01-Mar-18

Key Highlights of the Report:

52wk Range H/L

Mkt Capital (Rs Cr)

Av. Volume (,000)

Financials/Val FY16 FY17 FY18E FY19E FY20ENet Sales 4,409 5,011 5,744 6,802 7,889

EBITDA 453 529 627 717 854

3QFY18 2QFY18 1QFY18 EBIT 369 451 552 643 781

Promoters 59.3 59.3 59.3 PAT 192 269 312 369 440

FII 5.3 5.4 6.8 EPS (Rs) 13 17 20 24 29

DII 19.6 19.8 18.6 EPS growth (%) 20% 32% 18% 18% 19%

Public 15.8 15.5 15.3 ROE (%) 9% 11% 11% 12% 13%

Total 100.0 100.0 100.0 ROCE (%) 15% 16% 18% 19% 21%

1Mn 3Mn 1Yr BV 144 161 178 198 222

1Mn 3Mn 1Yr P/B (X) 1.6 1.6 2.7 2.4 2.1

Absolute 13.2 12.3 77.4 P/E(X) 18.2 14.7 23.4 19.8 16.6

Rel.to Nifty 18.0 9.7 59.9

Recent Orders Win :-

NSE Code - KALPATPOWR

NIFTY - 10492

SANDIP JABUANIsandip.jabuani@narnolia.com

Narnolia Securities LtdPlease refer to the Disclaimers at the www.narnolia.com

Management expects to do double revenue from Railway business in

FY19. 9MFY18 revenue from Railway is Rs.350 Cr

Improving Return Ratio (RoE)

Bloomberg - KPP IN

INDUSTRY - Con. & Eng.

BSE Code - 522287

CMP 500

7,559

16

Upside 14%

Target Price 568

Previous Target Price NA

535/275

We believe that the revenue and earnings will grow at 16/18% CAGR

respectively over FY17-20. RoE will improve by 200 bps by FY20.We

value KALPATPOWR at Rs.568 and recommend “ACCUMULATE” rating

on the stock.

In month of February, KPTL has won big ticket size orders of Rs.500 Cr

each in emerging Railway and pipeline business. KPTL has also won

Rs.500 Cr of Transmission orders from overseas markets.

On 22nd January 2018, KPTL has secured around Rs.500 Cr of new

orders in Transmission and Rs.366 Cr of order in Pipeline business.

Management has also guided that the pipeline and railway business will

grow 30% CAGR over next 2-3 years.

Competitive intensity in pipeline business has increased but management

is confident about 25-30% CAGR growth for next couple of years.

KPTL std. revenue was in line with our estimates. Revenue was up by

25.6% YoY to Rs.1417 Cr backed by the Railway and Pipeline. Revenue

from Railway and pipeline business has jumped by 65% and 150% YoY

respectively.

EBITDA margin continue to improve on back of strong performance in

railway. We expect it will improve further as revenue from revenue will

increase.

Order Inflow during the quarter was Rs.2812 Cr, growth of 25% YoY.

Order book jumped by 200% and 155% of Railway and pipeline business

on account of strong traction in new orders and lower base.

Company Data

Shareholding patterns %

Stock Performance %

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KALPATPOWR NIFTY

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Quarterly PerformanceFinancials 3QFY17 4QFY17 1QFY18 Q2FY18 Q3FY18 YoY % QoQ% 9MFY17 9MFY18 YoY %

Net Sales 1,129 1,496 1,170 1,223 1,417 26% 16% 3,398 3,810 12%

Other Income 12 10 11 15 11 -4% -25% 39 37 -5%

COGS 493 670 487 620 639 30% 3% 1,365 1,746 28%

Employee Expenses 74 71 78 85 86 16% 0% 221 249 13%

Erection & Sub. 285 397 336 273 387 36% 42% 998 997 0%

Other Expenses 158 201 131 112 154 -3% 37% 442 396 -10%

Total Expenditure 1,010 1,339 1,032 1,090 1,265 25% 16% 3,026 3,388 12%

EBITDA 119 157 137 133 152 28% 14% 372 422 14%

EBITDA M% 11% 11% 12% 11% 11% 11% 11%

Depreciation 20 19 19 19 20 1% 3% 58 57 -2%

EBIT 99.5 138.0 118.4 113.9 132.3 33% 16% 313.4 364.6

Intreset 24 20 22 22 28 18% 28% 78 72 -8%

Exceptional Item - - - - - - -

PBT 87 128 108 107 115 32% 8% 274 329 20%

Tax 30 39 37 35 40 33% 14% 95 112 19%

PAT 57 90 70 71 75 32% 5% 179 217 21%

PAT% 5% 6% 6% 6% 5% 5% 6%

Q3FY18 Result:- In line with our estimates, Strong growth momentum continued

Revenue from transmission business was up by 12% YoY.

Interest cost as % of sales remained under control at 2% and likely to remain at this level going ahead.

