This Small Cap Stock Grew 30.56% In 3 Months, Brokerage Retains Buy Call, Sees High Returns

Stock Outlook & Returns

The current market price (CMP) of the Kalpataru Power Transmission stock on NSE is Rs 523.40 apiece. The stock on Friday, 2 December 2022, touched its fresh 52 week high at Rs 533.40. While its 52 week low is Rs 331.80, recorded on 11 May 2022.

 
It has given a positive return of 1.85% in the past 1 week, and 13.32% in the past 1 month, respectively. Whereas in the past 3 months, it gave 30.56% and in 1 year, it gave 36.93% positive returns, respectively. Over the past 3 years, it has given 16.42% positive return, and 19.07% in 5 years, respectively.

 

Prospect pipeline improving across domestic and international T&D

Domestic T&D projects pipeline stands at around Rs275 bn and has large sized projects from GEC, particularly from Bikaner, Rajasthan. Since Bikaner region is out of GIB issue, we expect finalization of these projects to be faster than other projects. There are delays seen in tendering for EPC work for Leh-Ladakh project. Prospect pipeline is also improving from state electricity boards worth Rs100 bn, particularly from Karnataka, TN, Jharkhand, Bihar and Odisha, and KPTL would take a calculated call on these projects depending on the funding of these projects. International prospect pipeline stands around US$1 bn with large sized projects coming from Middle East, Saudi Arabia, Africa and Latin America.

KPTL to maintain focus on balancing growth with working capital and margin

Execution at consolidated level would be driven more by JMC in the near term and by B&F and urban infra projects. Large sized international T&D project for HVDC power transmission line of ~700 km worth Rs33 bn in Chile has long execution period of eight years and will take time to reach revenue recognition. We expect it to contribute from FY2024-end. We expect margin improvement from 2HFY23 to reflect net impact of correction in commodity prices and incremental cost overheads in building resources for newer segments. Project closure during 2HFY23 will also help in releasing retention money and reduction in working capital.

Real estate entity witnessing improving sales across large projects

According to the brokerage, "As per our discussion with the bankers, Kalpataru's real estate entity has managed to improve the sales momentum during FY2022. The company is also trying to bring down the debt, which stood close to Rs83-85 bn for FY2022 as compared to Rs73 bn in FY2021. It intends to utilize nearly 80-85% of proceeds from the land parcel sale in Thane to Amazon to repay high-cost debt and the remaining amount along with interest cost savings will be utilized for project completion. The company had also saved Rs5-6 bn in project cost from Maharashtra government scheme for advance payment of duties and taxes. Thus, we believe that incremental support from promoters via pledging of KPTL may not be required."

Retain estimates while revise Fair Value to Rs615 on slightly higher multiple. Retain BUY

Kotak Securities said, "We maintain our estimates but revise multiple a notch to 11X P/E on December 2024E earnings as we see pledging levels have started coming down and have a scope of further reduction from current levels. Further valuation re-rating of the company would be driven by refinancing or stake-sale of road and other non-core assets."

About the company

KPTL is amongst the leading Engineering, Procurement, and Construction (EPC) companies with proven experience and expertise spanning over three decades. KPTL is executing marquee projects with comprehensive capabilities that deliver complete solutions covering the design, testing, fabrication, erection and construction of transmission lines, oil and gas infrastructure and railways projects on a turnkey basis. KPTL has established its footprints in 63 countries spread across five continents.

Disclaimer

The stock has been picked from the brokerage report of Kotak Securities. 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 making any investment decision.