Broking firm Emkay Global is betting on the stock of Kalpataru Power Transmissions for solid returns. The firm has a buy on the stock of Kalpataru for an upside target of Rs 565 on the stock, as against the closing price of Rs 388 on Aug 27 (Friday), which implies gains of 44% per cent from current levels.
Solid prospects for Kalpatru Power
According to Emkay global, the company has strong prospects in T&D, Railways Pipeline. “Proven expertise and track record in the execution of EPC projects helped KPTL (SA) win orders to the tune of Rs93 billionn in the last five quarters. The current order book is robust at Rs 134 billionn as of Jun’21 (T&D 60%). The management has guided for inflows of Rs80-90bn in FY22. Future growth prospects are strong on the back of healthy momentum in Pipeline and Railways, and an immense scope in international railways. The domestic T&D business will remain buoyant on the back of HVDC and TBCB projects in the medium term,” Emkay Global has said.
“Our SoTP-based target price of of Rs 565 (earlier Rs 560) comprises Rs 516 per share for
KPTL (SA), based on 13.5x Sep’23E core EPS, and Rs 49 per share for the stake in JMC projects (30% discount to the current value).
The implied PE of the core standalone EPC is 9.0 times, which is attractive in our view. Kalpataru Power Transmission, excluding JMC projects, has traded in a band of 10-15 times (5-year average PE of 12.5 times and SD at 2.5 times). With the sale of transmission assets, the balance sheet will further improve. Capital allocation issues are already receding, in our view. The overall pledge has come down from 31.3% in Mar’20 to 24.7% in Aug’21,” the brokerage has said.
According to Emkay Global the record high order book (Rs 159 billion excluding L1) implies an order book-to sales ratio of 3.9 times, a peak level. The infrastructure space accounts for 44% of the order book, which should enable a 20%+ sales CAGR for the next 2-3 years for JMC.