Strong Order book with healthy Book to bill Interest cost as % of Sales will remain at 2%

KPTL std. revenue was in line with our estimates. Revenue was up by 25.6% YoY to Rs.1417 Cr v/s

our estimate of Rs.1398 Cr. Strong revenue growth was backed by the Railway and Pipeline.

Revenue from Railway and pipeline business has jumped by 65% and 150% YoY respectively.

EBITDA margin continue to improve on back of strong performance in railway. We expect it will

improve further as revenue from revenue will increase.

We believe that the revenue growth will likely to remain strong and will led by continuous

improvement in railway and pipeline business scenario.

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

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Debt Intreset as % of Sales

Detailed Order bookOrder Book 4QFY16 1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 2QFY18 3QFY18 YoY% QoQ%

Transmission

Domestic 4,223 4,050 3,102 2,739 2,520 3,999 3,463 2,949 8% -15%

International 2,767 4,050 5,358 4,565 4,680 4,291 3,656 4,845 6% 33%

Pipeline 611 414 432 458 540 683 1,347 1,369 199% 2%

Railway 717 486 508 538 900 878 1,154 1,369 155% 19%

Total 8,317 9,000 9,400 8,300 8,640 9,851 9,620 10,532 27% 9%

Strong Order Book Growth in Railway and Pipeline

Domestic Transmission Order Book Break Up International Transmission Order Book Break Up

Concall Highlights:

Based on the current order book KPTL revenue will grow 15-20% in FY19.

Expect 11% EBITDA margin for KPTL in FY19.

Management expects pipeline business will grow 25-30% at least next couple of years.

Interest cost as % of sales will remain 2/3% for KPTL/JMC in FY19.

Revenue growth of JMC projects will be 20% plus in FY18 and 15% in FY19.

Currently L1 in 1400 Cr of projects and expect strong traction in order Inflow

Intreset rate on BoT Road projects has come down

Cash BEP for road projects is 52lakh/day and currently toll collection is 52 lakh/day

Focusing on commercial projects

Subham utilization level during the quarter was 80% and it will improve going forward.

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

Order book jumped by 200% and 155% YoY from Railway and pipeline business on account of strong

traction in new orders and lower base. We believe that the strong growth in order book will continue for

next couple of years.

While core segment, Transmission and distribution order book is growing at steady pace.

Management does not expect strong traction from domestic T&D business but International T&D bid

pipeline continued to remain strong.

Order Inflow during the quarter was Rs.2812 Cr, growth of 25% YoY. We have witnessed some big

ticket size orders from Railway and Pipeline business in January and February.

We are confident about strong order book growth going ahead and expect 8-10% growth in order

inflow annually.

Management is continuing to bullish on International T&D business and expects strong orders from

Africa, SAARC and Middle East.

Management is bullish on Railway business and expects to do double revenue by next year. Revenue

from railway in 9MFY18 is Rs.350 Cr.

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PGCIL SEB Private

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Africa MENAS. Asia SAARCCIS/Europe & Far East Others(US, Canada & Australia)

Investment Rational:

View and Valuation:-

Order book of Railway and Pipeline business was up by 200% and 155% YoY and we expect the trend

to continue going ahead. In month of January and February, KPTL has secured big ticket size orders

of Rs.500 Cr each in railway and pipeline. We expect that the revenue from railway business will be

double in FY19. T&D business growing at steady pace and management does not expect strong

traction from domestic market but International markets continue to show healthy traction in terms of

new orders. We believe that the revenue and earnings will grow at 16/18% CAGR respectively over

FY17-20. We value KALPATPOWR at Rs.568 and recommend “ACCUMULATE” rating on the

stock. (We value KPTL Std. business at Rs.488, 17x of FY20E EPS of Rs.29, JMC at 73 per share

and Shubham logistics at Rs.7.57 per share)

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

Return Ratio to Improve:- Deterioration in the bottom line was led to decline in RoE from 12% to 8%

in last 5-6 years. Bottom line was deteriorated due to margin pressure on pipeline and Railway

segments. But now with improvement in top line and operating scenario in both the segments margins

are coming back to earlier level. Still margin in both these segments are lower than core T&D business

but it will catch up as the revenue will go up. Revenue from Railway will be double in FY19 and

pipeline business will grow at 25-30% going ahead. On the other hand Interest cost as % of sales has

also improved from 3.7% to 2% of sales and will remain at this level going ahead. RoE will improve by

200 bps to 12.90% by FY20 from current level of 10.86% on back of improvement in margin and

reduction in interest cost.

KPTL has reported Q3FY18 numbers in line with our estimates. Revenue was up by 25.6% YoY to

Rs.1417 Cr backed by the robust growth from Railway and Pipeline business. Revenue from Railway

and pipeline business has jumped by 65% and 150% YoY respectively. EBITDA margin continued to

show improvement even in Q3FY18 and expect 11% for full year FY18 compared to 10.6% in last

year. Order Inflow during the quarter stood at Rs.2812 Cr, up by 25% YoY.

