Buy Kalpataru Power Transmission; target of Rs 615: Emkay Global Financial

Emkay Global Financial's research report on Kalpataru Power Transmission

Over the years, KPTL has always traded at a discount to KEC International due to concerns around capital allocation (investment in several Transmission assets and Road assets as well as other non-core investments) and promoter pledge. We argue that given the company’s merger process being under way, no more investments expected in non-core assets and the anticipated gradual decrease in promoter pledge, its valuation gap with direct peers like KEC should become negligible.

Outlook

We now value the KPTL standalone entity at 15x (at par with KEC’s exit P/E) vs 13.5x earlier, to arrive at our SoTP-based Dec-23 TP of Rs615/share (earlier, Rs565). We believe this may hold further upside, if one were to incorporate the merger synergies. We maintain BUY on the stock. Better standalone inflows (YTD inflows stand at ~Rs70bn along with L1 of ~Rs45bn) and softening commodity will improve earnings going forward. Consolidated order book stands at Rs385bn, together with L1 of Rs60bn.