Kalpataru Power Transmission

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investor’s eye stock update

Kalpataru Power Transmission Reco: Buy

Stock Update

Listing of subsidiary to unlock value; PT revised to Rs280 CMP: Rs235

Company details Key points

Price target: Rs280 Š Shree Shubham Logistics (SSL), a subsidiary of Kalpataru Power & Transmission
Ltd (KPTL), is coming out with an IPO to fund its growth plans, capitalise the
Market cap: Rs3,622 cr recently acquired NBFC, and repay part of its debt. The company intends to
52 week high/low: Rs255/81 raise Rs210 crore from the issue to use Rs50 crore each for capacity addition
and capitalisation of its NBFC, Rs70 crore for loan repayment and the remaining
NSE volume: 3.5 lakh
(no. of shares) amount for general requirement. We believe the listing of SSL could unlock
substantial value for KPTL as most analysts have been conservative in assigning
BSE code: 522287 value to KPTL’s stake in SSL.
NSE code: KALPATPOWR Š SSL has a sound track record of profitability with a sustainable EBITDA margin
Sharekhan code: KALPATPOWR of around 13-15%. With a significant expansion plan on the cards, its earnings
could jump significantly in the next three years. SSL has chalked out an
Free float: 6.2 cr
(no. of shares)
aggressive expansion plan to add 3.87 lakh MT of storage capacity to the existing
capacity of 3.5 lakh MT. Further, it plans to capitalise the recently acquired
Shareholding pattern
NBFC, Punarvasu Holding and Trading Company, which supplements its agri-
commodity business by providing funding facilities to market participants
against a collateral of stocks. Partial repayment of its debt would add value to
the bottom line too.
Š There is no comparable listed entity in the agri-commodity logistics space to
benchmark the valuation but the leading integrated general logistic companies
are trading currently at 20-25x their FY2017E earnings and 12-15x their FY2017E
EBITDA. Given that the business is small and centred around agri-commodities,
the market is likely to value SSL at a discount to the leading logistic companies.
Nevertheless, given the strong earnings growth ahead and its ability to generate
RoE of 20-25%, SSL could fetch market capitalisation of around Rs1,000-1,200
crore (KPTL’s market capitalisation stands at Rs3,600 crore at present),
translating into a value of around Rs650 crore (on diluted equity) for KPTL’s
Price chart post-issue stake in SSL. Moreover, after providing a 25% holding discount we
arrive at a value of Rs33 per share for SSL. Incorporating the potentially higher
valuation of SSL in our SOTP valuation, we revise upward our price target for
KPTL to Rs280 and retain our Buy rating.

Valuations (stand-alone)
Particulars FY2013 FY2014 FY2015E FY2016E FY2017E
Net sales (Rs cr) 3,335 4,055 4,560 5,264 5,867
Growth (%) 10.0 21.6 12.4 15.5 11.4
OPM (%) 9.7 9.5 9.8 9.8 10.0
Price performance
Adj. net profit 138 146 175 220 269
Adj. EPS(Rs) 9.0 9.5 11.4 14.4 17.5
(%) 1m 3m 6m 12m EPS growth (%) -17 6 19 26 22
PER (x) 26.3 24.7 20.7 16.4 13.5
Absolute 1.1 33.2 38.9 195.1
P/BV (x) 2.0 1.9 1.7 1.6 1.4
Relative 2.2 30.2 26.4 107.8 EV/EBITDA (x) 11.7 10.0 8.4 7.4 6.3
to Sensex RoCE (%) 13.8 14.4 15.3 17.2 18.4
RoE (%) 7.7 7.7 8.6 10.1 11.2

Sharekhan 2 February 24, 2015 Home Next


investor’s eye stock update

SSL going public! believe a repayment of loans worth Rs70 crore will help
SSL, a subsidiary of KPTL, is coming out with an initial it to reduce the interest cost and contribute to the bottom
public offering (IPO) to fund its growth plans, capitalise line growth.
the recently acquired non-banking finance company Sound profitability track record; could deliver strong
(NBFC) and repay part of its debt. The company is looking earnings growth ahead
to raise Rs210 crore from this issue. SSL is present in the SSL has a sound track record of consistently making profits
mid stream of agri-commodity value chain and undertakes with a sustainable earnings before interest, tax,
an array of activities from procurement, warehousing and depreciation and amortisation (EBITDA) margin of around
processing to collateral management and certification. 13-15%. With its proposed expansion plan, its earnings
Expanding storage capacities: SSL is a leading player in could jump significantly in the next three years. Given
the agri-logistic parks (ALP) industry in India with a storage the huge opportunity in the under-invested agri-
capacity of 3.5 lakh metric tonne (MT). It has chalked commodity logistic space, we believe the company has a
out an aggressive expansion plan to add another 3.87 lakh promising future ahead, with a substantial scaleable
MT of storage capacity by setting up warehouses in 20 model. There is considerable disparity in the available
different locations. This capacity addition exercise is storage space across locations in India. According to the
estimated to require funds worth Rs294 crore of which Department of Food and Public Distribution, currently
Rs50 crore would be sourced from the proceeds of the there is shortage of storage capacity of around 60.5MMT
IPO. The remaining Rs183 crore would be raised from in India and the Planning Commission had estimated that
banks (loans of Rs211 crore) and internal accruals of India would need additional 35MMT of warehousing
around Rs33 crore. capacity to meet the demand in the next five to ten years.
Particulars Rs crore Potential value unlocking from SSL listing; updated SOTP
Funds required to build new warehouses 294 and revised PT to Rs280
Funding through the IPO proceeds 50 There is no comparable listed entity in the agri-commodity
Balance fund requirement 244 logistics space to benchmark the valuation but the leading
- Limits available through sanction letters 211 integrated general logistic companies are trading
- Funding through internal accruals 33 currently at 20-25x their FY2017E earnings and 12-15x
their FY2017E EBITDA. Given that the business is small
Capitalising newly acquired NBFC: SSL has recently and centred around agri-commodities, the market is likely
acquired an NBFC, Punarvasu Holding and Trading to value SSL at a discount to the leading logistic
Company Pvt Ltd (PHTCPL), with an objective to provide companies. Nevertheless, given the strong earnings
funding facilities to market participants dealing in agri- growth ahead and its ability to generate RoE of 20-25%,
commodities against a collateral of stocks stored in its SSL could fetch market capitalisation of around Rs1,000-
own warehouses or warehouses approved by PHTCPL. The 1,200 crore (KPTL’s market capitalisation stands at
company plans to use around Rs50 crore to capitalise Rs3,600 crore at present), translating into a value of
PHTCPL by subscribing to PHTCPL’s equity shares which around Rs650 crore (on diluted equity) for KPTL’s post-
will enable PHTCPL to augment its capital base to meet issue stake in SSL. Moreover, after providing a 25% holding
the capital adequacy requirement and support future discount we arrive at a value of Rs33 per share for SSL.
growth of the business. Incorporating the potentially higher valuation of SSL in
Repayment of debt: The company plans to utilise Rs70 our sum-of-the-parts (SOTP) valuation, we revise upward
crore from the IPO proceeds to pre-pay certain loans taken our price target for KPTL to Rs280 and retain our Buy
recently. Currently, it has a total loan of Rs400 crore. We rating.

SOTP valuation
Particulars Value/share Basis of valuation and multiple
KPTL 228 Valued at 13x FY17E earnings
JMC 14 Valued at 25% holding discount to the current Mcap
SSL 33 Valued on 25% discount to potential valuation post listing
Others 6 Valued at 25% discount to equity invested in SPV & other investments
Total value 280 Price target

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

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