Kalpataru Power

Kalpataru Power

Kalpataru Power

Kalpataru Power

Kalpataru Power

Kalpataru Power

SKF India, CMC India, Kalpataru Power

SKF India, CMC India, Kalpataru Power

SKF india, Kalpataru Power

SKF india, Kalpataru Power

Jagran Prakashan, JK Tyres, Jyoti Structures, Kalpataru Power, Kansai Nerolac Paints, KS Oils, Kirloskar Oil Engines, Koutons Retail, Lanco Infratech

Jagran Prakashan, JK Tyres, Jyoti Structures, Kalpataru Power, Kansai Nerolac Paints, KS Oils, Kirloskar Oil Engines, Koutons Retail, Lanco Infratech

Kalpataru Power Transmission

The increased order flow to the power transmission sector is another signal that select sectors of the economy may be in the revival mode. Kalpataru Power Transmission, a turnkey solutions provider in transmission lines and substation structures, is among the key beneficiaries of order flows from Power Grid Corporation (PGCIL).

Aside of domestic projects, Kalpataru Power has also been successful in keeping the overseas order book in expansion mode.

Now, at beaten down valuations, the Kalpataru stock could receive a boost from the T&D revival. In the current economic scenario, the company’s diversified business profile and potential earnings accretion (on a consolidated basis) from infrastructure subsidiary — JMC Projects — makes it a superior option to other transmission and distribution contractors. Investors can consider the Kalpataru stock with a two-year perspective.

At the current market price of Rs 347, the stock trades at six times its standalone earnings for FY10. On a consolidated basis the valuation appears more attractive at about 4.5 times its estimated per share earnings for FY-10.
Beneficiary of Eleventh Plan

Since the beginning of January 2009, there has been a spurt in order flows, especially from public sector major, Power Grid Corporation.

This momentum is expected to prolong given that a good two-third of the planned capacity additions of power under the Eleventh Plan (2007-12) are expected to be commissioned over the remaining years of the Plan period.

Further, public power utilities are also looking at reviving Build-Operate-Transfer projects in T&D. Power Finance Corporation and Rural Electrification Corporation have floated tenders worth Rs 6,000 crore over the last several months.

There are already signs of Kalpataru benefiting from these initiatives — the company received Rs 770 crore of orders from PGCIL in March alone.

Besides domestic orders, Kalpataru has been actively pursuing its international business despite the global slowdown.

In this regard, it scores over its nearest peers, KEC International and Jyoti Structures. It has tapped the key markets in Africa and West Asia which are expanding their regional transmission network.

The company has won about Rs 1,650 crore worth of orders in Kuwait and Algeria in the quarter ended March 2009 alone, suggestive of the size of order flows.
WELL Diversified

Kalpataru’s revenue segments can be classified into T&D, biomass energy and infrastructure. While the first two have witnessed healthy revenue growth in the December quarter, the last segment saw a dip.

Laying of pipelines, which account for a good part of the infrastructure segment, has, however, once again seen a revival.

With the recently-won order for a crude oil pipeline for the HPCL-Mittal Energy joint venture, this segment would now have about Rs 650 crore or 13 per cent of the total orders in hand. Going forward, with increasing oil and gas finds that are required to be transported, this segment could see heightened activity.

While the company’s biomass division is not significant in terms of total revenue, its contribution to revenue has been increasing. As a result, this tax-free division has helped in reducing the company’s tax burden. Besides, this division has a high operating profit margin (OPM) of 45 per cent. Any increase in this segment’s contribution towards revenue is likely to aid the overall OPMs.

Kalpataru’s geographical diversification is also likely to come to its aid, especially in reviving the now lower OPMs. About 44 per cent of its current order book of over Rs 5,000 crore is from overseas projects.

These projects, mostly in the T&D space, have typically offered higher margins to Kalpataru in the past, giving it backward integration, apart from more lucrative deals available in export projects in this space.

Kalpataru’s subsidiary, JMC Projects, with an order basket of Rs 1,700 crore is also well-poised to tap civil work opportunities in power projects. This subsidiary too lends diversification and may aid backward integration in some large projects.
Financial concerns may ease

On a standalone basis, Kalpataru’s revenues grew a healthy 20 per cent to Rs 1,331 crore for the nine months ended December 2008 over the corresponding previous period.

However, net profits fell 28 per cent for the above period, dragged by raw material costs, interest costs and notional forex losses. But risks from the above factors may stand mitigated for the following reasons: Price of steel billets in Mumbai have plunged from Rs 40,000/tonne a year ago to less than Rs 19,500/tonne now.

