INSTITUTIONAL EQUITY RESEARCH Kalpataru Power (KPP IN ...backoffice.phillipcapital.in/Backoffice/Research... · divestment of the T&D assets, sale of the Indore real-estate project,

INSTITUTIONAL EQUITY RESEARCH

Page | 1 | PHILLIPCAPITAL INDIA RESEARCH

Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.

Kalpataru Power (KPP IN)

A play on multiple end markets and improving capital allocation INDIA | CAPITAL GOODS | INITIATING COVERAGE

13 June 2019

We initiate coverage on Kalpataru Power Transmission (KPP), a leading T&D equipment and infrastructure conglomerate with a BUY rating and an SOTP-based target price of Rs 670. KPP is a unique play on key infrastructure-sector segments, backed by a management that has consistently demonstrated its ability to incubate new businesses, expand margins, and manage working capital. A major drag on KPP so far has been its capital deployment into asset-ownership and non-core diversification, which we believe should peak and reverse in FY21, leading to a substantial release of cash. We estimate healthy 19% CAGR in FY19-22 earnings, while the stock trades at 12x FY21 PE against its long-term average 16x.

KPP a play on US$ 117bn of opportunities over the next 3-5 years: Kalpataru and its subsidiary JMC are plays on opportunities in seven key infrastructure segments in India and abroad. We estimate US$ 117bn of identifiable new order opportunities for KPP over the next 3-5 years, which should help deliver 15% CAGR in FY19-22 revenues. Its management has demonstrated its ability to increase its presence in new segments without losing focus on margins and cash flows. In the past 20 years, the company has successfully incubated its oil & gas pipeline, railways, and more recently, water segments. This gives us confidence that it is best-placed to mitigate the risk of a structural slowdown in domestic T&D investments from FY23.

Focused approach to margins and working capital have yielded results: One of the key highlights of KPP’s performance in the past ten years has been its ability to maintain profitability in a tight band of c.150bps (peak to trough) even as it grew its non T&D business over this period to 30% of sales from 10%. As these relatively new businesses now achieve critical mass, their profitability should converge with T&D margins, leading to further scope for margin expansion; however, we have baked in flat margins over FY19-22. Similarly, JMC’s focus on improving ‘bid’ margins (at the expense of revenues) and on cost-optimisation in the past five years resulted in a c. 400bps expansion in margins. Its measured entry into international markets (higher margins) should provide upside; however, as we build in flat margins for JMC over FY9-22, we believe there is upside risks to our estimates particularly on margin assumptions. Even on working capital (ex-loans to subsidiaries and acceptances) KPP has demonstrated its control with intensity to sales reducing to c. 25% in FY18-19 from c. 40% in FY15-17.

To set right its capital allocation history with asset sales – a rerating catalyst: In the past ten years, KPP and JMC combined have invested Rs 17bn of their cash flows into subsidiaries – four transmission (T&D) assets, four BOT road projects, a warehousing solutions provider, and two real estate projects. Equity funding and loans to these projects accounted for 36% of KPP + JMC FY18 capital employed; these investments, barring T&D, have not yielded returns and have been a drag on KPP’s valuation. We now expect that the proposed divestment of the T&D assets, sale of the Indore real-estate project, and refinancing of debt in road projects should release equity and reduce further cash outflow from the parent.

Initiate coverage with a BUY rating: We initiate coverage on KPP with a BUY and an SOTP-based target price of Rs 670. We believe India lacks midsized conglomerates that can build on opportunities in multiple segments of the infrastructure sector – that will be driven by formalisation. We identify KPP as one such candidate. It offers a play in seven high-growth end markets. It has managed margin and working capital volatility across cycles. Backed by a strong order book, at 2.3x TTM sales, earnings should see 19% CAGR FY19-22. The stock currently trades at below average valuations. Release of equity through assets sales will be a key re-rating trigger.

Key risks to our thesis are a structural slowdown in domestic Power T&D capex, resumption of equity infusion in non-strategic assets, and higher loss funding in roads.

BUY CMP RS 488 TARGET RS 670 (37%)

COMPANY DATA

O/S SHARES (MN) : 153

MARKET CAP (RSBN) : 75

MARKET CAP (USDBN) : 1.1

52 - WK HI/LO (RS) : 546 / 269

LIQUIDITY 3M (USDMN) : 0.8

PAR VALUE (RS) : 2

SHARE HOLDING PATTERN, %

Mar 19 Dec 18 Sep 18

PROMOTERS : 59.3 59.3 59.3

FII / NRI : 4.4 4.7 4.7

FI / MF : 25.3 24.4 22.9

NON PRO : 1.4 1.4 1.9

PUBLIC & OTHERS : 9.7 10.2 11.2

KEY FINANCIALS

Rs bn FY19 FY20E FY21E

Net Sales 108.40 124.84 142.04 EBIDTA 13.47 15.05 17.26 Net Profit 4.67 5.04 6.38 EPS, Rs 30.4 32.9 41.6 PER, x 16.0 14.8 11.7 EV/EBIDTA, x 8.0 6.3 5.3 P/BV, x 2.4 2.1 1.8 ROE, % 16.1 15.2 16.9 Total debt/Equity (%) 108.5 69.7 52.9

PRICE PERFORMANCE, %

1MTH 3MTH 1YR

ABS 7.8 23.9 12.0

REL TO BSE 1.6 15.5 -0.3

PRICE VS. SENSEX

Source: Phillip Capital India Research

Jonas Bhutta, Research Analyst (+ 9122 6246 4119) [email protected] Vikram Rawat, Research Associate (+ 9122 6246 4120) [email protected]

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Kalpataru Power BSE Sensex

mailto:[email protected]

mailto:[email protected]


KALPATARU POWER INITIATING COVERAGE

Focus charts and tables

We identify US$ 117bn of opportunities for KPP group over the next 3-5 years; this excludes international T&D…

Source: Company, PhillipCapital India Research

…leading to a steady growth in order inflows

We build in flat margins for KPP and JMC, though there are upside risks


KPP managed its working capital intensity well

However, its capital allocation to subsidiaries (36% of FY19 networth) has been poor…


JMC

Buildings & factories(US$ 6bn)

Metro(US$ 18bn)

Water & Irrigation(US$ 18bn)

Roads(US $ 25bn)

Domestic Power T&D(US$ 18bn)

Railways (US$ 25bn)

Oil & gas - pipelines(US$ 6bn)

KPTL

Overseas Power T&D

93.4 83.4 98.4

111.3 119.8

33.4 56.3

56.9

62.6 69.2

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(Rs bn) Order inflows (Rs bn)

KPP JMC

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EBITDA margin (%) KPP (CS) KPP (SA) JMC (SA)

20%

25%

30%

35%

40%

45%

50%

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NWC % of Sales (ex-cash, loans & acceptances)

KPP (SA) KEC (SA)

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20%

25%

30%

35%

40%

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FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

(Rs bn) KPP JMC % of Cap. employed (adj.)



…impacting its valuations

Now KPP is changing track with asset sales; this should lead to equity being released and rerating of valuations (Rs mn) FY18 FY19 FY20E FY21E FY22E FY23E

Kalpataru Power

Shree Shubham 639 1,299 1,940 1,940 2,060 2,300 Amber Real Estate 1,413 153 153 153 153 153 Saicharan Properties 2,696 2,916 3,146 3,446 - - Kalpataru (Mauritius) 77 77 77 77 77 77 Kalpataru Satpura 60 60 - - - - Alipurduar 355 355 - - - - Kohima Mariani 251 251 251 251 - - Jhajjar KT Transco 37 37 - - - - Adeshwar Infrabuild 2 2 2 2 2 2 Total (A) 5,529 5,150 5,569 5,869 2,292 2,532

JMC Projects

JMC Mining 7 7 7 7 7 7 Brij Bhoomi 300 366 405 481 509 492 Wainganga 680 680 906 1,302 1,492 1,660 Vindhyachal 505 558 669 945 1,147 1,230 Kurukshetra 1,380 1,667 2,101 2,521 2,885 3,232 Total (B) 2,872 3,278 4,088 5,257 6,040 6,622

Total (A + B) 8,402 8,428 9,657 11,126 8,332 9,154


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KPP vs. KEC Funding to subs (mn)



Valuation

SOTP-based target price of Rs 670 We value KPP using sum-of-parts.

