Accumulate Kalpataru Projects International Ltd For Target Rs.1,472 by Prabhudas Liladhar Capital Ltd
Healthy Q1; Growth Outlook intact
Kalpataru Projects International (KPIL) reported a decent revenue growth of 8.8% YoY in Q1FY27, while EBITDA margin expanded by 40bps to 8.9% led by a 242bps Gross Margin expansion. Sustained momentum across T&D, B&F and O&G supports the FY27 order inflow target of Rs300bn, revenue growth of 15%+ and ~75bps PBT margin expansion. The company is favorably placed in projects worth ~Rs73bn, while the Rs1– 1.25tn annual T&D addressable market over the next five years, provides multi-year visibility across domestic and international markets. B&F continues to benefit from residential, commercial, airport and data-centre projects, while O&G growth is supported by Saudi execution and tenders spanning across onshore high-end projects, process lines, pipelines etc. The entry into Middle East water treatment and supply, along with opportunities in desalination, provides an incremental growth avenue, although the business remains in the early stages of building its order book. Balancesheet metrics continue to improve, with standalone net debt down to Rs7.5bn and NWC days at 94, while the company remains on track to keep NWC below 100 days. Supply-chain constraints and Middle East execution remain key monitorable. The stock is trading at a P/E of 19.6x/15.4x on FY27/28E core-EPS. We downgrade our rating from ‘Buy’ to ‘Accumulate’ despite healthy performance in Q1 FY27 given the recent rally in share price valuing the core business at a PE of 16x Mar’28E (same as earlier) arriving at a SoTP derived TP of INR1,472 (earlier TP of INR 1,466).
Long-term view:
We remain positive on KPIL in the long run owing to
1) strong order pipeline across segments
2) focus on geographical expansion across Middle East, LATAM and Europe
3) increasing pre-qualification for large contracts
4) Improving balance sheet and backward integration supporting sustainable growth.
Decent execution and higher gross margin lead to beat on estimates:
Standalone revenue grew by 8.8% YoY to Rs54.8bn (PLe: Rs53.4bn) driven by growth in T&D (+11.1% YoY to Rs20.9bn), O&G (+17.9% YoY to Rs6.9bn), B&F (+14.8% YoY to Rs15.9bn) and Urban Infra (+14.8% YoY to Rs3.0bn). EBITDA increased by 13.9% YoY to Rs4.9bn (PLe: Rs4.5bn) while EBITDA margin expanded by 40bps YoY to 8.9% (Ple: 8.5%) driven by better gross margin (+242bps YoY to 25.6%) partially offset by higher other expenses (+26.7% YoY to Rs4bn) and employee costs (+21.5% YoY to Rs5.2bn). Adj. PBT rose by 31.7% YoY to Rs3.6bn (Ple: Rs2.9bn) aided by higher other income (+124.1% YoY to Rs524mn) and decrease in interest expense (-19.4% YoY to Rs677mn). Adj. PAT increased by 32.2% YoY to Rs2.7bn (Ple: Rs2.1bn) aided by a strong operational performance and a lower effective tax rate (- 29bps YoY to 26.5%).
Strong order book of Rs666.1bn (2.8x TTM revenue):
Order inflow decreased by 22.5% YoY to INR76.7bn due by a sharp decline B&F business. Additionally, favourably placed in orders worth Rs73bn. T&D order intake stood at Rs41.6bn, Water Order intake stood at Rs 3.4bn, Railways Order intake stood at Rs 1.9bn, while B&F order intake stood at Rs 28.2bn. Domestic/Export mix of order intake stood at 69%/31% (vs 77%/23% YoY). Order book stands at Rs 666.1bn (2.8x TTM sales) with domestic/export mix of 61%/39% (vs 60%/40% YoY).
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