Buy Kalpataru Power,target price Rs 299: ICICI Securities

ICICI Securities has given a buy rating to Kalpataru Power Transmissions Ltd with a target price of Rs 299.
The sale of Alipurduar Transmission Project to CLP India has been called off for lack of government approval. The company is now trying to close the deal with other interested buyers. This is expected to impact the near term cash flows and the target of becoming zero debt by March 2021 is likely to get extended.

Factoring in the cancellation of the deal and higher subcontracting expenses, the brokerage has cut FY21E and FY22E earnings by 10.5 per cent and 9.9 per cent, respectively and the value of the standalone business at 10 times FY21E earnings. The current order book at Rs 149 billion (2 times TTM sales) provides revenue visibility, though growth is expected to be delayed due to the lockdown. Performance of the overseas subsidiaries in the Nordic region (Linjemontage) and domestic logistic subsidiary (Shubham Logistics) are expected to be under pressure.


The recent sharp fall in stock valuation due to the concerns regarding the promoter group and pledged share of the promoter group provides an investment opportunity in a long term perspective. Hence, the brokerage has maintained the buy rating on the stock with a revised SoTP target price of Rs 299 (earlier: Rs 338).

The share price moved down by -1.59 per cent from its previous close of Rs 204.95. The last traded stock price is Rs 201.70. Incorporated in 1981, Kalpataru Power has a market cap of Rs 3169.35 crore.

Investment Rationale

The standalone business is valued at Rs 223 (10 times FY21E earnings), JMC Projects at Rs 29 (market capitalisation as on 5 th May’20), Linjemontage at Rs 8 (5 times FY21E earnings), Jhajjar transmission BOOT at Rs 5 and transmission assets ATL and KMTL at Rs 42 per share combined. With a holding company discount of 20 per cent, the brokerage arrived at the SoTP-based target price.

Financials

For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 3162.00 crore, down -1.68 per cent from last quarter sales of Rs 3,216 crore and up 14.67 per cent from last year's same quarter sales of Rs 2,757.48 crore. The company has reported net profit after tax of Rs 137 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 54.37 per cent stake in the company as of March 31, 2020, while FIIs held 7.37 per cent, DIIs 29.17 per cent and public & others 8.71 per cent.