Steel, which accounts for as much as 80 per cent of the material cost in a tower, however continued to hurt as a result of high inventory.

Now, with fresh inventory of steel procured at lower cost and with about 40 per cent of Kalpataru’s orders having fixed price contracts, the company will be able to retain the benefits of reduced steel prices.

This could provide some respite to profits and declining OPMs (currently at 10 per cent). Falling interest rates too can provide substantial relief on interest costs and improve profits. A shuffle in top management in early 2009 remains a point of concern.

Kalpataru Power

Kalpataru Power

NTPC,Bharti Airtel, Bajaj Auto, Hindalco, Aditya Birla Nuvo, Sobha Developers, Lanco Infratech, Andhra Bank, DLF, MTNL, Indian Overseas Bank,Glaxo

NTPC,Bharti Airtel, Bajaj Auto, Hindalco, Aditya Birla Nuvo, Sobha Developers, Lanco Infratech, Andhra Bank, DLF, MTNL, Indian Overseas Bank,Glaxo, Kalpataru Power

There is more in the report

Kalpataru Power - (Q2FY08 Result Review): Accumulate

Kalpataru Power - (Q2FY08 Result Review): Accumulate

ONGC, DLF, Sterlite, IOC, Nestle, Unitech, IOB, Mphasis, Tata Tea, Kalpataru, ABG Shipyard, Vardhaman Textiles, BHEL, HDFC, Max India, SREI,Economy,

ONGC, DLF, Sterlite, IOC, Nestle, Unitech, IOB, Mphasis, Tata Tea, Kalpataru, ABG Shipyard, Vardhaman Textiles, BHEL, HDFC, Max India, SREI,Economy, Banking, Real Estate

Kalpataru Power Transmission: Buy

Steady growth, timely foray into businesses that hold potential and the ability to sustain profit margins despite pressures support an investment in the shares of Kalpataru Power Transmissions.

Investors can consider taking exposure to the stock with a time horizon of two-three years, by which time the company’s profits may start reflecting the revenue flows from recent forays.

The stock is now trading at a discount (on trailing earnings) to peers such as Jyoti Structures. The price-earnings multiple on its likely earnings for FY-2009 is 15.

Consistency

Kalpataru’s sales and net profits have seen a robust growth of 64 per cent and 122 per cent respectively over the last three years. This growth has been quite steady without sudden spikes, as sales grew by over 50 per cent and profits r by over 100 per cent in each of the last three years. It’s operating profit margin at 16 per cent now has also been consistently superior to peers.

The present order-book at Rs 2,300 crore lends visibility for revenue and earnings.

Kalpataru’s strength is predominantly in design, fabrication, construction and erection of transmission lines and sub-station structures. Backed by domestic strength, the company has been successful in winning orders in the African markets, which have also been active on power reforms.

With more players eyeing the domestic transmission and distribution segment, we view Kalpataru’s presence in overseas T&D markets as a cushion against erosion of margins as a result of increased competition and any slowdown in local spending. The company earned 25 per cent of its revenue from international markets in FY 2007.

Diversified model

In recent years, Kalpataru entered the lucrative pipeline segment and quickly bagged orders from Bharat Petroleum and GAIL. While the order flow in the pipeline sector has not been as robust as expected, this could be viewed as a mere delay than any decline in prospects.

A number of new gas and crude pipelines are being planned and Kalpataru has been increasing its investments in this segment indicating that it could well be an earnings driver in future.

The company’s foray into bio-mass power generation (using agricultural residue) has been successful with two plants running at about 93 per cent plant load factor.

While revenue contribution from these segments is now insignificant, the profit margin appears superior. Further, given the high potential for small-scale bio mass generation projects in rural areas with limited capital employment, we see this segment to buttress overall profit margins even if it does not result in high earnings accretion.

Recent forays

Kalpataru has forayed into logistics and real estate through subsidiaries. The logistics subsidiary is into high-end warehousing, cold storage and logistics activities and has already procured land in several areas of Gujarat and Rajasthan for adding more warehouses.

Increased retailing activity in the country especially in the food segment, warrants the need for integrated warehousing and transportation solutions.

While the bigger players may invest in-house for the same, a good number of mid-rung companies are likely to look at outsourcing — also called third-party logistics. If the subsidiary is able to convert its timely entry into some reasonable market share, it may add value to the consolidated picture.