KPP standalone accounts for 80% of our SOTP value.

KPP standalone: We ascribe a 14x target PE to our FY21 earnings, in line with our valuation for KEC (13x), to arrive at a value of Rs 528/share.

JMC: This accounts for 10% of our SOTP at Rs 68/share, after applying a 20% holding company discount. Within JMC, we have valued road projects based on the likely loss funding requirement over the next five years, leading to a negative value of Rs 11/share. We have valued JMC standalone at 12x PE FY21E, in line with peers in the construction industry.

Other major contributors to the target price are transmission SPVs (Rs 34/share) assuming a 10% profit on invested equity and Indore Real Estate (Rs 26/share) at book value.

KPP: Sum-of-the-parts valuation KPTL's Multiple Total Value Holdco KPTL's value Value

Subsidiary or business stake (%) Valuation basis or CoE (Rs bn) disc (%) (Rs bn) (Rs/sh)

KPP (parent ex-subs dividend) 100% PE - FY21E 14.0 80.9

80.9 528

JMC standalone 67% PE - FY21E 12.0 22.8 20% 12.3 80

Brij Bhoomi expressway 67% Loss funding FY20-24E

(0.1) 20% (0.1) (0)

Wainganga expressway 67% Loss funding FY20-24E

(1.1) 20% (0.6) (4)

Vindhyachal expressway 67% Loss funding FY20-24E

(0.9) 20% (0.5) (3)

Kurukshetra expressway 33% Loss funding FY20-24E

(1.9) 20% (0.5) (3)

JMC Total

18.8

10.6 69

Shree Shubham Logistics 80% PE - FY21E 8.0 0.3

0.2 1

Linjemontage 85% At acquisition value

1.7 0% 1.4 9

Transmission SPVs 100%

5.2 0% 5.2 34

Real Estate (Indore) 100% At Cash value

4.0 0% 4.0 26

Total SOTP value

110.9

102.4 668

Source: PhillipCapital India Research

KPP currently trades below its long term average PE. Asset sales would be a re-rating trigger…

JMC trades close to +1SD, reflective of strong earnings growth in FY19-22

Source: Bloomberg, PhillipCapital India Research

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KPP 1yr fwd PE (x) Avg +1SD -1SD

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JMC 1yr fwd PE (x) Avg +1SD -1SD



Peer comparison PC CMP TP Return Shares M. cap PE (x) EV / EBITDA (x) RoE (%)

Rating (Rs) (Rs) (%) (mn) (Rs bn) FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E

KPP (C) Buy 488 670 37% 153 75 16.0 14.8 11.7 8.1 6.4 5.4 16.1% 15.2% 16.9%

KEC (C) Buy 324 365 13% 257 83 17.1 13.4 11.5 8.6 7.7 6.6 21.9% 22.8% 21.8%

JMC (SA) NR 136 na na 168 23 16.1 14.6 12.0 8.7 7.2 6.2 16.6% 15.7% 16.5%

Sadbhav Engg Buy 265 300 13% 172 45 24.3 22.0 18.0 13.7 12.4 10.6 9.2% 9.2% 10.2%

NCC Buy 98 170 74% 601 59 10.4 9.1 7.5 5.3 5.0 4.3 11.9% 12.2% 13.2%

ITD SELL 112 90 -19% 172 19 23.1 20.2 14.7 7.4 8.4 6.9 8.1% 8.6% 10.6%

Ahluwalia Buy 335 405 21% 67 22 19.1 14.7 12.4 9.7 7.5 6.3 15.9% 17.2% 16.9%

Capacite* na 270 na na 68 18 19.2 15.2 11.9 7.5 5.8 4.6 12.0% 13.2% 14.6%

PSP Projects* na 528 na na 36 19 21.1 16.4 13.3 11.4 8.8 7.0 26.8% 27.8% 27.2%

Average

206 19.0 16.0 12.8 9.1 7.9 6.6 14.4% 14.8% 15.6%

Sales (Rs bn) EBITDA (Rs bn) EBITDA margin (%) Rec PAT (Rs bn) CAGR FY19-21E

FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E FY19 FY20E FY21E Sales EBITDA PAT

KPP (C) 108.4 124.8 142.0 13.5 15.0 17.3 12.4% 12.1% 12.2% 4.7 5.0 6.4 14% 13% 17%

KEC (C) 110.0 127.5 145.6 11.5 13.5 15.5 10.5% 10.6% 10.7% 4.9 6.2 7.2 15% 16% 22%

JMC (SA) 32.5 38.2 44.3 3.4 4.0 4.6 10.4% 10.4% 10.3% 1.4 1.6 1.9 17% 16% 16%

Sadbhav Engg 35.5 40.8 46.9 4.3 4.7 5.4 12.1% 11.5% 11.5% 1.9 2.1 2.5 15% 12% 16%

NCC 120.8 132.9 152.8 14.2 14.9 17.2 11.8% 11.3% 11.3% 5.6 6.4 7.9 12% 10% 18%

ITD 31.7 31.3 36.3 3.2 3.0 3.8 10.0% 9.5% 10.5% 0.8 0.9 1.3 7% 10% 25%

Ahluwalia 17.5 20.2 23.6 2.2 2.7 3.1 12.3% 13.3% 13.3% 1.2 1.5 1.8 16% 20% 24%

Capacite* 17.9 21.8 26.1 2.5 3.2 3.8 13.9% 14.5% 14.6% 1.0 1.2 1.5 21% 24% 27%

PSP Projects* 10.4 14.2 17.4 1.5 1.9 2.4 14.3% 13.6% 13.6% 0.9 1.2 1.4 29% 26% 26%

Total / Avg 266.3 299.3 347.4 31.2 34.4 40.3 11.7% 11.5% 11.6% 12.8 14.9 18.4 14% 14% 20%

Source: PhillipCapital India Research, *Bloomberg consensus



Investment thesis

KPP to benefit from its diversified sector reach KPP, including JMC, offers investors a unique opportunity to play the capex cycle in seven key segments in India and abroad. We estimate a total US$ 117bn identifiable business opportunity for KPP over the next 3-5 years. This should help grow its consolidated orderbook to Rs 347bn by FY22 from Rs 240bn in FY19 – 13% CAGR.

Additionally, the multi-sector exposure allows KPP to offset slowdown in a particular end market. This was best seen in FY18-19, where railways and oil & gas pipelines mitigated the weak inflows from power T&D.

