Add SKPI Ltd for the Target Rs.640 by Choice Institutional Equities
Expected Improvement in Realisation to Lift Margin
The sharp uptick in steel prices (~+20%) in FY26 coupled with negligible improvement in realisation has led to a decrease in margin. EBITDA margin dropped from 21.7% in H1FY26 to 10.1% in H2FY26. We estimate a recovery in realisation only after the implementation of the new KUSUM scheme. Factoring this in, we cut our FY27E guidance for EBITDA margin by 362 bps to 16.4%. However, we forecast margin to rise to 20.7% by FY29E (vs. 21.2%) driven by ongoing backward integration capex
Valuation & View
We cut our earnings guidance for FY27E and FY28E by 22.3% / 18.6%, respectively. We continue to believe the KUSUM 2.0 announcement will put the company back on track for growth with improved realisation and better margin. Our forecast now builds Revenue / EBITDA / PAT CAGR of 22.6% / 34.7% / 36.9% over FY26–FY29E, respectively. We apply the DCF approach to arrive at a target price of INR 640 (maintained). Our TP implies a PE of ~20x on FY28E EPS of INR 32.1. We, thus, assign an “ADD” rating to the stock, given an upside of 15.1%.
Q4FY26 Registers Highest Quarterly Revenue; But Margin Disappoints
* 28,500 solar pumps installed in the quarter, up 51% YoY
* Revenue grew to INR 8.6 Bn, up 28.9% YoY, on huge orders under MTSPKY
* EBITDA came in at INR 832 Mn, at 9.7% margin, down from 24.6% a year ago. PAT fell by 65.2% YoY to INR 383 Mn
FY26 Revenue Growth Tepid Amid Competition; Margin Contracts
* FY26 solar pump installations stand at 86,800, up 20%
* FY26 revenue grew 7.2% YoY to INR 26.98 Bn; volumes rose 16%
* EBITDA came in at INR 4.22 Bn (margin: 15.6%, -833 bps YoY), weighed down by lower realisation due to elevated raw material cost
* PAT declined 37.3% YoY to INR 2.58 Bn; however, CFO/EBITDA improved from 3.4% to 29.4% a year ago
KUSUM 2.0: Heightened Expectation amid Supply Chain Disruption
We expect KUSUM 2.0 to roll out by Q2 FY27E. The new scheme is expected to include provisions for intra-state utilisation of the subsidy. Further, we anticipate the new scheme to provide a more rational realisation as the current prices barely cover the heightened cost of steel. We believe the West Asia conflict will lead to a renewed focus on replacement of diesel pumps with off-grid and on-grid solar pumps. We believe SKPI will be one of the key beneficiaries across new markets, such as WB and KA.
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