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Maintain BUY on Kalpataru Power Transmission - Recovery in sight - HDFC Securities

Posted On: 2020-07-29 10:10:45

Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.

Key takeaways from KPTL's FY20 AR are as follows: (1) geographically a well-diversified order book and robust bid pipeline; (2) standalone profitability stable and moderate; consolidated profitability dragged by subsidiaries performance, mainly pertaining to BOT assets; (3) while borrowings increased by 25%, it is still quite comfortable (net D/E at 0.29); and (4) investment/loans worth Rs 1,650/Rs 320mn given to SSL. Multiple triggers are in place for further rerating with (1) resumptions of near 75-80% execution in Jun-20, (2) likely receipts of monetisation proceeds of three BOOT transmission assets during FY21E worth Rs 10bn+, and (3) restructuring of JMC three Roads BOTs, which shall reduce cash burnout. The overhang of the promoter group's real estate exposure will continue to restrict multiple rerating. We increase our FY22E EPS by 3% and roll forward our valuation to Jun-22E. We maintain BUY on KPTL with a revised target price of Rs 357/sh (vs. Rs 333/sh earlier).

Order pipeline robust: KPTL secured new orders worth Rs 65bn (FY20) contributed by T&D (57%, almost equal share of domestic and international orders), Railways (21%) and Oil & Gas (23%). Besides, L1 status stands at Rs 20bn. Green corridor ordering by REC/PFC worth Rs 150-200bn is expected in 1HFY21. Metro bids worth Rs 100bn are also in the pipeline. KPTL has guided for Rs 100-110bn of new order booking (HSIE est Rs 93.5bn) for FY21E, of which it has already bagged Rs 18.6bn in FYTD21E. We expect L1 status to be about Rs 15-20bn.

Asset monetisation to help achieve net cash status at KPTL standalone: KPTL expects to achieve zero standalone net debt status by Mar-21E. It has signed a definitive agreement for selling Alipurduar asset to Adani transmission, subject to statutory approvals by 3QFY21E and Kohima Asset sale transfer to CLP India by Dec-20 post COD in Jul/Aug-20. The company will utilise the total stake sale proceeds of Rs 10bn+ to reduce the standalone net debt of Rs 9.7bn. Buyback announcement of Rs 2bn is in anticipation of strong cash inflow from BOOT asset sale and more of market signalling. BS deleveraging will be key for further re-rating.

Key growth drivers: KEC stands to benefit from impetus given to railways electrification, MRTS construction planned in 26+ cities, and gas & water distribution infra opportunities in the Smart Cities Mission (AMRUT) across the country. While private capex remains elusive, and domestic T&D activity muted in the near term, planned outlays in MENA/SAARC regions on power T&D infra provide ample opportunities to grow over the near & medium term. We remain constructive on order inflows.

We maintain BUY on KPTL. Key risks: (1) adverse currency/commodity movement, (2) further delays in capex recovery, (3) slowdown in government T&D capex, (4) labour unavailability due to prolonged lockdown, and (5) promoters real estate overhang on group stocks.

Shares of KALPATARU POWER TRANSMISSION LTD. was last trading in BSE at Rs.241.1 as compared to the previous close of Rs. 242.45. The total number of shares traded during the day was 90349 in over 1241 trades.

The stock hit an intraday high of Rs. 244.95 and intraday low of 240.1. The net turnover during the day was Rs. 21934951.

Source: Equity Bulls

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