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Buy Kalpataru Power Ltd For Target Rs. 560

Inflows critical to further upside

* KPTL’s standalone (SA) sales grew ~9% with EBITDAM similar to that of last year (10.4%). Order inflows for KPTL (SA) in YTD FY22 stood at Rs8.65bn (down from Rs18.7bn in Q1FY21), largely from inflows in the T&D and Railways segments. The order book now stands at ~Rs133.9bn, excluding L1 orders of Rs25.5bn.

* JMC Projects (SA) reported strong revenues (~2.4x of Q1FY21 revenue and 12% CAGR vs. Q1FY20) though margins were impacted by elevated input costs and job mix (~300bps qoq). Management maintained its full-year margin guidance of 10%+. Order inflows were very robust at Rs46.6bn, leading to an all-time high order book of ~Rs160bn.

* We maintain Buy with a revised TP of Rs560 (Rs525 earlier), as we roll forward to Sept’23E, based on SoTP. We retain our earlier estimates. JMC is valued at Rs60/share based on a 30% discount to the current market price.

Decent quarter for KPTL (SA):

KPTL (SA) delivered PAT growth of 10% yoy, supported by 9% sales growth, while EBITDAM remained at similar levels. Segment-wise, O&G revenue grew 28%, T&D grew 12% and Railways grew 21%. Order inflows of ~Rs8.65bn were mainly contributed by T&D (56%) and Railways (44%) verticals. Management has guided for 10- 15% sales growth for KPTL (SA), while margins should be in similar double-digit range. Despite a weak Q1 in terms of inflows, management is confident of getting ~Rs90bn of orders in FY22. While net debt has increased from Rs7.7bn to Rs12.2bn qoq, management expects it to be negligible by FY22-end, helped by the sale of Kohima/Indore projects. Promoter pledge is also guided to come down to 40% by Dec’21 from current ~46% (of promoter holding). The pledge has been gradually reducing in the past few quarters.

JMC growth on robust order book; backlog and inflows peak:

JMC projects (SA) PAT grew from a loss of Rs218mn last year to Rs162mn on multi-fold growth in sales (~2.4x) and a slight improvement in EBITDAM (120bps yoy). Execution was healthy in Infra and B&F projects. Inflows of Rs46.6bn were at an all-time high (up ~2x yoy), resulting in a healthy 40% growth in order book to ~Rs159bn (now at peak). Further, it has L1 orders of Rs25bn. The majority of order inflows were contributed by Urban, Infra & Water (72%) and the rest from B&F-Pvt. Management maintained its guidance of 20%+ sales growth and 10-11% margins.

Maintain Buy:

Our SoTP-based TP of Rs560 comprises Rs500/share for KPP (SA) based on 13.5x Sept’23E core EPS and Rs60/share for the stake in JMC projects (valued at a 30% discount to the current value). With the sale of some transmission assets, balance sheet has improved, and capital allocation issues are already receding, in our view. Key risks to our call: sustained commodity inflation and execution challenges.

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