Charging ahead with a strong order book

Kalpataru Power Transmission Ltd (KPTL), which is 63% held by the Kalptaru group, is a Gandhinagar-based infrastructure provider.

The company is into design, testing, fabrication, erection and construction of transmission lines and substation structures on a turnkey basis in India and abroad. It has a strong footprint in various countries across Asia, Middle East, Africa, Australia, US and Canada. Besides providing engineering, procurement and construction (EPC) services for distribution projects, it also constructs cross-country pipelines and telecom towers.

Business
KPTL’s main divisions include power and transmission, construction, infrastructure and biomass energy. The power and transmission division, which contributed 58% to its topline in FY08, is its revenue driver. Construction, infrastructure and biomass energy divisions contributed 34%, 7% and 2%, respectively, while the real estate division’s contribution to the topline was almost negligible.

Kalpataru Power has two fabrication plants with annual installed capacity of 1,08,000 mt and new capacities of 24,000 mt operational since September 2008. It has supplied more than 6,50,000 mt of tower and substation structures of which more than 1,75,000 mt were exported.  KPTL has carried out projects in 28 countries till date. It currently has projects worth $350 million overseas. It has successfully carried out more than 250 tests on 132-500 kv towers and has supplied more than 80,000 tonnes of towers across the globe. KPTL has completed more than 8,000 kms of turnkey projects for its customers like the Power Grid Corporation of India and various other state electricity boards. It has also worked with reputed international EPC contractors such as ABB SAE (Italy), Cobra (Spain), Sumitomo (Japan) and Siemens.

KPTL acquired more than 51% stake in JMC Projects, which gave it strength in civil contracting space for factories, industrial structures, buildings, software parks, and roads & bridges. It has also diversified into water pipelines, sewage, railways and civil works for power projects.

Kalpataru Power is into EPC contracting for cross-country gas & oil pipelines since 2004. It completed its first EPC contract (in consortium with its international partner) for product pipelines for BPCL from Laban, near Kota to Bijwasan, near Delhi. It also won the prestigious contract for Panvel-Dabhol pipeline from GAIL in 2006. In November 2008, KPTL was awarded another Rs 360 crore project by GAIL.

Its other  projects include a Rs 240 crore, 165 km gas pipeline project by GAIL, which is to be completed in October 2009; a 550 km, Rs 385 crore crude oil pipeline project awarded by Hindustan Petroleum-Mittal Energy Ltd, to be completed by September 2010; the Dadri-Panipat gas pipeline project worth Rs 52 crore, to be completed by June 2009 and a product pipeline from Chennai to Bangalore for IOCL, which is worth Rs 28.7 crore and is to be completed by November 2009.

Investment rationale
KPTL is a major player in transmission and distribution (T&D) space in the domestic market and also has a strong foothold overseas.

In the domestic market, Power Grid Corporation of India’s expenditure on T&D during the 11th Plan stands at Rs 55,000 crore, benefiting T&D players like KPTL.

Kalpataru Power has bagged many prestigious orders during the fourth quarter. It won three projects worth Rs 400 crore from the State Electricity Company of Algeria in March. Prior to this, KPTL had won a Rs 399 crore order from Power Grid Corporation of India for 765 kv and 400 kv transmission lines. Another Power Grid project worth Rs 373 crore was awarded to KPTL in March for supplying and erecting transmission towers. These orders were preceded by another prestigious overseas order worth $250 million from the Kuwait’s ministry of energy and water for a 172 km, 400 kv overhead transmission line.

These orders came only recently, but were bid for in the last two quarters. However, commodity prices have fallen since then, which will enhance KPTL’s margins.

The company also has a Rs 385 crore crude pipeline order for the 550 km Mundra-Bhatinda pipeline from HPCL and LN Mittal group.

All these orders helped KPTL secure a total order book position of more than Rs 5,000 crore, which includes overseas orders of around Rs 2,200 crore. Topline for its subsidiary JMC Projects also grew 29% y-o-y during the third quarter. Its order backlog is more than Rs 1,700 crore, which doesn’t include the Rs 300 crore Agra highway project.

KPTL’s biomass energy division also recorded a healthy growth of 17.5% y-o-y during the third quarter.

Concerns

Exports comprise a large chunk of KPTL’s revenues. So, fluctuations in exchange rates would have a direct bearing.

Valuations
KPTL has been showing a decent growth in difficult times. In the third quarter this year, topline on a standalone basis grew good 15.58% to Rs 416.75 crore from Rs 351.84 crore last year. However, high cost of raw materials and forex losses dented its operating margins by 481 basis points.

Interest costs, which grew 119% y-o-y, led its net profit to decline 34.14% to Rs 19.95 crore and lowered its profit margins by 382 bps. Expectations for the fourth quarter are also not very high. The benefits of fall in commodity prices are likely to accrue from FY10 onwards. Operating margins will start improving and reducing interest rates will lead to improvement in its net profit and profit margins. A strong order book position shows good revenue visibility. KPTL’s stock offers good prospects for investors in the medium- to long-term.