Buy Kalpataru Power Transmission; target of Rs 625: Prabhudas Lilladher

Prabhudas Lilladher's research report on Kalpataru Power Transmission

We revise our FY24/25E estimates by -11.9%/-7.2% factoring in 1) slow revival in margin, 2) cost synergy expected from H2FY24 and 3) continued low profitability in railway and Oil & Gas. The merged entity of Kalpataru Power Transmission (KPP) reported healthy revenue growth (up 23.3% YoY), while margins were impacted due to sudden rise in travelling cost (up 35% YoY) and legal fees. Order pipeline remains strong in T&D, Water, B&F and Oil & Gas from domestic as well as exports market. Post-merger focus is on leveraging KPTL’s presence on export market in T&D segment to enter into other verticals such as B&F, Civil, Water etc. Management has guided for standalone revenue growth of ~30%, with order inflows of ~Rs260bn and PBT margin of 4.5-5% for FY24. We remain positive on KPP in long run owing to 1) strong order backlog, 2) strong order pipeline across segment, 3) focus on geographical expansion for segment such as Water, Railways, Civil etc. 4) increasing pre-qualification for large contracts and 5) operational & cost synergy arising due to merger.

Outlook

The stock is trading at PE of 12.9x/9.8x FY24/25E. Maintain ‘BUY’ rating on stock with revised SoTP of Rs.625 (earlier Rs670).

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