INVESTMENT IDEA

PCG RESEARCH

3 Sep 2016

Kalpataru Power Transmission Ltd.

Industry

CMP

Recommendation

Add on Dips to band

Target

Capital Goods

Rs.256

BUY

Rs. CMP-235

Rs.330

HDFC Scrip Code

KALPOW

BSE Code

522287

NSE Code

KALPATPOWR

Bloomberg

KPP IN

CMP as on 2 Sep 16
Equity Capital (Rs
mn)
Face Value (Rs)

306.9

Equity O/S (mn)

153.4

Market Cap (Rs mn)

39270

Book Value (Rs)

Avg. 52 Week
Volumes
52 Week High
52 Week Low

256

147
127625
287
160

Shareholding Pattern (%)

Promoters

59.5

Institutions

30.0

Non Institutions

10.5

Total

100.0

Nisha Sankhala
nishaben.shankhala@hdfcsec.com
Private Client Group - PCG RESEARCH

Time Horizon
1

Year

Kalpataru Power Transmission Limited, KPTL, an integral part of Kalpataru Group is an EPC Contracting company with a
diversified portfolio in Power Transmission & Distribution, Cross Country Pipeline, Oil & Gas field Surface Facilities, Civil
Infrastructure Projects, Power Generation (biomass) as well as Railway projects. The company is currently executing /
supplying to several customers in Africa, the Middle East, Far East, CIS, SAARC, South East Asia, U.S.A., Canada, Europe and
Australia.
Investment Rationale:
The budgetary allocations towards schemes in power sector are up by over 50% to 12,200 Cr. Further, the Governments
support to DISCOM and decision to create 100-smart city, Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY), Restructured
Accelerated Power Development & Reform Programme (R-APDRP), and North East India transmission investment would
brew-up the sector. Also, Power for All, Make in India and others schemes to catalyse the growth by dedicated green energy
transmission corridors are being developed to cater to renewable energy projects. Land acquisition bill would boost the
stalled projects and will ensure timely completion of infrastructure projects including transmission lines. Being one of the
strong player in the T&D sector KPTL has much to gain from this all.
Companys Infra Business housed under its subsidiary, JMC (67% Stake) has a strong order book of approx. 6,200 Cr. It has
executed 3 road BOOT projects, through its Wholly Owned Subsidiary Companies and 1 road BOOT project in Joint Venture.
All the four road BOOT projects are now fully operational on full toll and full length basis. Going ahead, Company is
expecting sizable orders from Power Grid Corporation of India Limited (PGCIL) & SEBs for our domestic transmission
business.
The Government plans to invest Rs8.56 trillion between FY16 and FY20 on revamping Indian Railways through improved
infrastructure, communication and passenger safety. Indias gas production is expected to touch 90 Billion Cubic Metres
(BCM) in 2040 from 35 BCM in 2013, signifying tremendous opportunity in laying new pipeline projects. There lies a huge
scope of development of various infrastructural projects in India.
Shree Shubham Logistics (80% Stake by KPTL) is majorly involved in the business of Agro Logistics It has a great opportunities
laying ahead as growing agri-produce, increased exports and Governments intention to curb agricultural wastage, there is a
need for better warehouse and logistics facility in India. The key demand would be from importers and exporters for
specialized services and custom-built warehouses. The logistics industry is expected to grow at a CAGR of 12-13% for next 3
to 5 years.

Page |1

PCG RESEARCH
The company has strong balance sheet with the Net Debt to Equity Ratio of 0.2x and also it is paying dividends to its
shareholders since 1993. Order inflows at Rs 19.6bn (+25% YoY) in Q1 FY17 continue to be robust, leading to a solid
order book of Rs 91bn (+77% YoY). KPTL is further L1 in orders worth Rs 20bn.
Risk & Concerns:
Most of the projects that the company undertakes are by their nature long term and therefor it involves a variety of
implementation risks, including construction delays, delay or disruption in supply of raw materials, delays in arranging
the right of way, managing locational issues, availability of timely skilled manpower, which may lead to cost overruns.