We identify US$ 117bn of opportunities for KPP group over the next 3-5 years; this excludes international T&D


Our bottom up assumptions for sizing KPP’s market opportunity (Rs bn) (US$ bn) Remarks

Domestic T&D Inter-state GEC for 66.5GW capacity 665 10 Assumed Rs 10bn/GW; Rs 120bn under tendering; Rs 30bn projects by PGCIL and balance under TBCB

Intra-state T&D 600 9 Assumed Rs 200bn ordering by State Transcos annually

Total 1,265 18 Railways

New lines 872 12 Based on FY20 budgeted expenditure for respective segments; annualised for three years

Doubling 528 8

Gauge conversion 94 1

Electrification 227 3

S&T 40 1 Assumed capex on ECTS-2 in next three years

Total 1,761 25 Oil & gas

Natural gas pipeline 210 3 Six projects of 4,400km including Rs93bn North East grid and Rs 63bn Mumbai-Angul pipelines

Oil products pipeline 220 3 Seven projects of 5,337km including Rs 90bn Kandla-Gorakhpur and Rs 54 Paradip-Numaligarh pipelines

Total 430 6 Building & factories

Identified with some key clients 204 3 Assumed Rs 1,200/sqft for 170mn sq. ft. area identified with key clients

Additional opportunity (unidentified) 102 1 Assumed 50% of the identified opportunities

Residential & commercial buildings 305 4 AIIMS under PMSSY 116 2 Eight new AIIMS and expansion of AIIMS Delhi approved under PMSSY

Total 421 6 Metro

Projects approved by CCEA 574 8 Assumed 50% EPC opportunity from nine metro projects of Rs 1.15tn (347km) incl. Delhi-Meerut RRTS

Projects under consideration 706 10 Assumed 50% EPC opportunity from 12 metro projects of Rs 1.4tn (416km)

Total 1,280 18 Roads

Bharatmala Phase-1 1,783 25 Assumed 1/3rd of Rs 5.35tn Bharatmala phase-1 will be awarded under EPC mode

JMC

Buildings & factories(US$ 6bn)

Metro(US$ 18bn)

Water & Irrigation(US$ 18bn)

Roads(US $ 25bn)

Domestic Power T&D(US$ 18bn)

Railways (US$ 25bn)

Oil & gas - pipelines(US$ 6bn)

KPTL

Overseas Power T&D



Water & Irrigation Inter-state river-linking projects 241 3 Assumed 50% EPC opportunity from three projects for which DPRs have been completed

Intra-state river-linking projects 252 4 Assumed 50% EPC opportunity from six projects across Maharashtra, Bihar & TN (DPR completed or u/p)

State Irrigation projects 750 11 Assumed Rs 250bn for 3 years – 25% of Rs 1tn annual capex of 15 key states

Total 1,243 18 Total opportunity pipeline 8,183 117 Source: PhillipCapital India Research

KPP reduced its dependence on T&D, with orders from oil & gas pipelines and railway sectors…

… spurring a c.30% CAGR in FY15-19 orderbook


A large order in the water sector skews JMC’s order inflow towards infra, but B&F also remains strong

JMC’s orderbook CAGR over FY15-19 is 15%


80% 86% 86%

59% 50%

16% 6% 4%

23%

19%

3% 9% 9% 18%

31%

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60%

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100%

FY15 FY16 FY17 FY18 FY19

Power T&D O&G (pipeline) Railways

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(Rs bn) Order book - KPTL

29% CAGR

95%

68% 68% 79%

44%

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32% 32% 21%

56%

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B&F Infra

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Domestic T&D ordering to revive, led by the Green Energy Corridor Over FY17-18, orders from PGCIL and those from tariff-based competitively bid (TBCB) projects declined sharply due to the pipeline of projects shrinking, and a lack of interest from the private sector and financial institutions. However, we expect a pickup in ordering activity driven by orders for the Green Energy Corridor Phase-2 in India and continued investments by state transmission companies to build and upgrade their intra-state grids (highlighted in our recent sector update report on the power transmission sector; click here to read it). In the international market, we expect a grid build-out in Bangladesh to drive new orders in South East Asia, while capex in MENA and CIS continue at their original pace. Rs 235bn of transmission to be awarded over the next two years in India... India has set up a plan to develop power transmission for the proposed 66GW of renewable power capacity likely to be commissioned over the next five years. In the first tranche, The Empowered Committee on Transmission recently approved Rs 115bn of projects. This is in addition to Rs 65bn of projects already under competitive bidding (Rs 53bn inter-state and Rs 12bn intra-state), and Rs 55bn of projects for which award timelines are not yet fixed. This makes the total pipeline Rs 235bn over the next two years. These projects will help evacuation of 28GW of renewable power, mostly from western and northern India. Majority of these projects will be competitively bid, and only Rs 27bn are nominated for PGCIL. However, PGCIL is likely to be a major beneficiary, even under the competitive bidding route. ...after which a further Rs 350-400bn opportunity awaits Once this pipeline of projects are awarded, the committee will take up evacuation for the balance 38.5GW, which should theoretically throw up another opportunity of Rs 350-400bn. Taking the total opportunity from the green energy corridors to Rs 585bn over the next five years.

PGCIL’s investment approvals have significantly declined in FY18-19...

...which has had a telling effect on its project awards


260

135

211

392

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132

364

40 30

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(Rs bn) PGCIL Investments approval

144 123 131

222

137

109

170 167 191

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Ordering ex-HVDC HVDC ordering

http://backoffice.phillipcapital.in/Backoffice/Researchfiles/PC_-_Capital_Goods_Update_-_TnD_Feb_2019_20190219113849.pdf



Awards of TBCB have also sharply declined

We now see Rs 235bn of ordering opportunity in the domestic T&D market over the next two years...


Channel checks suggest high probability of these projects going through In our effort to analyse the viability of the green corridor projects, given recent cancellations of auctions for renewable power projects and continued weak operating performance of counter parties (state electricity boards), we interacted with various stakeholders such as Solar Energy Corporation (SECI), CEA, PGCIL, private IPP’s and equipment suppliers. Based on feedback, we gather that there is still a robust appetite for renewable projects. We estimate 25GW of auctions to come up for bidding over 12-18 months, which would require evacuation systems. Effort by certain SEBs to put tariff caps and the recent general elections resulted in a temporary slowdown in bidding activity. From our interactions, we gathered that renewable project developers prefer ISTS (inter-state transmission system)-routed projects against solar-park-based projects; hence, there has been a concentration of solar projects in Rajasthan and wind projects in Gujarat. This should lead to capex for transmission for 28GW coming up in Bhadla, Fatehgarh, and Bikaner in Rajasthan and Bhuj, Lakadia, and Dwarka in Gujarat. This is a change in transmission planning, which was earlier geared up for the solar park model; under this, evacuation facilities were set up in Rewa (MP) and Kunta (AP) to meet expected demand from likely capacity addition in those areas.

Transmission systems for Gujarat renewable energy zones

Transmission system for Rajasthan renewable energy zones

Source: Ministry of Power, PhillipCapital India Research

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(Rs bn) TBCB awards

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55 235

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ISTS TBCB u/bid

New TBCB u/GEC

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Total

(Rs bn)



GEC plans to connect 66.5GW of RE projects, of which 28GW would be executed in FY20-21 Solar Zone (MW) Wind Zone (MW) Total (MW) Project location 2020 2021 Total 2020 2021 Total 2020 2021 Total

