Recommendation From Heavy Electrical Equipment Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

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HERE IS WHY
Robust order book
Strong transmission capex in domestic and global
markets
Good quarterly performance 

BSE Code: 522287
CMP: Rs 483 FV: Rs 2
BSE Volume: 6332
Date:03/01/2018

POWER YOUR PORTFOLIO WITH KALPATARU 

Kalpataru Power Transmission Limited (KPTL) is a part of the diversified Kalpataru Group. KPTL is one of the largest players in the global power transmission and infrastructure space. 

The company is primarily engaged in the business of engineering, procurement and construction (EPC) of infrastructure,comprising power transmission and distribution; and oil and gas infrastructure sector. The company also provides EPC services to railways for executing civil infrastructure, track laying, signalling and telecommunication; and over-head electrification projects for railways in India. In the last three decades, the company has expanded its footprint in over 40 countries across Australasia, Middle East, Americas and Africa. The company has one of the largest tower fabrication capabilities in the world, integrated with ultra-modern tower testing facility and galvanising facilities with a capacity of 1,80,000 MT per annum. 

The government has given thrust on improving rail and energy infrastructure, which will result in rising capex for these sectors. KPTL is expected to see a lot of traction on orders in both railways and pipeline divisions. The company already has a strong order book in both these segments. As of Sept. '17, KPTL’s order book stands at Rs96.2 bn (1.9x FY17 revenues), out of which, 43 per cent are international orders. This implies a strong revenue visibility over the next two years for the company. The company registered good performance in Q2FY18. Its revenue from railways and pipelines business grew by 50 per cent and 24 per cent YoY, respectively. 

On the financial front, the net sales of the company increased by 6.96 per cent to Rs1,222.80 crore in the second quarter of FY18, as against Rs1,143.25 crore in the same quarter of the previous year. The company’s PBDT increased 16.67 per cent to Rs125.6 crore in the second quarter of FY18 on a yearly basis. The company’s net profit also increased 23.66 per cent to Rs71.49 crore in Q2 of FY18 as compared with net profit of Rs57.81 crore in the Q2 of the previous year. 

On an annual basis, the company’s net sales increased 14.8 per cent to Rs5010.74 crore in FY2017 on a year-on-year basis. The company’s PBDT increased 23.08 per cent to Rs480.28 crore in FY17, as against Rs390.22 crore in the previous fiscal. The net profit of the company increased 34.88 per cent to Rs269.08 crore in FY17 as against Rs199.5 crore in the previous fiscal.

On the valuation front, the company has a PE ratio of 25.03x. The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 11.47 per cent and 29.60 per cent, respectively. The company has a debt-to-equity ratio of 0.28x. Considering strong revenue growth and order flow with sustained earnings momentum, the return ratios of the company are expected to improve significantly in the coming two years. KPTL is also expected to be one of the key beneficiaries of strong transmission capex in domestic and global markets. We recommend our reader-investors to BUY the stock.