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Maintain BUY on Kalpataru Power Transmission - Multiple triggers - HDFC Securities

Posted On: 2020-05-22 14:11:06


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

Kalpataru Power Transmission (Q4FY20): Multiple triggers. Maintain BUY
(TP Rs 333, CMP Rs 192, MCap Rs 30 bn)

We maintain BUY on Kalpataru Power Transmission Ltd. (KPTL) with increased SoTP of Rs 333/sh (core 10x FY22EPS). 4QFY20 performance was a miss owing to COVID-19 impact in last week of Mar-20 (Rs 3bn miss in revenue). Multiple triggers are in place for further re-rating with (1) Resumptions of near 75-80% execution in May-20 (2) Likely monetization of three BOOT transmission assets during FY21E & (3) Restructuring of JMC three Roads BOTs, which shall reduce cash burnout. We have increased FY21/22E EPS by 28.7/4.6% to factor in better than expected execution ramp up.

Muted performance: KPTL posted Rev/EBIDTA/APAT de-growth of 7.6/5/21.8% YoY (6.9/6.5/22% miss). KPTL lost about Rs 3bn revenue in last week of Mar-20 due to COVID-19 disruption. With the calibrated relaxation in lockdown, supply chain issues and man/material movement has recovered and sites are working at 80-85% utilization. KPTL expects to achieve 70% billing for 1QFY21 (Rs 14bn), Rs 18-20bn in 2QFY20 and Rs 20+ bn for 3Q/4QFY21E. The recovery is better than HSIE Research expectations of 50% billing for 1QFY21 and slow ramp up to 100% beginning 3QFY21.

Strong visibility on ordering: KPTL secured new orders worth Rs 65bn (FY20) contributed by T&D (57%), 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 June-20. Metro bids worth Rs 100bn are also in pipeline. KPTL has guided for Rs 100-110bn of new order booking for FY21E of which it has already bagged Rs 9bn besides L1 status in Rs 20bn (all in T&D - 70/30% domestic and international).

Asset monetization seems on track, Buyback sentimental: KPTL expects to achieve zero standalone net debt status by Mar-21. It is in advanced stages of divesting stake in Alipurduar asset by Jun/Jul-20 and Kohima Asset sale transfer to CLP India by Dec-20 post COD in Jul/Aug-20. Total stake sale proceeds of Rs 10bn+ will be utilized to reduce 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 signaling.

KPTL seems to have recovered from worst of COVID-19 headwinds as site utilization has improved significantly to 80%. BOOT asset monetization will lead to zero standalone net debt over next few quarters. Domestic T&D orders are seeing improved traction (after 2yrs lull) whilst in Africa new opportunities are emerging in Rail electrification and cross country O&G pipeline. We maintain BUY. Key risks (1) Delays in capex recovery, (2) Slowdown in government infrastructure spend, (3) Delay in Transmission/Road BOTs monetization and (3) NWC deterioration.

Shares of KALPATARU POWER TRANSMISSION LTD. was last trading in BSE at Rs.192.5 as compared to the previous close of Rs. 192.3. The total number of shares traded during the day was 74238 in over 2354 trades.

The stock hit an intraday high of Rs. 201 and intraday low of 187.55. The net turnover during the day was Rs. 14404757.


Source: Equity Bulls

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