JMC Projects, another subsidiary, has been a successful turnaround story after Kalpataru’s investment in the company.

This subsidiary is likely to act as a good support for the company’s foray into infrastructure projects.

Price variable clauses in domestic markets have effectively shielded Kalpataru’s operating profit margins from any hike in raw material costs. However, its increasing exposure to foreign currency could dent net margins if not effectively hedged.

Aban Offshore, Gujarat NRE Coke, Kalpataru Power, Larsen Tourbo

Aban Offshore, Gujarat NRE Coke, Kalpataru Power, Larsen Tourbo

Angel - PNB, Angel -TCI,B&K - Bharat Forge, B&K - Indus Ind Bank, B&K - Kalpataru Power Transmission

Angel recommends BUY on PNB

We expect the bank to maintain its margins on the back of a high level of CASA. The bank has already taken proactive steps for AS 15 provision for employees. Currently, PNB holds around 38% of its investment portfolio in the AFS category and we expect the share of AFS in the total portfolio to fall further in FY2008. We expect PNB to demonstrate stable performance in NII and Fee-based income, However, further deterioration in asset quality could warrant higher provision in FY2008. We maintain a Buy on the stock with a Target Price of Rs615.

Angel recommends HOLD on TCI

We expect TCI's revenues to grow at a CAGR of 14.8% to Rs1,433cr and earnings to grow at 29.3% CAGR of Rs51cr over FY2007-09E. Overall operating margin of the company is expected to improve from 6.4% in FY2007 to 8.5% in FY2009E on the back of higher margins of 5-7% clocked by the XPS and SCS Divisions compared to its core business of transportation, which enjoys low 2-3% margins. At the CMP, the stock trades at 12.1x FY2009E Earnings and 5x EV/EBITDA. Owing to a huge capital outlay, which will generate positive cash flows over a longer period of time, we have valued the company using the DCF model and have arrived at a 12-month Target Price of Rs77. We maintain a Hold on the stock.

B&K recommends BUY on Bharat Forge

Bharat Forge's (BHFC) results for the quarter were below our expectations as despite capacity ramp-up, margins contracted on a sequential basis. Another disappointment was the lower growth in exports. The lower proportion of dollar exports coupled with ramp-up in capacity utilisation should have led to better margins; however margin expansion continues to elude. Exports have been impacted by severe drop in exports to China. Despite good growth in exports to US, overall exports were only marginally up. At the consolidated level, China joint venture has incurred losses of Rs. 70 mn for April-December 2006 and management is aiming for break-even in the current year. Considering the disappointing performance during the year and lower growth in domestic and subsidiary operations, we are downward revising our FY08E and FY09E consolidated earnings by 7.5% and 2.5% to Rs. 17.9 and Rs. 23.8, respectively. The stock is currently trading at 18.4x and 13.8x our FY08E and FY09E consolidated earnings, maintain BUY.

B&K recommends SELL on IndusInd Bank

IndusInd Bank (hereinafter IIB) has reported a net profit of Rs. 214 mn in Q4FY07 as against a loss of Rs. 624 mn in the corresponding quarter last year. The results were below our estimates both at the top and bottom line due to lower than expected other income and higher operating expenditure. However after seven consecutive quarters of y-o-y de-growth, NII of the bank has shown marginal improvement during the quarter. Operating profits were also up by 50% y-o-y to Rs. 460 mn. However the concerns over business mix and asset quality still remains. Maintain Sell


B&K recommends BUY on Kalpataru Power Transmission

With impressive result for the quarter, Kalpataru Power closed FY07 with 140% jump in net profit, on the back of 81% growth in revenues. Growth was driven by good performance by transmission line segment, leading to strong volume growth and expansion in EBITDA margin (240 bps for the year). Its subsidiary JMC Projects also reported much-improved earnings growth during the year. With increasing share of exports and an order book of Rs. 23 bn, we believe Kalpataru is expected to post strong growth over the next two-three years. While growth in power transmission line continues to be robust, the company's growing presence in civil infrastructure business through JMC and foray into logistics business should provide long-term benefits to shareholders. We have raised EPS estimates for FY08E and FY09E by 3% and 8%, respectively, and maintain BUY with a revised target price of Rs. 1,686.

Edelweiss - Kalpataru Power Transmission, JMC Projects

Edelweiss - Kalpataru Power Transmission, JMC Projects

Geojit - JMC Projects, Geojit - Kalpataru Power

Geojit - JMC ProjectsGeojit - Kalpataru Power

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