Ramgarh, Jaisalmer 2.5 1.5 4.0 - - - 2.5 1.5 4.0

Fatehgarh, Jaisalmer 2.5 1.5 4.0 - - - 2.5 1.5 4.0

Phalodi, Jodhpur 2.0 1.0 3.0 - - - 2.0 1.0 3.0

Koyalat/Pugal, Bikaner 3.0 1.0 4.0 - - - 3.0 1.0 4.0

Barmer - 5.0 5.0 - - - - 5.0 5.0

Rajasthan 10.0 10.0 20.0 - - - 10.0 10.0 20.0

Raigarh 2.5 - 2.5 - - - 2.5 - 2.5

Khandwa - 2.5 2.5 - - - - 2.5 2.5

Madhya Pradesh 2.5 2.5 5.0 - - - 2.5 2.5 5.0

Rapar, Kutch 3.0 2.0 5.0 - - - 3.0 2.0 5.0

Vav/Tharad, Banaskantha - 2.5 2.5 - - - - 2.5 2.5

Lalpur, Jamnagar 1.0 1.5 2.5 - - - 1.0 1.5 2.5

Bhuj, Kutch - - - - 2.0 2.0 - 2.0 2.0

Lakadiya, Kutch - - - 2.0 - 2.0 2.0 - 2.0

Dwarka - - - 1.0 1.0 2.0 1.0 1.0 2.0

Gujarat 4.0 6.0 10.0 3.0 3.0 6.0 7.0 9.0 16.0

Solapur 1.0 1.5 2.5 - - - 1.0 1.5 2.5

Wardha - 2.5 2.5 - - - - 2.5 2.5

Osmanabad - - - - 2.0 2.0 - 2.0 2.0

Maharashtra 1.0 4.0 5.0 - 2.0 2.0 1.0 6.0 7.0

Gooty, Kurool 2.5 - 2.5 - - - 2.5 - 2.5

Urvakonda, Ananthpuram - 2.5 2.5 - - - - 2.5 2.5

Kurnool - - - 2.0 1.0 3.0 2.0 1.0 3.0

Andhra Pradesh 2.5 2.5 5.0 2.0 1.0 3.0 4.5 3.5 8.0

Gadag - 2.5 2.5 - - - - 2.5 2.5

Bidar - 2.5 2.5 - - - - 2.5 2.5

Koppal - - - 2.5 - 2.5 2.5 - 2.5

Karnataka - 5.0 5.0 2.5 - 2.5 2.5 5.0 7.5

Karur - - - 1.5 1.0 2.5 1.5 1.0 2.5

Tirunelveli - - - - 0.5 0.5 - 0.5 0.5

Tamil Nadu - - - 1.5 1.5 3.0 1.5 1.5 3.0

Total 20.0 30.0 50.0 9.0 7.5 16.5 29.0 37.5 66.5


25GW of RE projects under tendering; should be awarded over 12-18 months Project details Capacity (MW)

Hybrid Wind-Solar Projects

ISTS connected Wind-Solar Hybrid Power projects (Tranche -II) 1,200

Wind Projects

ISTS connected Wind Project (Tranche - VII) 1,200

ISTS connected Wind project (Tranche-VIII) 1,800

Solar Projects

Leh-Kargil Ultra Mega Solar PV project 7,500

ISTS connected Solar PV projects (ISTS-III) 1,200

ISTS connected Solar PV project linked with 1.5GW solar manufacturing (Phase-II) 3,000

Grid connected Rooftop Solar PV for Government buildings 98

ISTS connected Solar PV project in MP (ISTS - IV) 1,200

Solar PV project under CPSU scheme Phase-II (Tranche-I) 2,000

Solar PV project at Kasargod Solar Park, Kerala 50

Grid connected Solar PV project in North East India under JNNSM Phase-II, Batch IV 1,000

Grid connected Solar PV project in Rajasthan (Tranche-II Non Solar Park) 750

Grid connected Solar PV project in Tamil Nadu (Phase-1 Non Solar Park) 500

Floating Solar PV project - Getalsud Dam (100MW) and Dhurwa Dam at Ranchi 150

Floating Solar PV project in Tamil Nadu 250

ISTS connected Solar project in MP (ISTS-VI) 1,200

Grid connected Solar projects with battery storage Andhra Pradesh 200

275MW grid connected Solar PV project in UP Solar Park 275

1.2GW ISTS connected Solar project with 3600MWHr storage (ISTS-V) 1,200

100 MW (AC) Solar PV at SCCL, Telangana 100

Total 24,873




Bangladesh network build out offers US$ 5.4bn prospects Based on our analysis of the capex plans of the Power Grid Company of Bangladesh (PGCB), we have identified projects worth Rs 380bn (US$ 5.4bn) that would come up for bidding over the next two years. We arrive at this opportunity after excluding US$ 2.3bn projects that are funded by Chinese and Korean agencies, as companies from these countries would be natural beneficiaries of orders for these projects.

Building the Bangladesh power grid offers a US$ 5.4bn opportunity for Indian T&D players Total cost

Funding agency (Rs bn)

Funded by Indian LOC 151

WB, ADB, AIIB, KfW 194

GOB & PGCB 35

Opportunity for Indian players 380

China funding 135

EDCF, South Korea 23

Total 538

KPP’s international T&D order inflows to see 18% CAGR


National gas grid will continue to fuel opportunities for pipelines Capex on building a national gas grid (that would help distribute gas from landing points to centres of consumption) has picked up in the recent past. As a result, in the past two years (FY18-19), KPP has won Rs 37bn of projects for pipelines (22% of cumulative standalone order inflows) compared to just Rs 7.6bn (6% of orders) in the preceding two years (FY16-17).

From the current length of 16,226kms and a carrying capacity of 368 MMSCMD, India’s pipeline capacity is expected to increase to 27,442kms in the next three years, based on projects currently under construction.

Over the next five years, we expect opportunities to come from upgrades of certain existing pipelines, construction of the 1,656km Indradhanush Northeast India Gas Grid (Rs 90bn) and transport pipelines.

Pace of annual order inflows from oil & gas pipelines has increased 4x over FY16-19

We expect Rs 430bn of new opportunities over the next three years Length (kms) Project cost (Rs bn)

Natural gas pipeline projects North-East Natural gas pipeline grid 1,656 93

Mumbai-Angul NG pipeline 1,400 63 Kanai Chhata - Shrirampur gas pipeline 250 10 Langtala - Jodhpur - Bhilwara NG pipeline 580 23 Srikakulam - Angul NG pipeline 390 16 Kukrahati-Itinda Natural gas pipeline 125 5 Total Natural gas pipelines 4,401 210

Oil products pipeline projects Kandla-Gorakhpur LPG pipeline 1,987 90

Guwahati-Silchar-Imphal product pipeline 610 25 Paradip-Somnathpur-Haldia Pipeline 330 11 Paradip to Numaligarh crude oil pipeline 1,398 54 Numaligarh - Siliguri expansion 654 26 Numaligarh - Dimapur -Imphal 304 12 Numaligarh- Gohpur-Itanagar 54 2 Total Oil product pipelines 5,337 220

Total 9,738 430


0

10

20

30

40

50

FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E

(Rs bn) Overseas Power T&D

18%

4.2

15.7

0

2

4

6

8

10

12

14

16

18

FY16 FY19

(Rs bn) O&G (Pipeline)

55%



Indradhanush – plans to build a gas grid in the northeast


Rail electrification and capacity augmentation still on a growth path Share of orders from the railway segment has increased to 33% of FY19 standalone order inflows from c.5% in FY15. For FY19-22, we estimate railways to contribute 36% of KPP’s order inflows. We expect large EPC contractors such as KPP to continue to benefit from ongoing capex of the Indian Railways on increasing rail electrification and its track capacity through new lines and doubling projects. In addition, KPP is also venturing into international markets such as Bangladesh and certain North African countries. In our interactions with PSU rail companies such as RITES, RVNL, and IRCON, we gathered that they have large unexecuted orderbooks and further visibility from railways on EPC projects that would be nominated onto them over the next 3-5 years. All companies expect to ramp up their ordering activities in 2HFY20 (post elections).

