Kalpataru Power Transmission
Should bounce back
In spite of a disappointing FY2008, the company’s growth potential remains intact and it should stage a come back on the strength of many growth triggers it commands
| Buy | Kalpataru Power Transmission |
| BSE Code | 522287 |
| NSE Code | KALPATPOWR |
| Bloomberg | KPP@IN |
| Reuter | KAPT.BO |
| 52-week High/Low | Rs 2040 / Rs 885 |
| Current Price | Rs 899 (as on 6th June 2008) |
Kalpataru Power Transmission (Kalpataru) is one of World’s leading companies in the field of turnkey projects for EHV (Extra High Voltage) Transmission Lines up to and including 800 KV in India and overseas. As an EPC contractor, its scope of work includes design, testing, fabrication, galvanizing of towers and construction activities from survey, civil works/ foundation, erection to stringing and commissioning of EHV lines, besides procurement of items such as conductors, insulators, hardware accessories etc. It also participates in substation projects on a partnership basis.
Kalpataru Power has two large Fabrication Plants with an annual installed capacity of 84,000 MTs one of the largest in the world and is equipped with modern machineries (including 7 CNC machines) and automated temperature controlled Galvanising Baths.
Besides strong design/ engineering capabilities, the company has its own state-of-the-
About 500,000+ MTs of towers and substation structures have already been designed, manufactured and supplied over the last few years of which over 150,000 MTs has been exported. Over 190 Tower Tests of 132-500KV have been carried out successfully, including 100 nos. at its own Testing Station, which is one of the largest facilities of its kind in the world.
Its client list include Power Grid Corporation of India and various State Electricity Boards (SEBs) of Gujarat, Karnataka, Maharashtra, Rajasthan, Andhra Pradesh, Rajasthan, Orissa, Tamil Nadu and Madhya Pradesh.
The Kalpataru group holds 77.6% of the equity in KPTL.
Huge potential in pipeline projects for the Oil & Gas industry
The company entered into Cross Country Gas & Oil Pipeline activity since 2005 and the benefits of the same have already started.
The increased demand in the energy industry has resulted in the need to develop an efficient distribution network for oil & natural gas transportation.
India has less than 15,000 kms of Oil & Gas pipelines. This is despite the fact that pipelines are most cost effective way of transporting petroleum products and gas.
The pipeline network available in India today is grossly inadequate to transport the products to demand centres in an efficient, safe and environment friendly way. In view of the above it is projected that an estimated 7,000 kms of gas pipelines and over 4,000 kms of product and crude pipelines will be set up in the next 3-4 years, mainly by IOCL, BPCL, HPCL, GSPC, Reliance and GAIL.
Under the budget proposal for 2007-08, the infrastructure status to be extended to cross country natural gas distribution networks, including gas pipeline which will entail concessions under Section 80IA which will further boost investment activity in this area.
Kalpataru has set up a core team to take forward its Pipeline Division, a group of highly experienced and competent persons, who are well-known in the pipeline industry in India. More & more experienced & qualified professionals are joining the division regularly making it a formidable contender in the industry.
Along with a well experienced team, the company hopes to make investments in specialized pipeline equipment and seize the opportunity available in the Construction of Oil & Gas pipelines for clients such as GAIL, IOCL, HPCL, BPCL, GSPC, Reliance etc.
The power transmission business continues to hold huge potential
Based on the projections of the 16th Electric Power Survey conducted by Central Electricity Authority (CEA), the Ministry of Power (MoP) is firming up plans to add 100,000 MW generation capacity by the end of the Eleventh Plan (2012) to ensure ‘Power for All’ by that year.
To evacuate power from generating stations and to transmit the electricity generated in fuel rich regions to other regions, an effective inter regional network is required to be built. Accordingly, under the fresh thrust given by the Government of India to Transmission and Distribution Sector, a perspective plan has been developed to build inter-regional transmission capability. The development of a National Grid capable of transferring 30,000 MW across regions has been planned in a phased manner, with a total investment level of over Rs 70000 crore. The Power Grid Corporation of India Limited (PGCIL) has been working towards the development of National Grid. As a result large orders have been and will be issued by Power Grid, WBSEB, AP Transco and others.
With the proposed addition of 20,700 MW, the total inter regional transmission capacity is expected to be 37,150 MW at the end of XI Five Year Plan i.e. by 2012 when the National grid is expected to be fully operational. Setting up a National grid requires the gradual strengthening and improvement of regional grids and their progressive integration, through extra high voltage and HVDC transmission lines.
Moreover with the company increasingly foraying into offering project services on distribution side the addressable market has expanded with heavy flow of investment under rural electrification programme and distribution network modernization efforts of various SEBs. Distribution reforms through Accelerated Power Development Reforms Programme (APDRP) and rural electrification programmes would generate additional business for the company.
