Tuesday, August 21, 2012


Kalpataru Power’s (KPP) Q1FY13 numbers were above our estimates adjusting for INR130mn of forex (mark to market) loss. While revenue grew 20% YoY, margin declined 60bps YoY to 10.8% (adjusting for forex loss) primarily due to higher input cost. Order inflow dipped 33% YoY to INR6bn in the absence of any big-ticket order during the quarter. The company has lowered its FY13 EBITDA margin guidance for JMC from 7-8% to 6-7% on back of increased volatility in commodity prices. Maintain ‘HOLD’ with revised target price of INR 78 (earlier 84).

Margin pressure sustains; execution remains steady
KPP’s revenue grew a healthy 20% YoY, better than estimate. Margin (adjusted for forex loss) fell 60bps YoY to 10.8%, owing to higher input costs. Adjusted PAT increased 20% YoY to INR404mn. At JMC, revenue surged 51% YoY to INR5.7bn. However, margin plunged 290bps YoY to 5% due to high volatility in commodity prices primarily in cement and steel. For JMC, management has trimmed its FY13 margin guidance to 6-7% from 7- 8% earlier. KPP’s capital employed increased 16% YoY as the infra division’s capital employed doubled on increased debtor balance.

New orders down 33 % YoY; order book flat at INR 60.5 bn YoY
The company’s order inflow declined 33% YoY to INR6bn, owing to weak project awards. KPP stated that the order pipeline is healthy and it anticipates orders from MEENA region and CIS countries apart from PGCIL. The company’s standalone and consolidated order backlog stands at INR60.5bn (flat YoY) and INR116bn (up 10% YoY), respectively.

Outlook and valuations: Cautious; maintain ‘HOLD’
While we do not expect any upside in KPP’s operating profitability in the near to medium term, rising input cost in key subsidiary (JMC Projects) remains a concern, with limited pricing power. We maintain our ‘HOLD/SP’ recommendation with a Target price of INR 78(earlier 84) as we remain cautious on the company’s incremental order intake and margin profile given rising competition and higher working capital issues. The stock, on consolidated basis, is currently trading at P/E of 5.1x and 4.3x on FY13E and FY14E, respectively.

Key conference call highlights
• Forex loss: KPP stated that there was a forex loss (mark to market) of INR130mn on account of USD denominated loan and commodities, of which INR50mn has been charged to other operating expenses and INR80mn to interest cost.

• FY13E guidance: Management has reduced JMC margin guidance of 7-8% to 6-7% for FY13E on back of increased volatility in commodity prices with revenue guidance of 35-
50%. The company maintains its capex guidance for FY13E at around INR2bn (INR1bn
for KPP, INR 0.4-0.5 bn for JMC and INR400-500mn for Shri Subham Logistics etc).

• Infra projects update: The company has achieved financial closure of all 4 road BOOT projects viz., Rohtak Bowel (COD expected by Q4FY13), Agra–Aligarh (COD expected by Q2FY14), Bagpur Waiganga (COD expected by Q2FY15) and Rewa MP project (COD
expected by Q4FY15).

• Update on Subham Logistics- Subham Logistics posted revenue growth of 15% in Q1FY13 with EBIDTA margin of 14% and PBT of INR0.7mn. FY13E management guidance stands at 35 % revenue growth with EBIDTA levels at 15-16 %.

• Capex at INR 2 bn for FY13E- The company’s new tower manufacturing plant at Raipur is on track and is expected to start by September 2012 with INR 1 bn as capex. Also, JMC & Subham logistics will have capex equally at INR 500 mn.

• KPP stated that while ~60% of its order book is covered by price variation clause, ~40% is fixed price book.

• The company targets to maintain its debt (consol) at INR13-14bn by end FY13E, which currently stood at INR 15 bn and is likely to come down by FY13E end.

• 0% tax rate in JMC in Q1FY13 due to exemption in case of certain infra projects.