: price: EPS: How does our one year outlook change? We expect KPP s revenue (standalone) to grow by 21% y-o-y in FY17E backed by an order book of Rs. 91bn (1.7x FY17E book-to-bill). Both Transmission line tower and Infrastructure segments should see growth of ~20% yoy growth EBITDA margin (standalone) should sustain at ~10.7% in FY17E. While transmission line segment s margin should be ~10%, we remain conservative and expect infrastructure segment s margin should be ~2% (vs. 1.7% in FY16) Growth in JMC projects should be flat yoy in FY17E. We expect EBITDA margin to sustain at a higher margin of ~8.8% by FY17E (from 8.5% in FY16) as quality of orders are better. (higher share of order book with price variation clause). Improving order inflow environment, strong execution pace and expanding margin prospects should lead to a 32% PAT CAGR (standalone) in FY16-FY18E. We value the stock at 12x FY18E earnings (standalone) & assign Rs. 26/share for JMC, Rs. 15/share for the BOT projects and Rs. 5/share for Shubham logistics thereby arriving at a TP of. Maintain Buy. How does our 3 year outlook change? We have a positive three year outlook on KPP. Increased foray into new markets in the international segment and strong execution capabilities coupled with healthy ordering in the domestic market should sustain order inflow momentum and growth. turnaround in the infrastructure segment should improve overall profitability Commissioning of transmission/road BOT project, revenue pick-up in the road projects and sale of real estate assets should support additional growth & profitability drivers Financial summary (consolidated) Year 1QFY17 Update Promoters 59.5 Institutions 31.0 Public 9.6 1m 3m 12m KPP -2% 13% -4% Sensex 1% 11% 1% CG Index -2% 15% -16% Key estimate revision (consolidated) Revenues FY17E EBITDA PAT Bloomberg Shares o/s Market Cap EPS (Rs.) 22 Aug, 2016 KPP IN 153mn Rs. 39.2bn 52-wk High-Low Rs. 285-160 3m Avg. Daily Vol Rs. 32mn Index BSE 500 FY18E Old New Change Old New Change Revenue 82,163 83,982 2.2% 91,928 96,523 5.0% EBITDA 8,747 8,824 0.9% 10,055 10,260 2.0% Margin (%) 10.6% 10.5% -14 bps 10.9% 10.6% -31 bps PAT 2,122 1,917-9.7% 2,838 2,836-0.1% PAT Margin 2.6% 2.3% -30 bps 3.1% 2.9% -15 bps EPS 13.8 12.5-9.5% 18.5 18.5-0.1% P/E (x) RoE (%) FY16 73,804 8,070 1,175 7.7 33.4 3.7 FY17E 83,982 8,824 1,917 12.5 20.5 6.6 FY18E 96,523 10,260 2,836 18.5 13.8 9.8 VIJAYARAGHAVAN SWAMINATHAN raghavan@sparkcapital.in +91 44 4344 0022 RAVI SWAMINATHAN ravi@sparkcapital.in +91 44 4344 0058 Find Spark Research on Bloomberg (SPAK <go>), Thomson First Call, Reuters Knowledge and Factset Page 1
Quarterly Financial Results Standalone Financial Result Rs. mn\period 30-Jun-16 30-Jun-15 YoY Growth 31-Mar-16 QoQ Growth Revenues 11,537 11,635-0.8% 13,805-16.4% Material cost 8,191 8,216-0.3% 10,084-18.8% Employee cost 724 782-7.4% 726-0.3% Other expenditure 1,314 1,487-11.6% 1,553-15.3% Operating Expenses 10,230 10,484-2.4% 12,363-17.3% EBITDA 1,308 1,150 13.7% 1,443-9.3% EBITDA margin (%) 11.3% 9.9% 145 bps 10.4% 89 bps Depreciation 195 208-6.3% 208-6.4% Other income 123 141-12.4% 121 2.3% EBIT 1,236 1,083 14.1% 1,355-8.7% Interest 249 427-41.8% 241 3.0% PBT 988 657 50.5% 1,114-11.3% Tax 343 226 51.3% 394-13.1% Effective tax rate 34.7% 34.5% 35.4% PAT 645 430 50.0% 720-10.3% PAT margin (%) 5.6% 3.7% 190 bps 5.2% 38 bps EPS (Rs. ) 4.2 2.8 50.0% 4.7-10.3% Order Book of Rs. 91bn (as on 30 th June 2016) Transmission - Overseas 45% Africa 28% S. Asia 6% CIS, Europe & Far East Infra - Pipeline & Railways, 10% 10% 5% MENA 3% SAARC 3% Source: Company, Spark Capital Research PGCIL 22% SEB 14% Private 9% Transmission - Domestic 45% Page 2