Increasing tower manufacturing capacity to be operational by September 2008; which will make it among the largest globally, in terms of capacity
The company plans to increase its tower manufacturing capacity further by 24000 MTs p.a, which will be operational from September 08 at its main plant at Gandhinagar, making it among the largest tower manufacturing capacity at single location in the world. Post addition, the capacity of the company would be 108,000 MTs per annum. The company which off late has also forayed into the fast growing Telecom sector for turnkey jobs, with some success from BSNL & private sector telecom players will get boost with economic scale of capacity
Entry into fast growing logistic business to pay off handsomely
The company diversified into rapidly growing sectors like Warehousing, Cold Storage and Logistics activities. It has invested an initial capital of Rs 6.5 crore in Shree Shubham Logistics (SSL) (75% stake), to make an entry by building high-end warehouses (both for dry and cold storage) across the country, including 3PL. Land has been purchased at several places in the States of Rajasthan and Gujarat and the construction is due to commence soon.
SSL has forayed into warehousing and agriculture logistics parks at various strategic locations in Western India at initial investment commitment of Rs 100 crore. The company expects to have presence in 10 locations during 2008-09 for which construction has commenced.
Logistic business (sector like Warehousing, Cold Storage and Logistics activities) has immense growth potential. The private sector role in the warehousing industry has so far been very limited and unorganized. However, the big private players have now woken up to the potential and have planned substantial investments in the warehouses. The reports of the Expert Committee on Strengthening and Development of Agricultural Marketing have pegged the investment requirement in the sector at Rs. 54 billion for Dry Storage and Rs. 270 billion for Cold Storages. As per various reports, the storage capacity in the country against production of vegetables and fruits stood at 12% as against the international average of 50%. Due to lack of cold storage facilities, almost 30% of the produce is wasted. As per latest estimates, there is annual requirement of 2.6 million sq.ft of scientific warehouse space in the country. Even 50% of the said space is not being provided as on date. 3PL (Third-Party Logistics) is a sunrise sector and every major company and retail chains may consider outsourcing all logistics and inventory management in times to come.
Tapping opportunities in the infrastructure space
To tap the growing and profitable opportunities in the infrastructure space and to leverage its project execution skills, KPTL plans to grow as an infrastructure developer from a pure EPC player with greater focus on construction activities. Hence, it is exploring growth options in BOT project in the road segment, the T&D segment through private transmission, the distribution franchise business and small hydro power projects.
Recently, the company was H1 for a 150 MW Hydel power project in Himachal Pradesh (on BOOT basis), marking its expansion in upcoming arena in power generation. With an initial feasibility study spanning 18-24 months before commencing ground work on the project, such initiatives will provide the company with long term growth opportunity.
In Civil Construction Sector, road connectivity is the key to socioeconomic development. Lot of four laning and six laning highways / expressways are likely to be promoted in next 3-4 years under various National Highway Development Programmes where more private participation are sought on BOT basis. Kalpataru is considering entering into Road sector BOT projects on selective basis, wherein JMC Projects (its subsidiary) would support as EPC contractor.
Strong order book
The company’s present order book position (including L1) stood in excess of Rs 3400 crore (USD 850 Mn) compared to Rs 2300 crore last year, up 48%. The consolidated order book of the group (KPTL and JMC) is in the range of Rs 5900 crore (USD 1.47 Bn). The company enjoys a healthy mix of variable priced and fixed price contracts.
KPTL is executing the largest feeder separation/distribu
Disappointing performance during ‘the year of consolidation’…
For the FY 2008, on standalone basis, the company recorded sales growth of 21% (to Rs 629.54 crore). Operating margin contracted to 13.9% compared to 16.3% taking operating profit lower by 3% to Rs 241.60 crore. PBT fell 7% to Rs 201.55 crore and PAT was down 6% to Rs 149.95 crore.
The OPM has fallen largely because of a) commodity price, which has hit the company at least on the fixed price contracts (30-35% of its contracts are fixed price). B) its had pressure on working capital as it took only a few contracts and the Rs 1,000 crore contract of Maharashtra State Electricity Board (MSEB), was completely back-ended. (The interest had been built in as a cost and effectively there was a working capital pressure because of that. The interest cost has also gone up as the interest rates are up.) c) There were some delay in client payments.
On consolidated basis, its revenue was Rs 2674.85 crore, up 67%. However, the figures are uncomparable as JMC Projects became subsidiary only effective from Feb 7, ’07 and other companies such as Energy Link and Shree Subham Logistics too contributed only for part of the FY ’07 that is quarter ended Mar ’07 only. Consolidated PAT after minority interest stood higher by 3% to Rs 164.78 crore.