KPP’s railway segment has won orders from multiple agencies in the past four years (FY16-19)

KPP's opportunity pie in the railways sector has grown by 25% over FY14-20

(Rs bn) FY14 FY15 FY16 FY17 FY18 FY19 RE FY20 BE

New lines 58 71 202 144 92 265 291

Doubling 30 39 105 91 113 173 176

Gauge conversion 30 36 36 38 30 36 31

Electrification 13 14 23 29 41 74 76

Signalling & Telecom 9 10 9 10 13 13 18

Total 139 170 374 311 289 560 591


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40

50

60

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NL

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RE

PG

CIL

Oth

ers

Exp

ort

s

Tota

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(Rs bn)



Expect railway order inflows to grow 10% over FY19-22 on a high base


South India, healthcare infra to support JMC’s B&F orders Over the past 4-5 years, JMC's building & factory (B&F) division has shifted its focus to the south-India real-estate market to maintain quality of orderbook and moved away from a struggling north India (NCR) region. As a result the division managed healthy order inflows (average Rs 17bn per annum) in this period, with residential and commercial real-estate accounting for 75% of new orders, industries 13%, and government institutional buildings 12%. In residential & commercial real estate, 80% of new orders (60% of B&F) were from the south India market, mostly concentrated in projects in Bangalore from various developers. Our channel checks suggest that some of the key real estate developers (clients of JMC) have land banks of c.170mn sq. ft. yet to be launched. Assuming a construction cost of Rs 1,200 per sq. ft., it provides an opportunity of Rs 200bn only by these players; this is 10x of JMC's average B&F orders over the past four years. In government institutional buildings, we see opportunities from the central government’s focus on providing affordable healthcare and quality medical education across India under the Pradhan Mantri Swasthya Suraksha Yojana (PMSSY, launched in March 2006). In this scheme, the government is setting up AIIMS like institutions across various states in India and upgrading existing state government’s medical colleges and institutions. Out of the 22 new AIIMS approved so far under the scheme, six have been completed while eight are under construction. Our channel checks suggest that there is an opportunity of Rs 116bn over the next 1-2 years under PMSSY (including modernization and expansion of AIIMS Delhi).

JMC focuses on the south India real estate market; it contributed 60% of its new orders in FY16-19....

...mainly concentrated in Bangalore; various real estate developers

Developer Projects location Developer Projects location

Prestige Bangalore SJR Prime Bangalore

Brigade Bangalore Tata Housing Goa

Mantri Bangalore EMAAR Gurgaon

Puravankara Bangalore & Tamil Nadu

Adhiraj Mumbai

RMZ Group Bangalore Kalpataru Mumbai

Antevorta Bangalore Mahindra Lifespace

Pune

Sallarpuria Bangalore Xander Pune

Hiranandani Bangalore Aparna Vijaywada

Ozone Bangalore


0

5

10

15

20

25

30

35

40

FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E

(Rs bn)

10%

Industrial 13%

Institutional 12%

South India 61%

Rest of India 14%

Residential & comm. 75%

B&F Order inflows mix FY16-19



Rs 200bn construction opportunity from residential and commercial real-estate development, mostly in Bangalore Location Area (mn sqft)

Bangalore 123

Chennai 22

Others 24

Total Area 169

Average construction cost (Rs / sqft) 1,200

Opportunity (Rs bn) 203

Rs 116bn opportunity from new AIIMS under PMSSY Project Project cost (Rs bn) Schedule

AIIMS Deoghar 11 Feb-22

AIIMS Madurai (Thoppur) 13 Sep-22

AIIMS Bibinagar 10 Sep-22

AIIMS Samba (Jammu) 17 Jan-23

AIIMS Awantipora (Kashmir) 18 Jan-25

AIIMS Rajkot 12 Oct-22

AIIMS Manethi 13 Feb-22

AIIMS Bihar 12 na

AIIMS, New Delhi - expansion 10 na

Total 116

Source: Ministry of Health, PhillipCapital India Research

Robust metro capex to continue with Rs 2.5tn of projects Metro rail capex has seen a significant pick up after FY14, with 398km of lines added in FY15-19 (vs. 249km in FY02-14). Further, the government has approved 23 new projects of Rs 2.1tn for the implementation of 668km metro lines (including Rs 300bn Delhi-Meerut rapid rail transit system). We see a strong ordering pipeline from metro projects over the next 3-5 years with Rs 1.1tn of projects approved but yet to be awarded; an additional Rs 1.4tn of projects are under consideration for approval.

Rs 1.1tn of projects approved over the past 12 months should provide Rs 575bn EPC opportunity Project Length (km) Project cost (Rs bn)

Indore Metro - Ring line 32 75

Delhi Metro - Dilshad Garden - New Bus Adda Ghaziabad

9 18

Patna Metro Phase-1 31 134

Ahmadabad Metro Phase-2 28 54

Kanpur Metro Phase-1 32 111

Agra Metro Phase-1 30 84

Delhi Metro phase - 4 62 249

Surat Metro Phase-1 40 120

Delhi-Ghaziabad-Meerut RRTS 82 303

Total 347 1,147

EPC opportunity (assumed 50% of TPC)

574

Another Rs 1.4tn of projects under consideration will add Rs 700bn of EPC opportunities Project Length (km) Project cost (Rs bn)

Varanasi Metro 25 70

Merrut Metro 35 115

Gorakhpur Metro 27 48

Nashik Metro 28 18

Bangalore Metro - Phase-2A 17 42

Guwahati Metro 61 180

Amaravati/Vijaywada Metro 26 68

Visakhapatnam Metro 43 88

Kochi Metro Phase-2 11 26

Kozhikode Light Metro 13 25

Trivandrum Metro 22 42

Chennai Metro - Phase 2 108 690

Total 416 1,412

EPC opportunity (assumed 50% of TPC) 706

Source: MoHUA, PhillipCapital India Research

Bharatmala – a US$ 25bn growth highway The roads sector has seen a strong pick up in momentum from FY14. Over FY14-18, project awards rose >5x and execution by >2x. We expect this momentum to continue over the next five years, as the Bharatmala program gets underway while the National Highway Development Program phases out.

Bharatmala is a new umbrella program for the highways sector focusing on bridging critical infrastructure gaps by developing economic corridors, inter corridors and feeder routes, national corridor efficiency improvement, border and international connectivity roads, coastal and port connectivity roads and green-field expressways. Under phase-1 of the program, the government targets to execute 34,800kms of projects with an investment of Rs 5.3tn over FY18-22. We assume that even if 1/3rd of the total opportunity would be on EPC mode, it would imply an Rs 1.8tn (US$ 25bn) of target opportunity for JMC.



National highways construction and award improved significantly in the past five years...

...which will continue on execution of Bharatmala phase-1 Length (km) Outlay (Rs bn)

Economic corridors development 9,000 1,200

Inter-corridor & feeder roads 6,000 800

National Corridors Efficiency improvements: 5,000 1,000

Border & International connectivity roads 2,000 250

Coastal & port connectivity roads 2,000 200

Expressways 800 400

Bharat Mala - Phase-I 24,800 3,850

NHDP - balance work 10,000 1500

Total 34,800 5,350

EPC opportunity (assumed 1/3rd of total spend)

1,783

Source: MORTH, PhillipCapital India Research

River inter-linking to boost opportunity in water & irrigation In the past three years, JMC has extended its presence in the high-growth potential of the water & irrigation sector, which contributed c.40% of its FY19 new orders (vs. 6% in FY16). We expect US$ 7bn of opportunity over the next 3-5 years, which will be driven by a pick-up in award activities of river-linking projects. This will be in addition to US$ 11bn regular state government spending on developing irrigation infrastructure.

JMC is focusing on the high growth water & irrigation sector; it contributed 40% of its order inflows (vs. 6% in FY16)...

...we expect US$ 18bn of opportunities over the next 3-5 years (Rs bn)

Identified National Rivers linking projects 481

Identified Intra-state Rivers linking projects 505

Total Opportunity from Rivers inter-linking 986

EPC opportunity in Rivers linking (assumed 50%) 493

State Irrigation projects (25% of annual capex) 750

Total opportunity 1,243 Total opportunity (US$ bn) 18


Expect Rs 1tn of projects to be awarded in both inter-state/ intra-state river-linking projects over the next 3-5 years...

