Sharekhan has maintained its BUY rating on Kalpataru Projects International Ltd (KPIL), setting a revised price target of Rs 1,570 per share. The positive outlook for the company is driven by robust order inflows, promising divestment triggers, and sectoral tailwinds from the transmission and distribution (T&D) business. KPIL’s stock is trading at 29x its FY25 earnings, and is expected to deliver strong earnings growth, making it an attractive prospect for long-term investors.

Key Highlights

Target Price and Valuation

Target Price (Rs): 1,570
Current Market Price (01-Oct-24): Rs 1,346
Upside Potential: 16.7%

Operational Performance

Strong Execution in Core Segments

FY24 saw a strong performance due to the healthy execution in KPIL’s domestic and international T&D business as well as its Buildings & Factories (B&F) segment.
The Q1FY25 performance was muted owing to labor shortages and election-related disruptions.
Promising Order Book

KPIL’s current order book stands at Rs 57,000 crore, with additional L1 positions worth over Rs 5,000 crore.
Orders from the Airports Authority of India mark the company's entry into the domestic airport segment, demonstrating diversification of revenue streams.

Sectoral Tailwinds

Positive Outlook for T&D Business

The revised National Electricity Plan (2023-32) projects a total capital expenditure of Rs 9.15 lakh crore, boosting prospects for T&D and power sector companies.
Expansion of transmission and substation networks is expected to significantly benefit KPIL, positioning it for steady growth in both domestic and international markets.

Financial Performance

Growth Projections

Revenue CAGR (FY24-27E): 19%
PAT CAGR (FY24-27E): 30%
KPIL is projected to deliver robust growth, driven by its core T&D segment and margin improvements across business verticals.
Financial Metrics

Net Sales (FY25E): Rs 20,210 crore, rising to Rs 28,070 crore by FY27E.
EPS Growth (FY25E): 34.2% YoY, with EPS expected to reach Rs 46.9 by FY25 and Rs 76.6 by FY27.
ROCE: Expected to improve from 15.9% in FY25 to 23.8% in FY27.

Key Catalysts for Re-rating

Divestment of Non-core Assets

KPIL is expected to fully divest its Indore project and VEPL by FY25, with no expected losses. This asset monetization will unlock value and reduce the company’s exposure to non-core assets.
Reduction in Promoter Pledge

The promoters’ pledge has been reduced from 32% to 28.2% in Q1FY25. Further reductions could act as a re-rating catalyst for the stock.

Investment Thesis

With a healthy and diversified order book, KPIL offers strong revenue visibility over the next few years. The company’s strategic focus on expanding its T&D business, both domestically and internationally, coupled with significant opportunities in infrastructure development, positions it for sustained growth. Investors can expect enhanced profitability driven by asset monetization, reduced promoter pledges, and favorable sector dynamics. Sharekhan’s BUY recommendation with a price target of Rs 1,570 reflects a 16.7% upside potential.

Risks to Outlook

Execution Risks

Slower-than-expected execution of domestic and international projects could impact KPIL’s performance.
Exposure to commodity price fluctuations, interest rates, and forex risks also present potential challenges.
In summary, KPIL’s robust order book, sectoral growth prospects, and improving financial health make it a compelling buy for investors looking to tap into India's growing infrastructure and T&D sectors.