Stocks To Buy: Power Sector Stock For 45% Gains In 1-Year

Broking firm Emkay Global has recommended buying the stock of Power Sector player, Kalpataru Power for good gains. The brokerage sees a nearly 45% upside on the stock from current levels.

Strong order book position

According to Emkay Global, strong inflow has led to combined order book at Rs414bn: Given strong inflow (YTD) of Rs195bn, order book currently stands at Rs414bn. Management expects Rs 240-250 bn of order inflow in FY23 vs. earlier guidance of Rs210bn. T&D/Water/B&F comprise 35%/24%/19% of the order book, while railways and urban infra consist of ~9% each. Book-to-bill stands at ~3x, which is very healthy. Given the robust order book, along with L1 position of Rs52bn, management is hopeful to register 20% revenue growth for FY24 and FY25.

Valuation and outlook

Emkay believes the merger of the two EPC entities is a step in the right direction; and this will have financial and bidding benefits in the medium term. Given JMC's debt was at a ~200bps higher rate than KPTL, there will be direct benefits accruing from that area in FY24 and beyond. As part of its strategy, the company is focusing on larger projects, which require a good amount of design and engineering. Our standalone EPS for FY24/FY25 now stands at Rs42.5/52.

Buy Kalpataru Power with a target price of Rs 701

KPTL has historically traded at a 10%discount to direct peers such as KEC on grounds of capital allocation and pledge. "We have presently assigned 13.5x PE (10% discount to exit multiple of KEC) to arrive at a Mar-24 target price of Rs 701. We believe lower pledge levels can further re-rate the stock. We maintain our BUY rating on the stock," the brokerage has said.

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.