Financial Summary Abridged Financial Statements (Consolidated) Key metrics Rs. mn FY15 FY16 FY17E FY18E FY15 FY16 FY17E FY18E Profit & Loss Grow th ratios Revenues 71,982 73,804 83,982 96,523 Sales 1.5% 2.5% 13.8% 14.9% EBITDA 7,043 8,070 8,824 10,260 EBITDA 19.4% 14.6% 9.4% 16.3% Other Income 251 188 207 228 PAT -6.8% -27.8% 89.0% 58.4% Depreciation 1,683 2,018 2,153 2,298 Margin ratios EBIT 5,611 6,240 6,878 8,191 EBITDA 9.8% 10.9% 10.5% 10.6% Interest 3,370 4,394 4,338 4,353 PAT 1.6% 1.1% 1.9% 2.6% PBT 2,241 1,847 2,540 3,837 Performance ratios PAT 1,204 1,175 1,917 2,836 RoE 5.3% 3.7% 6.6% 9.8% Balance Sheet RoCE 5.4% 4.9% 7.4% 8.8% Net Worth 22,166 23,259 24,397 26,322 RoA 1.4% 0.9% 1.7% 2.5% Deferred Tax 90-415 -415-415 Fixed asset turnover (x) 1.6 1.5 1.6 1.7 Total debt 34,411 30,864 33,351 34,128 Total asset turnover (x) 0.8 0.8 0.8 0.9 Total Netw orth and liabilities 58,089 55,269 58,894 61,597 Financial stability ratios Gross Fixed assets 44,504 48,116 51,716 55,316 Net Debt to Equity (x) 1.5 1.3 1.3 1.2 Net fixed assets 35,816 36,920 38,858 40,160 Current ratio (x) 1.7 1.5 1.5 1.5 CWIP - - - - Inventory and debtor days 264 260 254 244 Investments 113 114 114 114 Creditor days 146 159 155 153 Inventories 12,176 9,307 11,504 13,222 Working capital days 117 101 99 91 Sundry Debtors 22,301 24,292 26,460 29,089 Interest cover (x) 1.7 1.4 1.6 1.9 Cash and bank balances 1,381 1,525 1,138 1,380 Valuation metrics Loans and advances 17,523 18,940 20,406 22,250 Fully Diluted Shares (mn) 153.5 153.4 153.5 153.5 Current liabilities 31,422 36,029 39,787 44,820 Market cap (Rs.mn) 39,283 39,283 39,283 39,283 Net current assets 21,958 18,035 19,722 21,122 EPS (Rs.) 7.8 7.7 12.5 18.5 Total assets 58,089 55,269 58,894 61,597 P/E (x) 32.6 33.4 20.5 13.8 Cash Flow s EV (Rs.mn) 72,314 68,623 71,496 72,031 Cash flow s from Operations 3,616 11,312 5,502 7,987 EV/ EBITDA (x) 10.3 8.5 8.1 7.0 Cash flow s from Investing -7,134-3,613-3,600-3,600 BV/ share (Rs.) 144.4 151.7 159.0 171.5 Cash flow s from Financing 3,452 (8,217) (2,288) (4,145) Price to BV (x) 1.8 1.7 1.6 1.5 Page 3
Spark Disclaimer Rs. Kalpataru 3 Year Price and History Report Date Price Reco. 01/Jun/16 238 275 Buy 22/Mar/16 194 257 Buy 15/Feb/16 170 250 Buy 09/v/15 259 295 Buy 11/Aug/15 276 325 Buy 02/Jun/15 223 252 Buy 10/Feb/15 224 249 Buy 12/v/14 169 223 Buy 09/Sep/14 168 235 Buy 350 300 250 200 150 100 50 0 Aug-13 Feb-14 Aug-14 Feb-15 Aug-15 Feb-16 Aug-16 Price 05/Aug/14 166 212 Buy 04/Jun/14 180 214 Buy 03/Feb/14 77 103 Buy Report Date Price Reco. 05/v/13 79 113 Buy 30/Jul/13 63 100 Buy 20/May/13 78 103 Buy Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in investment banking, investment advisory and institutional equities and infrastructure advisory services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker. We hereby declare that our activities were neither suspended nor we have defaulted with any stock exchange authority with whom we are registered in the last five years. We have not been debarred from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of registration been cancelled by SEBI at any point of time. Absolute Interpretation Stock expected to provide positive returns of >15% over a 1-year horizon ADD Stock expected to provide positive returns of >5% <15% over a 1-year horizon REDUCE Stock expected to provide returns of <5% -10% over a 1-year horizon SELL Stock expected to fall >10% over a 1-year horizon Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered with SEBI as Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure advisory services. This document does not constitute or form part of any offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. thing in this document should be construed as investment or financial advice, and nothing in this document should be construed as an advice to buy or sell or solicitation to buy or sell the securities of companies referred to in this document. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult its own advisors to determine the merits and risks of such an investment. This document is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to or use by any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject Spark Capital and/or its affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to a certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such applicable restrictions. This material should not be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. Spark Capital makes no representation or warranty, express or implied, as to the accuracy, completeness or fairness of the information and opinions contained in this document. Spark Capital, its affiliates, and the employees of Spark Capital and its affiliates may, from time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any company referred to in this report. Page 4