Project Project costs

(Rs bn)

Inter-state river linking Ken-Betwa link - Phase-I

349 Ken-Betwa link - Phase-II

Damanganga-Pinjal link 30

Par-Tapi-Narmada link 102

Total (A) 481

Intra-state river link project Burhi Gandak-Noon-Baya-Ganga link, MAH 42

Kosi-Mechi link, MAH 29

Ponnaiyar-Palar link, TN 6

Wainganga (Gosikhurd)-Nalganga(Purna/Tapi) link, MAH 149

Damanganga (Ekdare)-Godavari link, MAH 9

Damanganga - Vaitarna - Godavari link, MAH 269

Total (B) 505

Total 986

...in addition to the state government’s regular spend on irrigation infrastructure

States (Rs bn) FY14 FY15 FY16 FY17 FY18BE

AP 31 43 46 74 121

Bihar 18 17 19 17 31

Chattisgarh 17 15 23 22 26

Gujarat 68 77 83 81 94

Haryana 9 10 5 6 8

Karnataka 64 78 74 90 133

MP 45 41 65 83 94

Maharashtra 79 70 86 85 56

Odisha 22 29 41 57 71

Punjab 4 7 8 16 9

Rajasthan 11 13 14 20 24

Tamil Nadu 10 12 11 15 29

Telangana - - 95 146 227

Uttar Pradesh 30 41 58 66 41

West Bengal 7 14 22 14 22

Total 414 465 650 791 984

Source: MoWR, States' Budget, PhillipCapital India Research

0

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15,000

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FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

(km) NHs awarded (km) NHs constructed (km)

0%

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30%

40%

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25

FY16 FY17 FY18 FY19

(Rs bn) Water & irrigation % of JMC order inflows



Strong focus on margins and working capital One of the company’s key strengths – that is often not highlighted – is the management’s focus on cash-flow management for its core business, excluding loans to subsidiaries and margins in Kalpataru (standalone) and JMC (standalone).

Cost cuts and operating leverage have helped margins so far… KPP’s management has demonstrated its ability to expand EBITDA margins by 50bps in the standalone operations over the past five years (FY14-19); unadjusted for forex volatility, margins expanded 140bps. This is even as it incubated/grew its non T&D businesses (pipeline and railways). Sales contribution of non-T&D segments grew to 35% in FY19 from just 7% of sales in FY14. Operating leverage helped KPP increase its margins, despite gross margins declining by 210bps over this period – which reflects a weaker sales mix and raw material cost pressures. Similarly, in JMC, the management has focused on improving overall bid margins along with cost optimisation. So even as sales saw a modest 4% CAGR in the past five years, margins expanded 380bps to 10.4%, the highest since 2000.

KPP’s margins expanded despite the growing contribution of new segments such as railways

JMC sacrificed revenue growth to improve its bid margins and implemented cost-optimizations measures


…there is further scope for improvement We believe: (1) KPP has now achieved critical mass in its non-T&D business, particularly in railways, where the industry is in the process of developing a vendor base to take on larger projects, and (2) margins of these businesses (on a corporate level) will close the gap with its T&D operations. The current difference between T&D and non-T&D margins is c.200bps, which can narrow to c.100bps on a stabilised cost structure. For JMC, a calibrated focus on projects outside India and more benefits from cost optimisation initiatives can lead to higher margins. However, we have not baked in any margin expansion into our estimates for either KPP standalone or JMC and to that extent, there is an upside risk to our estimates.

72% 70% 70% 70% 72% 74%

6% 7% 7% 6% 6% 6% 11% 13% 12% 13% 11% 9%

10% 10% 11% 11% 11% 11%

0%

20%

40%

60%

80%

100%

FY14 FY15 FY16 FY17 FY18 FY19

COGS Employee costs Other expenses EBITDA margin

0%

5%

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25%

30%

0

10

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30

40

FY14 FY15 FY16 FY17 FY18 FY19

(Rs bn) JMC (SA) Revenues (Rs bn) Gross margin (%)

EBITDA margin (%)



KPP to set right its capital allocation with asset sales KPP’s focus on asset ownership has historically been a drag on cash flow... In the past ten years (FY09-19) KPP and JMC have invested Rs 17bn of their cash flows into subsidiaries viz. four transmission assets (Rs 3.1bn), four BOT road projects (Rs 7bn), Shree Shubham (SSL) – a warehousing solutions provider (Rs 1.9bn), and two real estate projects (Rs 4.6bn). Equity funding and loans to these projects accounted for 36% of KPP+JMC FY18 capital employed (15% in FY11). Many of these investments have not yielded returns commensurate with the parent entity’s (KPP and JMC’s average ROE was 13-16%). This is particularly true for road projects, which require funding by JMC to meet debt repayments (all four projects are currently loss making) and for SSL, which incurred a cumulative loss of Rs 1.8bn in the past four years (FY16-19) and needed a capital infusion by KPP. KPP’s capital deployment towards BOT assets and non-core businesses such as warehousing and real estate squeezed its valuations. As a result, its historical premium to its closet peer, KEC, reduced over the past five years.

As of FY18, KPP has invested 36% of its networth in its subs… (Rs mn) Equity & Pref. Loans Total

Shree Shubham Logistics 1,280 639 1,918

- Amber Real Estate 10 1,413 1,423

- Saicharan Properties* 520 2,696 3,216

Real Estate projects 530 4,109 4,639

- Kalpataru Satpura 565 60 625

- Alipurduar Transmission 1,450 355 1,806

- Kohima-Mariani Transmission 0 251 251

- Jhajjar KT Transco 382 37 418

Transco SPVs 2,397 703 3,100

Kalpataru Metfab 220 - 220

Kalpataru Mauritius 29 77 106

Total Investments 4,456 5,527 9,983

% of KPP standalone Networth 16% 20% 36%

% of KPP standalone Cap. employed 13% 16% 28%

… while JMC has an equivalent of 90% of its networth in road SPVs (Rs mn) Equity Sub-debt Loans Total

Brij Bhoomi 228 197 300 725

Wainganga 303 697 680 1,681

Vindhyachal 275 1,476 505 2,257

Kurukshetra 983 - 1,380 2,362

Total Investments 1,788 2,371 2,865 7,024

% of JMC standalone Networth 23% 30% 36% 89%

% of JMC standalone Cap. employed 12% 16% 19% 47%


Total funding to subs accounts for 36% of KPP + JMC’s capital employed…

…and most of its investments have been a drag on earnings


10%

15%

20%

25%

30%

35%

40%

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5

10

15

20

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

(Rs bn) KPP JMC % of Cap. employed (adj.)

3.22

2.81

0.71 0.08 0.30 0.53

0.38

-

1.0

2.0

3.0

4.0

5.0

KPP (SA) JMC (SA) Transcos SSL Road SPVs

Inter-group

KPP (CS)

(Rs bn) KPP FY18 - PAT Reconciliation

-13%



Road assets have been the biggest drain… (Rs mn) FY16 FY17 FY18

Revenue Brij Bhoomi 305 331 286

Wainganga 412 486 497

Vindhyachal 1,741 620 542

Kurukshetra* 745 922 1,090

EBITDA Brij Bhoomi 175 186 150

Wainganga 292 331 411

Vindhyachal 345 397 388

Kurukshetra* 537 571 738

PAT Brij Bhoomi (140) (126) (95)

Wainganga (528) (433) (387)

Vindhyachal (40) (84) (77)

Kurukshetra* (787) (716) (458)

…while T&D BOOT projects have marginally contributed to earnings (Rs mn) FY16 FY17 FY18

Revenue Kalpataru Satpura Transco 278 271 274

Jhajjar KT Transco* 425 406 413

EBITDA Kalpataru Satpura Transco 256 243 244

Jhajjar KT Transco* na 328 329

PAT Kalpataru Satpura Transco 36 44 20

Jhajjar KT Transco* 49 78 125

Source: Company, PhillipCapital India Research, *reported on JV as whole

SSL is in transition; its business model is changing (Rs mn) FY15 FY16 FY17 FY18 FY19E

