PL Stock Report - Kalpataru Projects International (KPIL IN) - Q2FY24 Result Update - Reasonable Q2, watchful eye on margins - BUY

Kalpataru Projects International (KPIL IN) – Amit Anwani – Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs636 | TP: Rs740

Q2FY24 Result Update – Reasonable Q2, watchful eye on margins

Quick Pointers:

§ Strong domestic T&D prospects of ~Rs500bn and ~$3bn in international markets, providing healthy revenue visibility.

§ Higher interest cost & effective tax rate impacted PAT growth.

Kalpataru Projects International (KPIL) reported decent quarterly performance with standalone revenue growth of ~15.4% YoY and EBITDA margins contracting 37bps YoY to 8% mainly due to executions of legacy projects. Net working capital days improved to 104days vs 140days in Q2FY23, driven by efforts towards project closure and timely collections. Order pipeline remains strong across business verticals such as T&D, Water, B&F and Oil & Gas. Management has lowered its revenue guidance for revenue to 25% from 30% guided earlier factoring withdrawal of large project in Australia (where it was L1), supply chain constraints in substation projects and delay in couple of large projects in urban infra projects. PBT margins to be at 4.5%-5%. Order inflows to be Rs250bn+ for FY24.

We remain positive on KPIL in the long run owing to 1) strong order backlog, 2) strong order pipeline across segment, 3) focus on geographical expansion for segment such as Water, Railways, Civil etc. 4) increasing pre-qualification for large contracts and 5) operational & cost synergy arising due to merger. The stock is trading at PE of 17x/12.5x/9x FY24/25/26E. We revise our estimate by -7.1%/-4.3% for FY24/25, factoring in supply chain constraints, cautious stance on Railway segment and merger synergy yet to kick-in. We roll forward to Sep’25E and maintain ‘BUY’ rating on stock with revised SoTP based TP of Rs740 (earlier Rs732), valuing core business at 11.5x Sep’25E (13x FY25E earlier), owing to near term challenges and supply chain constraints.

Strong operational performance: Standalone revenue grew 15.4% YoY to ~Rs38.4bn (PLe ~Rs37bn), driven by continued execution momentum. T&D grew 24% YoY to ~Rs16bn, B&F grew 14% YoY to ~Rs12bn, Water grew 55% YoY to Rs9.6bn, Urban Infra grew 37% YoY to Rs1.3bn, while it declined for Railways by 10% YoY to Rs3.2bn and O&G by 22% to Rs1.7bn. Gross margins declined 173bps YoY to 21.2%, likely due to job mix. EBITDA grew 11.6% YoY to Rs3.1bn (PLe ~Rs3.3bn), with EBITDA margins contracting by 37bps YoY to 8% (PLe 9%), partly aided by lower other expenses as % of sales (5.9% vs 7.1% in Q2FY23). Adj. PAT grew 8.7% YoY to Rs1.1bn (PLe ~Rs1.4bn), impacted by higher interest cost (up ~13.3%, YoY) and higher effective tax rate (at 29.4% vs 28.3% in Q2FY23).

Order book stands strong at Rs470bn: Q2FY24 order inflows came in at ~Rs55bn (up 17% YoY). Order backlog (OB) (including LMG and Fasttel) stands at Rs470bn (3.1x TTM revenue) as on Q2FY24 and is L1 in orders worth Rs42bn. LMG and Fasttel OBs stand at Rs14.6bn and Rs4.5bn respectively.

(Click on the Link for Detailed Report)