Kalpataru Power Disclaimer (Cont d) This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While we would endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory, compliance or other reasons that prevent Spark Capital and its affiliates from doing so. Neither Spark Capital nor its affiliates or their respective directors, employees, agents or representatives shall be responsible or liable in any manner, directly or indirectly, for views or opinions expressed in this report or the contents or any errors or discrepancies herein or for any decisions or actions taken in reliance on the report or the inability to use or access our service in this report or for any loss or damages whether direct or indirect, incidental, special or consequential including without limitation loss of revenue or profits that may arise from or in connection with the use of or reliance on this report. Spark Capital and/or its affiliates and/or employees may have interests/positions, financial or otherwise in the securities mentioned in this report. To enhance transparency, Spark Capital has incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report: Disclosure of Interest Statement Yes/ Analyst financial interest in the company Group/directors ownership of the subject company covered Investment banking relationship with the company covered Spark Capital s ownership/any other financial interest in the company covered Associates of Spark Capital s ownership more than 1% in the company covered Any other material conflict of interest at the time of publishing the research report Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months: Managing/co-managing public offering of securities Investment banking/merchant banking/brokerage services Products or services other than those above In connection with research report Whether Research Analyst has served as an officer, director or employee of the subject company covered Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company; Analyst Certification of Independence The views expressed in this research report accurately reflect the analyst s personal views about any and all of the subject securities or issuers; and no part of the research analyst s compensations was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report. Additional Disclaimer for US Institutional Investors This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the Securities Exchange Act of 1934, as amended) only by Auerbach Grayson, LLC, a broker-dealer registered in the US (registered under Section 15 of Securities Exchange Act of 1934, as amended). Auerbach Grayson accepts responsibility on the research reports and US Institutional Investors wishing to effect transaction in the securities discussed in the research material may do so through Auerbach Grayson. All responsibility for the distribution of this report by Auerbach Grayson, LLC in the US shall be borne by Auerbach Grayson, LLC. All resulting transactions by a US person or entity should be effected through a registered broker-dealer in the US. This report is not directed at you if Spark Capital Advisors (India) Private Limited or Auerbach Grayson, LLC is prohibited or restricted by any legislation or regulation in any jurisdiction from making it available to you. You should satisfy yourself before reading it that Auerbach Grayson, LLC and Spark Capital Advisors (India) Private Limited are permitted to provide research material concerning investment to you under relevant legislation and regulations. VIJAYARAGHAVAN Page 5