Revenues 3,140 2,489 559 686 1,235

% yoy -15% -21% -78% 23% 80%

EBITDA 628 5 (166) 119 364

EBITDA margin (%) 20% 0% -30% 17% 29%

PAT 118 (429) (753) (415) (154)

KPP’s valuation against KEC fell as its funding to subsidiaries was rising


...but it is on course-correction mode We believe that KPP’s investments in its subsidiaries should peak in FY21 and progressively reduce to 20% of capital employed by FY25, based on: 1. Divestment of its four transmission assets over FY20-21, leading to a capital of Rs

4.4bn being released. 2. Delivery of its real-estate project in Indore in FY21 should provide additional

returns of Rs 4.0-4.5bn. 3. SSL achieving PAT breakeven in FY20. 4. JMC refinancing loans of its roads projects. As equity of c.Rs 8.5-9.0bn is released from divestures, KPP will look to part-repay borrowings and invest in inorganic activities to increase its geographic presence. Case in point is the acquisition of Linjemontage (a Swedish power solutions company) to gain access to the Nordic region, or enter a new market segment. From FY21, we expect only road projects to be a drag on JMC’s financials, as the impact of deferred premium payouts will (more than offset) any positives of lower interest costs. These actions will help release substantial cash and re-rate the stock.

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KPP vs. KEC Funding to subs (mn)



We assume a 10% gain on invested equity on sale of T&D assets

(Rs mn) KPTL

stake (%) Equity

FY19 Gain

@ 10% Net

gain Deal Eq

value

Kalpataru Satpura 100% 565 57 44 622

Alipurduar 100% 1,950 195 152 2,145

Kohima-Mariani 74% 780 78 61 858

Jhajjar KT Transco 51% 382 38 30 420

Total

3,677 368 287 4,045

Balance to be invested

1,190 119 93 1,309

Total

4,867 487 380 5,354

…and a similar gain on sale of the Indore real estate project Thane IT Park Indore RE (Rs mn) FY16 FY17 FY19 Total FY22

Sale consideration 650 205 1,200 2,055 4,302

Less: Development cost 500 157 996 1,653 3,911

Gross profit 150 48 204 402 391

Margin (%) 23% 23% 17% 20% 9%


JMC will have to fund losses/debt repayments of Rs 4bn for its road projects over FY20-24 (Rs mn) FY19 FY20E FY21E FY22E FY23E FY24E

Brij Bhoomi 67 38 77 28 (17) (8)

Wainganga - 226 396 189 169 117

Vindhyachal 52 112 276 202 83 248

Kurukshetra 287 434 421 363 347 323

Total 406 810 1,169 783 582 680

Loans to related parties will reduce with the sale of T&D assets and Indore real-estate projects (Rs mn) FY18 FY19 FY20E FY21E FY22E FY23E

Kalpataru Power Shree Shubham 639 1,299 1,940 1,940 2,060 2,300

Amber Real Estate 1,413 153 153 153 153 153

Saicharan Properties 2,696 2,916 3,146 3,446 - -

Kalpataru (Mauritius) 77 77 77 77 77 77

Kalpataru Satpura 60 60 - - - -

Alipurduar 355 355 - - - -

Kohima Mariani 251 251 251 251 - -

Jhajjar KT Transco 37 37 - - - -

Adeshwar Infrabuild 2 2 2 2 2 2

Total (A) 5,529 5,150 5,569 5,869 2,292 2,532

JMC Projects JMC Mining 7 7 7 7 7 7

Brij Bhoomi 300 366 405 481 509 492

Wainganga 680 680 906 1,302 1,492 1,660

Vindhyachal 505 558 669 945 1,147 1,230

Kurukshetra 1,380 1,667 2,101 2,521 2,885 3,232

Total (B) 2,872 3,278 4,088 5,257 6,040 6,622

Total (A + B) 8,402 8,428 9,657 11,126 8,332 9,154




Comparison with KEC Kalpataru is usually compared with KEC as both business models mirror each other. However, they differ on two counts -- predictability of margins and working-capital management. We believe that KPP has been able to maintain its EBITDA margins in a band of 100-150bps over the past ten years while margins for KEC have been volatile. It is only in the past two years that KEC’s margins have stabilised. In case of cash flows, if we exclude KPP’s digression to fund its subsidiaries, then it has done better than KEC -- with an average net-working-capital intensity of 24% to sales in the past three years against KEC’s 38%. For FY19-22, we believe that on P&L metrics of growth, both companies should fare similarly. However, KPP would standout due to a contained working capital. It will be able to generate FCF over the next three years. In case of KEC, working capital intensity would increase between FY19-22, as the base of FY19 was set low due to one-time inflows from customer advances and recoveries, which may not recur in FY20-22. Between the two, we prefer KPP over KEC (also rated Buy) as we believe that KPP is better placed in terms of working capital, should benefit from asset sales in the near term, and is better diversified than KEC with its exposure to JMC.

KPP vs. KEC financial performance: 15-year perspective FY04-19 FY09-19 FY14-19 FY16-19 15-year 10-year 5-year 3-year

KPP Revenue 22% 14% 12% 18%

EBITDA 23% 14% 13% 18%

Rec PAT 26% 16% 17% 23%

Avg NWC % of sales 36% 34% 29% 24%

KEC Revenue 18% 11% 9% 10%

EBITDA 17% 11% 22% 16%

Rec PAT 17% 10% 31% 29%

Avg NWC % of sales 32% 34% 41% 38%

KPP’s margins have been less volatile vs. KEC’s


KPP also scores against KEC on lower working-capital intensity

However, KPP’s return profile is lower than KEC due to investments in asset ownership and non-core businesses


4%

6%

8%

10%

12%

14%

16%

18%

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7

FY1

8

FY1

9

EBITDA margin (%)

KPP (SA) KEC (SA)

10%

20%

30%

40%

50%

60%

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7

FY1

8

FY1

9

NWC % of Sales

KPP (SA) KEC (SA)

-10%

0%

10%

20%

30%

40%

50%

60%

FY0

3

FY0

4

FY0

5

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7

FY1

8

FY1

9

ROE (%)

KPP (SA) KEC (SA)



Key risks

Structural slowdown in power T&D investments in India We believe that once ordering for the green energy corridor is complete in FY22, there will be a slowdown in T&D investments in India due to lack of equally sized outlay and slowdown in thermal capacity addition.

Thermal capacity addition has slowed down to a 10-year low...

...while inter-regional transmission capacity can now address 55% of India’s peak demand vs. just 18% in FY09


Resumption of investments in asset ownership We do not read negatively into KPP’s investment in Linjemontage, as this acquisition allows it to enter a new geography. However, a major risk to our thesis is any change in management strategy to deploy further cash into new BOOT projects.

Higher-than-expected loss funding in road SPVs Our estimates currently build in a cumulative outflow of Rs 3.3bn over the next four years from JMC, to fund losses and debt repayment in its road projects. Hence, a higher-than-expected investment in these projects due to lower traffic growth poses a risk to our estimates for JMC.

