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Kalpataru Power: Financial overview

Apr 17, 2008

In the previous article, we had discussed about the business segments of Kalpataru Power Transmission (KPT). In this article on the company, we will take a look at its financial performance over the past few years. As KPT acquired JMC Projects in early 2007, we will, for this article, analyse KPT's standalone figures. As was mentioned in the earlier article, KPT is one of leading providers of engineering and construction services to the power transmission sector. The company has diversified its business over the past few years to enter segments such as pipelines, real estate, biomass energy, construction and logistics/warehousing.

Revenue analysis: KPT operated under a single segment of T&D in FY02. But over the years, this division's share has dropped (89% in FY07), thus making way for its second largest business, the infrastructure division, which has a 10% share in total sales. The company's T&D division has seen a radical improvement both in absolute numbers and margins. It garnered an EBIT margin of 16% in FY07 from just about 6% in FY02. The segment's sales have grown at a 5-year CAGR of 56%. This robust growth in sales can be attributed to the government's thrust on power reforms and certain initiatives from the beginning of the Tenth five-year plan (2002-07) along with KPT's capacity expansion that took place in 2006.

During this year, the company increased its manufacturing capacity (of transmission towers) by almost 55% to 84,000 metric tonnes per annum. KPT's latest venture, the infrastructure (pipelines) division has grown at a 2-year CAGR of 285%. However, this segment's margins have been volatile (it earned EBIT margins of 12%, 4% and 8% in FY05, FY06 and FY07 respectively). The biomass energy division, which has a marginal share in KPT's revenues, has grown at a 3-year CAGR of 53%. This division earned a healthy EBIT margin of 33% in FY07 as compared to 22% in FY04. As per the 9mFY08 results, the T&D division's share has dipped to 86% while the infrastructure division has increased its share to 12%. The biomass division has seen its share in revenues maintained at just about 2%.

Operating expense analysis: Very much like any capital-intensive business, the raw material costs constitute a majority portion of KPT's expense pie. These expenses (as percentage of total costs) have been at around the 60% mark over the past few years (63% of the operating expenses in FY07). The manufacturing and operating expenses have contracted over the years, coming down from 31% of operating costs in FY03 to 25% in FY07.

*Note: The charts exclude any increase/ decrease in stock. Source: Company

Profitability analysis: KPT has managed to sustain and improved margins over the years due to reasons such as better-cost management and higher capacity utilisation (and thus economies of scale). Both the EBIDTA and PAT margins have managed to edge upwards to 17% and 10% respectively in FY07 from 13% to 5% in FY02. The company's realisations have also improved over the past few years due to strong demand for its services owing to higher government spending in the power infrastructure space with certain initiatives such as the Accelerated Power Development Reform Programme (APDRP) and Rajiv Gandhi Gramin Vidyut Yojana (RGGVY) coupled with the Planning Commission's thrust on 'Power for all by 2012'.

What to expect?
At the current price of Rs 1,107, the stock is trading at 17.9 times its trailing 12 months standalone earnings. We expect the growth prospects of KPT to remain strong over the next few years, considering the thrust on electrification, especially in the rural areas. While the actual implementation of the government's power sector plans has not been noteworthy till now, better times are expected for the future, if one is to go by the views of managements of engineering companies like KPT.

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