Financial Summary (Rs mn)

Year Ending
March
Net Sales
EBITDA
APAT
EPS (Rs)
P/E (x)
EV/EBITDA (x)
RoE (%)

1QFY17

1QFY16

11,537
1,308
645
4.2

11,635
1,150
430
2.8

YoY
(%)
-1
14
50
50

4QFY16
13,805
1,443
720
4.7

QoQ
(%)
-16
-9
-10
-10

FY14

FY15

FY16

FY17E

FY18E

40,518
3,828
1,429
9.3

44,211
4,256
1,645
10.7
23.9
11.5
8.2

43,646
4,669
1,995
13
19.7
9.5
9.2

51,784
5,420
2,372
15.5
16.5
8.8
10

58,553
6,112
2,679
17.5
14.6
7.9
10.3

27.5
12.3
7.5

Source: Company, HDFC sec Research

Quarterly Performance:
Kalpataru Powers 1QFY17 revenue (-1% YoY) was marginally below our estimates, however better margins (11.3%,
+90bps YoY) and lower interest expense (-40% YoY) led to an inline PAT (Rs 645mn, +33% YoY).
The management stated that the muted revenue performance was on account of (a) lower order intake in H1FY16
and (b) decline in commodity prices. However with the strong order backlog, company is confident to post ~20%
revenue growth in FY17E.
JMC reported a decline in revenues (-4% YoY) as execution was impacted due to labour issues in South India.
However, the company is confident of 5-10% growth, with 50bps margin improvement to ~9% in FY17E. Toll
collection improved marginally (~Rs 5.2mn/day), however continues to be below the breakeven level. A negative WPI
for FY16 restricted any tariff increase for the BOT projects. While losses continue in Shubham (Rs 177mn in 1QFY17)
as it is still in the process of rebuilding its team. Kalpataru infused Rs 700mn in Q1FY17, thereby increased its stake to
80% in Shubham.
Private Client Group - PCG RESEARCH

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PCG RESEARCH
Quarterly Financials (Standalone)
(Rs mn)
Net Sales
Material Expenses
Employee Expenses
Other Operating
Expenses
EBITDA
Interest Cost
Depreciation
Other Income
PBT
Tax
APAT
E/o (Adj For Tax)
Reported PAT

1QFY17
11,537
8,191
724

1QFY16
11,635
8,216
782

1,314
1,308
249
195
123
988
343
645
0
645

1,487
1,150
427
208
141
657
226
430
0
430

YoY (%)
-1

4QFY16
13,805
10,084
726

QoQ (%)
-16

1,553
1,443
241
208
121
1,114
394
720
0
720

14

-12

50
50

-9

-10
-10

FY16
43,646
30,655
2,932

FY15
44,211
30,839
3,136

5,390
4,669
1,275
837
508
3,065
1,070
1,995
0
1,995

5,980
4,256
1,409
852
522
2,517
873
1,645
0
1,645

YoY (%)
-1

10

-3

21
21

Source: Company, HDFC sec Research

Margin Analysis
(Rs mn)
Material Expenses As % Of
Net Sales
Employee Expenses As %
Of Net Sales
Other Operating Expenses
As % Of Net Sales
Operating Margin (%)
Net Profit Margin (%)
Tax Rate (%)

1QFY17

1QFY16

YoY (%)

4QFY16

QoQ (%)

FY16

FY15

YoY (%)

71

70.6

38

73

-205

70.2

69.8

48

6.3

6.7

-44

5.3

102

6.7

7.1

-38

11.4

12.8

-139

11.2

15

12.3

13.5

-118

11.3
5.6
34.7

9.9
3.7
34.5

145
190

10.4
5.2
35.4

89
38

10.7
4.6
34.9

9.6
3.7
34.7

107
85

Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH

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PCG RESEARCH

View & Valuation:

SOTP Valuation
Valuation
Methodology
KPP standalone

15x FY18E P/E

Valuation(Rs mn)
40,187

Stake

Value per
share(Rs)

100%

BOT Projects

262
10

Jhajjar

FCFE, COE@13%

1,588

51%

Satpura

FCFE, COE@13%

795

100%

Real estate

3,943

26

Indore

1x P/B

2,467

16

Thane

1x P/B

1,476

10

Subsidary

32

JMC Projects

CMP; 30% holdco disc

8,059

67%

25

Shubham Logistics

0.6x P/B

1,368

80%

Target price

330

Source: Company, HDFC sec Research

Kalpataru has posted 9% revenue cagr over FY12-16 along with 100bps margin expansion to 10.4%. Company has posted
13% PAT cagr over the same period. We forecast 15% revenue cagr over FY16-18E led by traction from transmission
segment with EBITDA margin ~10.5%. We expect company to post 14% PAT cagr over the same period. We have adopted
SoTP model for valuation of KPTL. We have valued standalone business at Rs 262/sh, while BOT Projects and Real estate
proportion stands at Rs 10/sh and 26/sh respectively. Two of its subsidiaries JMC Projects (67% Stake) and Shubham
logistics (80% Stake) combine contributes Rs 32/sh. So summing up all business we have arrived at value of Rs 330. We
initiate as BUY on the stock at Rs256 and on declines of Rs235 with target price of Rs330.