Railway and Pipeline will be key revenue growth driver:- Order book of the Railway and pipeline

business has jumped by 200% and 150% YoY in Q3FY18 on account of strong traction in order inflow.

KPTL has secured large ticket size orders of Rs.500 Cr each in railway and pipeline during the

January and February 2018. We continue to believe that the current growth momentum will likely to

continue as railway ministry has set target of 6000 km of electrification in FY19 and capex cycle of Oil

and Gas companies will start. Management expects that the revenue from Railway will be double in

FY19 and pipeline business will grow in range of 25-30%. Currently, railway margins are lower

compared to T&D business but it will improve as revenue increases.

Steady growth of Core T&D Business:- Transmission and distribution is mature business for the

KPTL and its growing at steady pace. Revenue and order book during the quarter were up by 12%/6%

YoY. Maturity of the business provides stability in revenue and bottom line growth. Order Inflow from

PGCIL is continue to remian lackluster from last one year and we believe that the SEBs continue to

lead domestic T&D market. Though, we do not expect strong traction from domestic market going

ahead. Currently, International markets hold 62% of the transmission business order book, mainly

dominates by Africa and MENA cluster. As the Oil prices is start improving we expect strong traction in

new orders from these two clusters going ahead. Management has also mention that the growth in

T&D business will continue to drive by international market.

Financials Snap Shot

Income Statement Rs in Crores Key Ratios

Y/E March FY17 FY18E FY19E FY20E Y/E March FY17 FY18E FY19E FY20E

Revenue from Operation 5,011 5,744 6,802 7,889 ROE 11% 11% 12% 13%

Change (%) 14% 15% 18% 16% ROCE 16% 18% 19% 21%

EBITDA 529 627 717 854 Asset Turnover 0.8 0.8 0.9 0.9

Change (%) 10% 10% 10% 10% Debtor Days 201 201 201 201

Margin (%) 10.6% 10.9% 10.5% 10.8% Inventory Days 33 33 33 33

Depr & Amor. 78 75 74 73 Payable Days 114 114 114 105

EBIT 451 552 643 781 Interest Coverage 4.60 4.49 4.75 4.70

Int. & other fin. Cost 98 123 135 166 P/E 15 23 20 17

Other Income 49 53 52 52 Price / Book Value 1.6 2.7 2.4 2.1

EBT 403 482 560 667 EV/EBITDA 8 12.2 10.9 9.2

Exp Item - - - - FCF per Share 322 250 221 239

Tax 134 170 191 227 Dividend Yield - 0.6% 0.7% 0.8%

Minority Int & P/L share of Ass. - - - -

Reported PAT 264 312 369 440

Adjusted PAT 264 312 369 440

Change (%) 32% 18% 18% 19%

Margin(%) 5% 5% 5% 6%

Balance Sheet Rs in Crores Cash Flow Statement Rs in Crores

Y/E March FY17 FY18E FY19E FY20E Y/E March FY17 FY18E FY19E FY20E

Share Capital 31 31 31 31 PBT 269 482 560 667

Reserves 2,446 2,708 3,015 3,381 (inc)/Dec in Working Capital (71) (260) (358) (441)

Networth 2,477 2,739 3,046 3,412 Non Cash Op Exp 78 75 74 73

Debt 553 592 762 935 Int Paid (+) 98 123 135 166

Other Non Current Liab 60 60 60 60 Tax Paid 155 170 191 227

Total Capital Employed 3,029 3,330 3,808 4,347 others 103 - - -

Net Fixed Assets (incl CWIP) 524 519 515 512 CF from Op. Activities 322 250 221 239

Non Current Investments 716 716 716 716 (inc)/Dec in FA & CWIP (61) (70) (70) (70)

Other Non Current Assets 1,213 1,288 1,284 1,281 Free Cashflow 261 180 151 169

Non Current Assets 1,929 2,004 2,000 1,997 (Pur)/Sale of Inv 3 - - -

Inventory 454 521 617 715 others (154) (15) - -

Debtors 2,764 3,168 3,751 4,351 CF from Inv. Activities (211) (85) (196) (70)

Cash & Bank 206 236 235 336 inc/(dec) in NW - - - -

Other Current Assets 742 844 993 1,145 inc/(dec) in Debt (3) 39 171 173

Current Assets 4,170 4,789 5,742 6,693 Int. Paid 100 123 135 166

Creditors 1,559 1,787 2,116 2,269 Div Paid (inc tax) - 52 62 74

Provisions 996 1,142 1,224 1,420 others - - - -

Other Current Liabilities 456 476 534 594 CF from Fin. Activities (3) (136) (27) (67)

Curr Liabilities 3,011 3,404 3,874 4,283 Inc(Dec) in Cash 107 28 (2) 101

Net Current Assets 1,160 1,385 1,868 2,410 Add: Opening Balance 101 206 236 235

Total Assets 6,100 6,793 7,742 8,690 Closing Balance 206 235 234 336

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