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    Stock pick of the week: Why analysts are bullish on Kalpataru Power


    Analysts are getting bullish on this counter because of its prospects. For instance, its order backlog increased by 7% to Rs 15,130 crore in the second quarter.

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    In addition to faster growth, balance sheet deleveraging should also help in re-rating.
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    Kalpataru Power Transmission, one of the leading EPC players in the power transmission and infrastructure space, reported solid set of numbers for the second quarter of 2019-20. For instance, its revenue, EBITDA and net profit for the quarter have shown a y-o-y growth of 25%, 21% and 39% respectively. EBITDA stands for earnings before interest, tax, depreciation and amortisation. Higher net profit growth was because of the lower tax rate.

    Analysts are getting bullish on this counter because of its prospects. For instance, its order backlog increased by 7% to Rs 15,130 crore in the second quarter. Since Kalpataru Power is the least cost bidder (L1 bidder) in orders worth around Rs 2,000 crore, robust order inflow is expected to continue in the coming quarters as well. Central government’s efforts to shore up the power transmission and distribution (T&D) system continues, and this should augur well for companies like Kalpataru Power.

    Analysts’ views
    Buy 21

    Kalpataru’s entry into non-T&D segment has started yielding results. For example, its non-T&D segments now contributes around 45% of its orderbook. While oil & gas segment revenue remained flat, railway segment did exceptionally well and reported 100% y-o-y revenue growth in the second quarter. More importantly, its global market operations have also started getting traction. Besides the neighbouring countries like Nepal and Bangladesh, Kalpataru has its presence in Middle East and African countries too. Analysts believe that Kalpataru will end 2019-20 with fresh orders of around Rs 6,000 crore, mostly due to the winning of large international orders.

    Since its order backlog is now placed at 1.9 times its annual revenues and large fresh orders are expected, Kalpataru Power is expected to report good performance in the coming quarters as well. Due to the well diversified sector and geographical presence, its business-related risk has also reduced now. Despite its strong prospects from all segments, ie improving prospects of T&D segment and strong scaling up of non-T&D business, Kalpataru Power is still trading at reasonable valuations. See relative valuation table.
    Kalpataru Power compared with ET Power and Sensex. Stock price and index values normalised to a base of 100. Source: ETIG and Bloomberg.

    Strategic initiative by Kalpataru Power to deleverage its balance sheet should also result in further re-rating in the counter. For example, Kalpataru Power plans to achieve zero consolidated net debt during 2020-21—from a net debt level of Rs 3,800 crore now. It also plans to monetise some transmission assets and use it to repay debt. Kalpataru Power also plans to monetise or restructure its road assets and any action on this front will bring down its cash burn significantly.

    Selection Methodology
    We pick up the stock that has shown maximum increase in “consensus analyst rating” during the last 1 month. Consensus rating is arrived at by averaging all analyst recommendations after attributing weights to each of them (ie 5 for strong buy, 4 for buy, 3 for hold, 2 for sell and 1 for strong sell) and any improvement in consensus analyst rating indicates that the analysts are getting more bullish on the stock. To make sure that we pick only companies with decent analyst coverage, this search will be restricted to stocks with at least 10 analysts covering it. You can see similar consensus analyst rating changes during the last one week in ETW 50 table.
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