Promoter pledge an overhang; reinitiated coverage with ‘Buy’ rating and TP of Rs 526
The sale of Alipurduar transmission asset is complete, while the others are in progress.
Kalpataru Power & Transmission has witnessed a strong rebound in execution and order intake post Covid-19 pandemic-related challenges; however, the stock has been under pressure due to promoter pledge and issues in the unlisted real estate group entity. In the previous concall in Nov’20, the promoter had shared the timeline for reduction of pledge shares and the company had reversed a corporate decision in terms of buying of property from related party.
The sale of Alipurduar transmission asset is complete, while the others are in progress. Cashflow from the sale of these assets will aid in debt reduction and we do not foresee any major equity infusion towards subsidiaries. Hence, given benign valuation, healthy near term order intake and focus on deleveraging, we reinitiate our coverage with Buy and a TP of Rs 526.
Recent order wins provide growth visibility: The company has already won orders worth Rs 54 bn till Dec’20 largely led by international T&D (which was Rs 23 bn in H1FY21 ex-Linjemontage) and is L1 in Rs 20 bn worth orders. Management guides standalone revenue growth of 5-10% and `90 bn-100 bn of order intake for FY21e.
Maintain BUY: Work has commenced at almost all sites and utilisation at factories has improved. Factoring in the improved scenario and considering the cashflow, we assign PE multiple of 11x FY21e earnings to standalone. We value Linjemontage at 5x FY22e, JMC is as per the current listed valuation and Kohima BOOT assets at 2x book value. With a holding company discount of 20%, we arrive at an SoTP-based TP of Rs 526.