Strong Performance; Earnings Momentum to Sustain
Kalpataru Power Transmission (KPTL) has delivered a strong performance in 2QFY19 led by better-than-expected execution in Railway, Oil & Gas Pipeline and T&D business. We continue to believe that KPTL is well-placed to benefit from continued spending in T&D, railway and pipeline segments. Considering the strong visibility on revenue and order flow front, sustained earnings momentum and likely improvement in return ratios in next 2 years, we maintain our BUY recommendation on the stock with a revised Target Price of Rs544 (From Rs 555).
* KPTL (Standalone): Revenue grew by 28.7% YoY to Rs15.74bn owing to better execution, while EBITDA margin stood at 10.9% led by cost control. Beating our estimates, PBT and PAT grew by 31.5% YoY and 27.8% YoY, respectively, while PBT margin and PAT margin came in at 8.9% and 5.8%, respectively. While order book stood at Rs141.8bn as of Sept’18-end, YTD order inflows came in at Rs47.4bn with L1 in excess of Rs20bn. Focus on early project completion and operational excellence initiatives are driving margin improvement.
* JMC Projects (Standalone): Revenue grew by 11% YoY to Rs7.3bn driven by pick-up in execution, while EBITDA margin expanded by 60bps YoY to 10.6%. PBT margin and PAT margin rose by 30bps YoY to 5.4% and 4.1%. Order book stood at Rs101.3bn as of Sept’18- end. YTD order Inflows stood at Rs39.7bn with L1 in excess of Rs6 bn. It recorded a traffic 9.7% YoY growth in road BOT assets in H1FY19. Notably, all road BOT projects are operating on full length and full toll basis, while 2QFY19 performance improved on account of traffic growth and 13.3% YoY revenue growth (excluding overloading) in H1FY19. Revenue/day improved to Rs4.9mn in 2QFY19 from Rs4.4mn in 2QFY18.
* Shree Shubham Logistics (SSL): With continued improved utilisation of warehouses revenue grew by 92% YoY to Rs0.33bn.. EBITDA grew by 58% YoY to Rs0.11bn in Q2FY19. While its PBT stood at Rs12mn, PAT came in at Rs9mn from Rs70mn loss in 2QFY18 led by higher utilisation.
Robust Order Book
KPTL’s standalone order book stood at Rs141.8bn as of Sept’18-end, YTD order inflows came in at Rs47.4bn with L1 in excess of Rs20bn . JMC’s order book stood at Rs101.3bn as of Sept’18- end. YTD order Inflows stood at Rs39.7bn with L1 in excess of Rs6 bn. The Management expects 15-20% revenue growth in FY19E as well led by strong order book.
Outlook & Valuation
Looking ahead, we expect KPTL to be one of the key beneficiaries of strong transmission capex in both domestic and global markets, which would drive 21% CAGR in earnings through FY18-20E. Valuing its standalone business at Rs491 (16x of FY20E standalone operational EPS), we have assigned Rs45.0/share (applying 30% holding company discount) of value for its 67% equity in JMC. We have valued SSL based on EV/EBITDA multiple of Rs8.0/share. We maintain our BUY recommendation on the stock with a revised Target Price of Rs544.
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