Dividend Stock To Buy: SBI Securities Give Buy On Multibagger Smallcap Stock For Rs 1,419 TP In 12-18 Months

Multibagger stock, KPI Green Energy is a hot bet for long-term investment owing to its strong order book, sustainable business, healthy revenue growth and aggressive targets like 1000 MW by 2025. KPI is also among the top dividend-paying smallcap stocks. Brokerage SBI Securities is the latest to like KPI Green and added it to its 'Rising Stars' pick of 2023. The brokerage has recommended buying for a target price of Rs 1,419 for 12-18 months.

On Thursday, KPI Green shares crossed the Rs 1,200 mark. It gained by over 2.4% with an intraday high of Rs 1,224.95 on BSE. The stock is moving towards its 52-week high level of Rs 1,256.35 apiece.

KPI Green is among the multibaggers of 2023 so far. Year-to-date, the stock has gained by a whopping 168% on BSE. In January month, the stock price was near Rs 450 levels.

Last month, KPI turned ex-dividend for a second interim dividend of Rs 0.25 per share or 2.5% for FY24. The first interim dividend was also Rs 0.25 per share or 2.5% in August month. Meanwhile, in FY23, the stock paid a total dividend of 28.50% amounting to Rs 2.85 per share. KPI has kept a consistent track record of paying dividends in post-Covid.

In its rising star of 2023 report, SBI Securities on KPI Green said, "KPI Green Energy is trading at PE multiple of 24.1x/15.8x/11.2x of its FY24E/FY25E/FY26E earnings respectively. We initiate coverage on the company with BUY rating on the stock with target price of Rs 1,419.0 valuing at 22.0x of its one year forward earnings thus providing an upside potential of 21%."

The brokerage listed out five investment rationale for buying KPI Green. These are:

1. Strong order book providing healthy revenue visibility:

Presently, the Company has 541 MW of orders in pipeline. These orders comprise of 262 MW under CPP and rests 279 MW under IPP. The IPP orders also includes 240 MW of order from GUVNL (Gujarat Urja Vikas Nigam Ltd) to be executed over the next 12 months and while rest 39 MW are other IPP orders.

2. Sustainable business given the enormous opportunity:

SBI Securities believe that green energy saga is yet to unfold. India is committed achieve net zero emissions by 2070 and hence strong emphasis is being given on green energy. India's success in solar energy is attributable to a combination of favourable market conditions, legislative advancements and the country's optimal climate, characterised by average 300 sunny days annually, which is ideal for solar power generation.

3. Assured revenue due to long term PPAs under IPP and low TAT in case of CPP vertical:

KPI Green under IPP, given its long term PPAs under open access with buyers, is assured of steady revenue flow. The company while signing PPAs receives the guarantee to offtake 95% of power generated. Any shortfall in the power offtake is simultaneously indemnified by the customers. The balance unsold power is supplied to Discoms at Rs 3.3 per unit. These PPAs are signed for 15-20 years and thus ensure sustainable revenue inflow for KPI in the long term.

4. Aggressive growth targets (~1000 MW by 2025):

The company has set an ambitious target to achieve 1,000 MW by 2025. KPI Green has already energized 346 MW so far while 541 MW of business is under pipeline. The brokerage believes, the management will be able to achieve its target much before the timeline set by the company. KPI Green is riding on an enormous opportunity under green energy considering the cumulative evacuation capacities of 850+ MW and a large land bank of 2,000 acres plus on group level.

5. Supportive government policy a win-win for all:

The government, in an attempt to promote indigenous production, has imposed a high import duty on solar PVs. The Production Linked Incentive Scheme (Tranche II) under the 'National Programme on High Efficiency Solar PV Modules' has been approved and launched in Sep'22, with a budget allocation of Rs 19,500 cr. In addition to above, the government has taken several other measures like PM-KUSUM, development of Solar Parks and Ultra Mega Solar Power Projects etc.

These initiatives by government indicates the commitment towards promotion of green energy in the long term which will create opportunities for all players irrespective of their size of operations.

KPI Green Energy is a leading player in green energy (solar power) with a strong presence in the state of Gujarat. The company has nearly 3 decades of experience in the industry. The company develops, builds, owns, manages, and maintains solar power facilities as an Independent Power Producer (IPP) and as a service provider to Captive Power Producers (CPPs).

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.