs10bn.KPP’s order book remains healthy at Rs133bn & L1 of Rs20bn, providing visibility of 1.9x TTM sales. Order pipeline of Rs200bn from green energy corridor is expected to be tendered out in the 3-4 months. On the international T&D front, KPP sees traction in Africa, SAARC, MENA, and Nordiac regions. In railways, order momentum is expected to continue, led by the domestic electrification drive. Management is also looking at options from international markets in railways & oil-gas divisions with limited focus on Middle East countries. KPP has guided for order inflow of Rs100-110bn in FY21. We est. sales decline of ~8% with EBITDAM of 9.6% in FY21 to factor in the 2-months of lockdown & supply disruptions. (vs mgmt. guidance of +10% growth with margins of ~10.5%). Though valuation is attractive (trades at 6x FY22 EPS), resolution of promoter’s pledged shares remains key trigger as promoter group has gross debt of ~Rs80bn in the real estate business which is suffering from demand headwinds.
Retain ‘BUY’ rating with SOTP-based TP of Rs313 as core business remains on strong footing deriving benefits out of domestic and global transmission capex, railway electrification & value unlocking through asset divestment.
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