Kotak Securities recommends Buy on Kalpataru Power

MUMBAI: Kotak Securities has initiated coverage on Kalpataru Power and Transmission with a price target of Rs 865, which is around 20 per cent upside from current market price of Rs 715.

���In a challenging year for global economy, Kalpataru Power Transmission has been able to win several large-sized projects. As a result, KPTL now enjoys the highest revenue visibility among listed peers. Propelled by a strong order book, the company is well-positioned to accelerate growth in the coming years. On the profitability front, we believe the worst is over and expect operating margins to inch up in FY10. This should drive earnings growth of 39% CAGR between FY09-11. Sector prospects remain strong given the robust spending plans of PGCIL.

KPTL is currently trading at 14.1x and 10.4x FY10E and FY11E earnings respectively. On the back of strong order backlog, the earnings growth is forecast to grow at a CAGR of 39% over FY09-11. ROE is expected to rise from 14.3% in FY09 to 17.9% in FY11. We recommend a BUY with a target price of Rs 865.

The target price is arrived based on combining the value of transmission tower business (Rs.811 based on DCF) and value of investment in JMC Projects (Rs.55 as market value of investment),��� the recommendation said.