Private Client Group - PCG RESEARCH

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PCG RESEARCH

Execution lagged in 1QFY17, but expected to improve

Growth (YoY) - RHS

10.0%

6,000

0.0%

15

-10.0%

10

Source: Company, HDFC sec Research

-100%

-200%
Q1FY17

-40.0%

0%

5
Q4FY16

100%

Q3FY16

-30.0%

Q1FY14
Q2FY14
Q3FY14
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17

2,000

200%

Q1FY15

-20.0%

300%

20

8,000

4,000

400%

25

Q2FY16

20.0%

500%

Q1FY16

30.0%

10,000

30

Growth (YoY) - RHS

Rs bn

Q4FY15

40.0%

12,000

Private Client Group - PCG RESEARCH

Order Inflow
50.0%

Q3FY15

Rs mn

Q2FY15

Revenue
14,000

Order Inflows Continue To Remain Robust

Source: Company, HDFC sec Research

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PCG RESEARCH
Income Statement (ml)
Year ending March
Net Revenues
Growth (%)
Material Expenses
Employee Expenses
Other Expenses
Total Expenses
EBIDTA
EBIDTA %
EBIDTA Growth %
Depreciation
EBIT
Other Income (Including EO
Items)
Interest
PBT
Tax
RPAT
EO (Loss) / Profit (Net Of
Tax)
APAT
APAT growth %
Adjusted EPS (Rs)
EPS growth %

Balance Sheet (ml)

FY14
40,518
21.6
29,077

FY15
44,211
9.1
30,839

FY16
43,646
-1.3
30,655

FY17E
51,784
18.6
36,378

FY18E
58,553
13.1
41,133

2,602

3,136

2,932

3,518

3,870

5,011
36,690
3,828
9.4
19.6
695
3,133

5,980
39,955
4,256
9.6
11.2
852
3,404

5,390
38,977
4,669
10.7
9.7
837
3,832

6,468
46,363
5,420
10.5
16.1
877
4,543

7,438
52,441
6,112
10.4
12.8
913
5,199

484

522

508

515

526

1,460
2,157
727
1,429

1,409
2,517
873
1,645

1,275
3,065
1,070
1,995

1,464
3,594
1,222
2,372

1,665
4,059
1,380
2,679

1,429
5.5
9.3
5.5

1,645
15.1
10.7
15.1

1,995
21.3
13
21.3

2,372
18.9
15.5
18.9

2,679
13
17.5
13

Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH

As at March
SOURCES OF FUNDS
Share Capital
Reserves
Total Shareholders
Funds

FY14

FY15

FY16

FY17E

FY18E

307
19,235

307
20,401

307
22,279

307
24,381

307
26,791

19,542

20,708

22,586

24,688

27,098

677
Long-term Debt
Short-term Debt
7,173
Total Debt
7,850
Deferred Taxes
138
Long-term Provisions &
891
Others
TOTAL SOURCES OF
28,420
FUNDS
APPLICATION OF FUNDS
Net Block
5,738
CWIP
180
Investments
8,243
LT Loans & Advances
716
Inventories
5,438
Debtors
16,343
Other Current Assets
8,655
Cash & equivalents
647
Total Current Assets
31,082
Creditors
16,718
Other Current Liabilities
821
& Provns
Total Current Liabilities
17,539
Net Current Assets
13,543
TOTAL APPLICATION OF
28,420
FUNDS
Source: Company, HDFC sec Research