For FY 2008, KPTL registered 13% rise in revenues from the Transmission segment. At Rs 1521.20 crore, it accounted for 87% of total sales. PBIT fell 14% to Rs 184.18 crore and it accounted for 81% of the total PBIT. Revenues from infrastructure segment grew 25% to Rs 183.29 crore and it accounted for 11% of the total sales. PBIT soared 153% to Rs 31.55 crore and accounted for 14% of the total PBIT. Sales from Biomass segment grew 40% to Rs 39.63 crore and it accounted for 2% of the total sales. PBIT jumped 33% to Rs 10.95 crore and accounted for 5% of the total PBIT. Real estate accounted for a small Rs 57 lakh in revenues and Rs 23 lakh in PBIT.
… but strong guidance
On standalone basis, KPTL expects a growth of at least 25% for the next year in its existing business segments.
It expects JMC to grow at least 60% for next year with a similar growth in PBT and PAT levels if not more
On a consolidated basis (KPTL + JMC) the company expects a growth of at least 35% for the year. To explore further growth the company is looking for opportunities in other infrastructure areas like Power Generation, Airports, Railways, BOT for infrastructure projects and Logistics.
52% subsidiary JMC Projects shows robust growth
JMC Projects, held 52% by KPTL, has shown a robust growth of 83% in revenues with revenues of Rs 914.98 crore in FY 2008 as compared to previous year and 93% growth on PAT at Rs 30.68 crore. Besides consolidating its presence in the Factories & Buildings (F&B) sector, JMC has also achieved success into new sectors such as civil construction for power plants, water pipelines & sewerage sector and infrastructure projects.
It has secured large orders from BHEL, NTPC, Alstom and Reliance/ADAG group in the power sector and multiple funded orders from Municipalities of Ahmedabad, Bhopal and Indore for Water & Sewerage sector and from NHAI, MPRDC and Pune Municipality in Road & Bridge sector. In the F & B sector JMC won large orders from Jaypee Greens, Thyagraj Satdium, Sabarmati River Front, Boxtrans Logistics, Vedanta Aluminium, Wipro, RGA Software, Pritech, etc.
Valuation
In FY 2009, we expect the company to register sales and net profit of Rs 2161.55 crore and Rs 186.59 crore. On equity of Rs 26.50 crore and face value of Rs 10 per share, EPS works out to Rs 70.4. The share price trades at Rs 899. P/E works out to 12.8. Consolidated EPS will be higher at Rs 78.8. P/E on consolidated EPS works out to 11.4.
| | 0503 (12) | 0603 (12) | 0703 (12) | 0803 (12) | 0903 (12P) |
| Sales | 541.84 | 840.38 | 1524.85 | 1737.58 | 2161.55 |
| OPM (%) | 10.9 | 13.6 | 16.3 | 13.9 | 13.9 |
| OP | 59.00 | 114.41 | 248.91 | 241.60 | 301.32 |
| Other inc. | 1.33 | 4.88 | 12.46 | 21.47 | 26.84 |
| PBIDT | 60.33 | 119.29 | 261.37 | 263.07 | 328.16 |
| Interest | 11.37 | 16.10 | 27.96 | 39.72 | 47.66 |
| PBDT | 48.96 | 103.19 | 233.41 | 223.35 | 280.49 |
| Dep. | 5.50 | 8.79 | 16.76 | 21.80 | 28.34 |
| PBT | 43.46 | 94.40 | 216.65 | 201.55 | 252.15 |
| Tax | 14.74 | 27.87 | 57.16 | 51.60 | 65.56 |
| PAT | 28.72 | 66.53 | 159.49 | 149.88 | 186.59 |
| EPS (Rs)* | 10.8 | 25.1 | 60.2 | 56.6 | 70.4 |
| Cons EPS (Rs)* | -- | -- | 60.9 | 62.2 | 78.8 |
| * On current equity of Rs 26.50 crore. | |||||
| Kalpataru Power Transmission: Results |
| | 0803 (3) | 0703 (3) | Var. (%) | 0803 (12) | 0703 (12) | Var.(%) |
