Buy This Small Cap Power Transmission Stock, Target Price Rs 619: HDFC Securities

HDFC Securities is optimistic about Kalpataru Power Transmission Limited (KPTL), recommended "buy" for a target price of Rs 619 per share. The brokerage claims a gain of up to 23% considering the stock is purchased at the current market price.

KPTL is a small-cap power sector company. It is amongst the leading Engineering, Procurement, and Construction (EPC) companies with proven experience and expertise spanning over three decades. KPTL is part of the Kalpataru Group established in 1969. It is a diversified conglomerate with interest in Power Generation, Real Estate, Agri Logistics and EPC in major infrastructure segments like Power Transmission and Distribution, Roads & Highways, Buildings & Factories, Railways, Water & Irrigation, and Oil and Gas. The company has a market capitalization of Rs 7,537.78 crore.

Stock Outlook & Returns

The current market price of KPTL stock on NSE is Rs 506.20/share. Its 52 week high level recorded on 11 November 2022 is Rs 516.50 and the 52 week low level recorded on 11 May 2022 is Rs 331.80, respectively.

The KPTL shares in the week surged by 6.3%. It has given a massive 35.93% positive returns in 3 months. Over the past 1 year, it gave 20.71% positive returns. In 3 years, it gave 11.36% positive returns. In 5 years, it gave 31.62% positive return. The returns over the past 5 years show that the stock has delivered good returns. 

Financial highlights: Revenue

INR 15.3bn (-5.6/-0.9% YoY/QoQ, a 4.7% miss). EBITDA: INR 1.3bn (-17.8/-3.8% YoY/QoQ, a 10% miss). EBITDA margin: 8.2% (-121/-25bps YoY/QoQ, vs. our estimate of 8.7%, mainly on account of higher input and raw material prices, elevated logistics costs, lower absorption of overheads and closure of old projects). APAT: INR 620mn (- 12.4/-21% YoY/QoQ, a 19% miss). KPTL guided for FY23 revenue to grow 7.5- 10% YoY. 

Robust OB; diversification augurs well

Total orders received in FYTD23 stood at INR 68.9bn (domestic 39% and international 61%), taking the OB (including LMG & Fasttel) to INR 188.6bn (domestic 37% and international 63%) as of Sep'22. The OB excludes L1 of INR 43bn. Currently, the OB is at ~2.7x FY22 revenue. Shares of T&D/railways/O&G in OB are at 67/21/12%. 

Robust balance sheet; more comfort coming up

The standalone gross/net debt as of Sep'22 stood at INR 15.9/12.5bn vs. INR 13.5/9.3bn as of Jun'22. The debt excludes interest-free loan received pursuant to agreements in relation to the divestment of T&D Assets. KPTL reiterated its plan to complete the KPTL-JMC merger latest by Q4FY23. The company has guided that the promoter pledging would witness a continuous downtrend, given the strong cash flows across projects and divestment of land parcels. It also guided divestment of non-core business and reduction of debt (INR 3-4bn from FY22 level) by FY23-end. 

Robust balance sheet; growth pick-up, buy for Rs 619 target price

Kalpataru Power (KPTL) reported revenue/EBITDA/APAT of INR 15.3/1.3/0.6bn, missing our estimates by 4.7/10/19%. The margin was impacted during the quarter due to higher input and raw material prices, elevated logistics costs, lower absorption of overheads, and closure of old projects. KPTL secured new orders worth INR 68.9bn in FYTD23, taking the order book (OB) to INR 188.6bn (~2.7x FY22 revenue, excluding L1 of INR 43bn). The standalone gross/net debt increased to INR 15.9/12.5bn as of Sep'22 vs. INR 13.5/9.3bn as of Jun'22. The pending cash flow to be realised from the Indore real estate project, for which OC was received in Jul'22, is INR 2.7-2.8bn (net basis INR 2bn), expected to be received in the next 10-12 months. This shall help deleverage the balance sheet further. 

"Given strong order inflows, tight control on B/S and NWC, and guidance on the reduction of promoter pledges, owing to strong cash flows/land monetisation by the parent, we increase our valuation multiple from 12x to 14x. Given strong order inflows, we increase our earnings estimates. We roll forward our valuation to Sep24E estimates and maintain a BUY rating on the stock with a revised SOTP valuation of INR 619/sh," HDFC Securities has said. 

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.