2,943

2,716

3,216

3,716

6,771
9,714
54

2,870
5,586
-4

5,870
9,086
-4

6,370
10,086
-4

978

209

849

960

31,454

28,377

34,620

38,141

5,535
54
8,733
764
5,989
18,705
7,409
753
32,855
15,359

5,384
41
9,909
997
4,244
19,999
7,375
1,062
32,681
17,724

4,549
800
10,859
989
5,675
22,700
9,652
1,247
39,274
19,862

4,436
800
11,859
1,348
6,417
25,667
10,684
1,637
44,404
22,459

1,129

2,913

1,988

2,248

16,489
16,367

20,637
12,044

21,850
17,423

24,706
19,698

31,454

28,376

34,620

38,141

Minority Interest

Page |6

PCG RESEARCH
Cash Flow Statement (ml)
Year ending March
Reported PBT
Non-operating & EO items
Interest
Depreciation
Working capital change
Tax Paid
Other operating items
OPERATING CASH FLOW(a)
Capex
Free Cash Flow
Investments
Non-operating Income
INVESTING CASH FLOW (b)
Debt Issuance/(Repaid)
Interest
FCFE
Dividend
FINANCING CASH FLOW (c)
NET CASH FLOW (a+b+c)
Reported PBT
Closing cash

Key Ratio
FY14
2,157
-484
1,460
695
-3,500
-727
382
-17
-707
-724
-485
484
-708
2,527
-1,460
343
-264
803
78
647
2,157

Source: Company, HDFC sec Research

FY15
2,517
-522
1,409
852
-2,678
-873
-768
-62
-433
-495
-104
522
-14
1,864
-1,409
-40
-272
182
106
753
2,517

FY16
3,065
-508
1,275
837
3,629
-1,070
-289
6,939
-444
6,494
-1,013
508
-949
-4,128
-1,275
1,092
-277
-5,680
310
1,062
3,065

FY17E
3,594
-515
1,464
877
-4,545
-1,222
-347
-800
-1,147
-950
515
-1,235
3,500
-1,464
889
-269
1,766
185
1,247
3,594

FY18E
4,059
-526
1,665
913
-2,133
-1,380
2,599
-800
1,799
-1,000
526
-1,274
1,000
-1,665
1,134
-269
-935
390
1,637
4,059

Key Ratios (%)

PROFITABILITY %
GPM
EBITDA margin
APAT margin
RoE
Core RoCE
RoCE
EFFICIENCY
Tax rate %
Fixed Asset Turnover (x)
Inventory (days)
Debtors (days)
Payables (days)
Cash Conversion Cycle (days)
Debt/EBITDA (x)
Net D/E (x)
Interest Coverage (x)
PER SHARE DATA (Rs)
EPS
CEPS
Dividend
Book Value
VALUATION
P/E
P/BV
EV/EBITDA
EV/Revenues
OCF/EV (%)
FCF/EV (%)
FCFE/MCAP (%)
Dividend yield (%)

FY14

FY15

FY16

FY17E

FY18E

28.2
9.4
3.5
7.5
11.7
9.6

30.2
9.6
3.7
8.2
10.7
9.1

29.8
10.7
4.6
9.2
12.7
9.4

29.8
10.5
4.6
10
15
10.9

29.8
10.4
4.6
10.3
14.6
11.1

33.7
6.8
49
147.2
150.6
45.6
2.1
0.4
2.1

34.7
7.9
49.4
154.4
126.8
77.1
2.3
0.4
2.4

34.9
8
35.5
167.3
148.2
54.5
1.2
0.2
3

34
9.7
40
160
140
60
1.7
0.3
3.1

34
11.2
40
160
140
60
1.7
0.3
3.1

9.3
13.8
1.5
127.3

10.7
16.3
1.5
134.9

13
18.5
1.5
147.2

15.5
21.2
1.5
160.9

17.5
23.4
1.5
176.6

27.5
2.0
12.2
1.2
0
-1.5
0.9
0.6

23.9
1.9
11.4
1.1
-0.1
-1
-0.1
0.6

19.7
1.7
9.4
1
15.7
14.7
2.8
0.6

16.5
1.6
8.8
0.9
-0.7
-2.4
2.2
0.6

14.6
1.4
7.9
0.8
5.4
3.7
2.9
0.6

Source: Company, HDFC sec Research

Private Client Group - PCG RESEARCH

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PCG RESEARCH

Rating Definition:
Buy: Stock is expected to gain by 10% or more in the next 1 Year.
Sell: Stock is expected to decline by 10% or more in the next 1 Year.

Private Client Group - PCG RESEARCH

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PCG RESEARCH
I Nisha Sankhala, MBA, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject
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Private Client Group - PCG RESEARCH

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