| Sales | 629.54 | 521.77 | 21 | 1737.58 | 1524.36 | 14 |
| OPM (%) | 12.0 | 18.2 | | 13.9 | 16.3 | |
| OP | 75.75 | 94.74 | -20 | 241.60 | 248.91 | -3 |
| Other inc. | 6.55 | 6.38 | 3 | 21.47 | 12.46 | 72 |
| PBIDT | 82.30 | 101.12 | -19 | 263.07 | 261.37 | 1 |
| Interest | 11.33 | 9.07 | 25 | 39.72 | 27.96 | 42 |
| PBDT | 70.97 | 92.05 | -23 | 223.35 | 233.41 | -4 |
| Dep. | 7.00 | 5.36 | 31 | 21.80 | 16.76 | 30 |
| PBT | 63.97 | 86.69 | -26 | 201.55 | 216.65 | -7 |
| Current Tax | 13.47 | 22.86 | -41 | 48.98 | 55.32 | -11 |
| Deferred Tax | 0.13 | -0.63 | -121 | 2.62 | 1.84 | 42 |
| PAT | 50.37 | 64.46 | -22 | 149.95 | 159.49 | -6 |
| PPA | 0.07 | 0.07 | 0 | 0.07 | 1.40 | -95 |
| PAT after PPA | 50.30 | 64.39 | -22 | 149.88 | 158.09 | -5 |
| EPS (Rs)* | # | # | | 56.6 | 60.2 | |
| * On current equity of Rs 26.50 crore. | ||||||
| Kalpataru Power Transmission: Consolidated results |
| | 0803 (12) | 0703 (12) | Var.(%) |
| Sales | 2674.85 | 1598.67 | 67 |
| OPM (%) | 11.6 | 16 | |
| OP | 310.59 | 256.31 | 21 |
| Other inc. | 25.1 | 12.32 | 104 |
| PBIDT | 335.69 | 268.63 | 25 |
| Interest | 48.54 | 28.42 | 71 |
| PBDT | 287.15 | 240.21 | 20 |
| Dep. | 38.65 | 18.16 | 113 |
| PBT | 248.5 | 222.05 | 12 |
| Current Tax | 62.77 | 55.56 | 13 |
| Deferred Tax | 6.08 | 3.46 | 76 |
| PAT | 179.65 | 163.03 | 10 |
| Prior Period Adj. | 0.1 | 1.4 | -93 |
| PAT after PPA | 179.55 | 161.63 | 11 |
| Minority Interest | 14.77 | 1.71 | 764 |
| PAT after MI | 164.78 | 159.92 | 3 |
| EPS (Rs)* | 62.2 | 60.9 | |
| * On current equity of Rs 26.50 crore. | |||
| Kalpataru Power Transmission: Segment Results |
| Sales | 0803 (3) | 0703 (3) | Var. (%) | % to total | 0803 (12) | 0703 (12) | Var. (%) | % to total |
| Transmission | 571.28 | 473.00 | 21 | 90 | 1521.20 | 1351.57 | 13 | 87 |
| Real Estate | -0.01 | 0.02 | -150 | 0 | 0.57 | 0.46 | 24 | 0 |
| Biomass | 14.79 | 11.54 | 28 | 2 | 39.63 | 28.39 | 40 | 2 |
| Infrastructure | 49.47 | 39.08 | 27 | 8 | 183.29 | 146.54 | 25 | 11 |
| Total | 635.53 | 523.64 | 21 | 100 | 1744.69 | 1526.96 | 14 | 100 |
| Add: Other unallocable income | 0.56 | 4.51 | | | 14.36 | 9.86 | | |
| Net sales | 636.09 | 528.15 | | | 1759.05 | 1536.82 | | |
| PBIT | | | | | | | | |
| Transmission | 64.73 | 83.69 | -23 | 87 | 184.18 | 213.30 | -14 | 81 |
| Real Estate | -0.20 | -0.05 | 300 | 0 | 0.23 | -0.07 | LP | 0 |
| Biomass | 3.88 | 3.47 | 12 | 5 | 10.95 | 8.25 | 33 | 5 |
| Infrastructure | 6.33 | 3.32 | 91 | 8 | 31.55 | 12.49 | 153 | 14 |
| PBT before tax and interest | 74.74 | 90.43 | -17 | 100 | 226.91 | 233.97 | -3 | 100 |
| Less: Interest | 11.33 | 9.07 | | | 39.72 | 27.96 | | |
| Add: Other unallocable income (net) | 0.56 | 5.33 | | | 14.36 | 10.64 | | |
| PBT | 63.97 | 86.69 | | | 201.55 | 216.65 | | |
| Capital Employed | | | | | | | | |
| Transmission | 672.25 | 472.18 | 42 | 62 | 672.25 | 472.18 | 42 | 62 |
| Real Estate | 11.58 | 0.79 | 999 | 1 | 11.58 | 0.79 | 999 | 1 |
| Biomass | 71.00 | 66.08 | 7 | 6 | 71.00 | 66.08 | 7 | 6 |
| Infrastructure | 143.38 | 137.40 | 4 | 13 | 143.38 | 137.40 | 999 | 13 |
| Unallocable | 194.86 | 302.64 | -36 | 18 | 194.86 | 302.64 | -36 | 18 |
| Total CE | 1093.07 | 979.09 | 12 | 38 | 1093.07 | 979.09 | 12 | 38 |
| Figures in Rs crore | ||||||||
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