Loans to road projects from JMC (Rs mn) FY19 FY20E FY21E FY22E FY23E FY24E

Brij Bhoomi 67 38 77 28 (17) (8)

Wainganga - 226 396 189 169 117

Vindhyachal 52 112 276 202 83 248

Kurukshetra 287 434 421 363 347 323

Total 406 810 1,169 783 582 680


0

5

10

15

20

25

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7

FY1

8

FY1

9

Thermal capacity addition (GW)

0%

10%

20%

30%

40%

50%

60%

0

10

20

30

40

50

60

70

80

90

100

FY0

6

FY0

7

FY0

8

FY0

9

FY1

0

FY1

1

FY1

2

FY1

3

FY1

4

FY1

5

FY1

6

FY1

7

FY1

8

FY1

9

IR power transfer capacity (GW)

% of Peak demand



Financial analysis

We expect a 11% CAGR in FY19-22 order inflows

Orderbook should accrete at 13% CAGR FY19-22…


…supporting a revenue CAGR of 15%

We assume flat margins, though there are upside risks


Expect EBITDA CAGR at 14%

Working capital intensity to largely remain flat


93.4 83.4 98.4

111.3 119.8

33.4 56.3

56.9

62.6 69.2

0

25

50

75

100

125

150

175

200


(Rs bn)

KPP JMC

124.0 140.7 156.6 175.0 191.1

76.2 99.6

118.4 136.7

155.5

2.4

2.3

2.3 2.3

2.2

2.1

2.2

2.3

2.4

0

50

100

150

200

250

300

350

400


(Rs bn)

KPP JMC Book-to-bill (x)

57.4 71.2 83.1 93.6 104.4

27.6 32.5

38.2 44.3

50.4

1.3

1.7

1.9

2.1

2.3

0.7

1.2

1.6

2.0

2.4

0.1

1.8

-

-

4.3

16%

25%

15% 14%

15%

0%

5%

10%

15%

20%

25%

30%

0

50

100

150

200


Revenues (Rs bn) KPP (SA) JMC (SA)

Road SPVs SSL

RE & others % YoY

11

.7%

12

.4%

12

.1%

12

.2%

12

.1%

11

.1%

10

.9%

11

.1%

11

.3%

11

.2%

9.8

%

10

.4%

10

.4%

10

.3%

10

.4%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%


EBITDA margin (%)

KPP (CS) KPP (SA) JMC (SA)

11.7%

12.4%

12.1% 12.2%

12.1%

11.0%

11.5%

12.0%

12.5%

13.0%

-5

0

5

10

15

20

25


EBITDA (Rs bn) KPP (SA) JMC (SA) Road SPVs SSL RE & others EBITDA margin

20

%

25

%

19

%

20

%

19

%

27

%

21

% 24

%

26

%

27

%

8%

11

%

11

%

11

%

12

%

0%

5%

10%

15%

20%

25%

30%


NWC ex loans to subs & acceptances - % of sales




Financial analysis...

With lower corporate debt, expect interest expenses as % of sales to reduce

Expect earnings CAGR at 19% in FY19-22


SSL and roads dragged KPP’s consolidated earnings

FY22: Turnaround in SSL and losses in roads to reduce


With stable NWC expect both KPP and JMC to be FCF positive

Pay down of debt through asset sales and cash flow generation should make KPP net cash positive by FY22


4.4

%

3.7

%

2.9

%

2.5

%

2.1

%

1.8

%

1.7

%

1.4

%

1.1

%

0.9

%

3.2

%

2.9

%

2.8

%

2.6

%

2.4

%

0%

1%

2%

3%

4%

5%



3.3 4.0 5.0

5.9 6.7 0.9

1.4

1.6

1.9 2.3

-2

0

2

4

6

8

10


(Rs bn) KPP (SA) JMC (SA) Road SPVs SSL Others & unallocated

3.22

2.81

0.71 0.08 0.30 0.53

0.38

-

1.0

2.0

3.0

4.0

5.0

KPP (SA) JMC (SA) Transcos SSL Road SPVs

Inter-group

KPP (CS)


-13%

6.66

7.82

1.54 0.11 0.23 0.26

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

KPP (SA) JMC (SA) SSL Road SPVs Inter-group KPP (CS)


18%

(0.1)

1.2 0.6

2.8

3.5

1.6

0.2

2.3 2.5 2.6

-1.0

0.0

1.0

2.0

3.0

4.0


(Rs bn)

KPP (SA) JMC (SA)

1.1 1.0

0.5

0.4

0.2 0.2 0.2 0.1 0.0

(0.1)

0.7 0.7

0.6

0.4

0.3

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2


(x)




Return profile of KPP should improve with asset sales


10

.6%

16

.1%

15

.2%

16

.9%

17

.6%

9.8

% 1

3.0

%

13

.9%

16

.7%

19

.1%

8.9

% 11

.7%

12

.1%

14

.8%

16

.5%

0%

3%

6%

9%

12%

15%

18%

21%


RoE (%) RoIC (%) RoCE (%)



Financials (KPP Standalone)

KPP - Income statement (standalone) FY ends March 31st (Rs mn) FY18 FY19 FY20E FY21E

Order inflows 93,410 83,360 98,379 1,11,276 Change % yoy 50.1% -10.8% 18.0% 13.1%

Order book 1,24,040 1,40,680 1,56,648 1,75,034

Change % yoy 37.6% 13.4% 11.4% 11.7% Revenue from operations 57,412 71,151 83,112 93,627

Change % yoy 17.3% 23.9% 16.8% 12.7%

Cost of goods sold (41,215) (52,497) (61,322) (69,081) Gross profit 16,197 18,654 21,790 24,547

Gross margin (%) 28.2% 26.2% 26.2% 26.2%

Employee costs (3,487) (4,541) (4,947) (5,388) Other expenses (6,309) (6,331) (7,646) (8,614)

EBITDA 6,400 7,782 9,196 10,545

EBITDA margin (%) 11.1% 10.9% 11.1% 11.3% Change % yoy 17.9% 21.6% 18.2% 14.7%

Depreciation (766) (860) (976) (1,064)

EBIT 5,634 6,922 8,220 9,481 Interest expenses (1,031) (1,190) (1,138) (1,070)

Other Income 485 512 564 623

PBT 5,087 6,244 7,646 9,034 Taxes (1,805) (2,231) (2,676) (3,162)

Tax rate (%) 35.5% 35.7% 35.0% 35.0%

Recurring PAT 3,282 4,013 4,970 5,872 Rec. PAT margin (%) 5.7% 5.6% 6.0% 6.3%

Change % yoy 18.3% 22.3% 23.8% 18.2%

Exceptional (62) - 380 - Reported PAT 3,220 4,013 5,349 5,872

Rep. PAT margin (%) 5.6% 5.6% 6.4% 6.3%

Change % yoy 19.7% 24.6% 33.3% 9.8% Dividend 384 460 642 705

Dividend payout (%) 11.9% 11.5% 12.0% 12.0%

Dividend tax 65 94 132 144 Dividend tax rate (%) 16.9% 20.5% 20.5% 20.5%

KPP - Balance Sheet (standalone) FY ends March 31st (Rs mn) FY18 FY19 FY20E FY21E

Equity share capital 307 307 307 307 Networth 27,700 31,522 36,316 41,415

Minority & Pref. capital - - - -

Borrowings 7,732 6,466 6,371 4,821 Def. tax liability, net (312) (157) (157) (157)

Capital deployed 35,121 37,831 42,530 46,079

Gross block 7,394 8,693 9,574 10,331 Net block 5,268 5,707 5,611 5,304

CWIP 167 77 46 40

Fixed assets 5,434 5,784 5,658 5,344 Investments 7,849 6,486 7,914 7,914

Inventories 4,828 6,221 8,064 9,085

Trade Receivables 42,288 45,456 53,770 62,089 Cash & bank balances 816 1,455 3,068 2,826

Other assets 11,248 16,960 15,003 16,440

Current assets 59,181 70,092 79,904 90,439 Trade payables 19,955 22,314 26,545 30,282

Customer advances 10,090 12,451 13,298 14,980

Other liabilities 7,299 9,766 11,102 12,355 Current liabilities 37,344 44,531 50,945 57,617

Net Current Assets 21,837 25,561 28,959 32,822

Capital Deployed 35,120 37,831 42,530 46,079 Working capital days

Inventory 31 32 35 35

Trade receivables 269 233 236 242 Other assets, L&A 72 68 66 64

Gross working capital days 371 333 337 342

Trade payable 127 114 117 118 Advances from customer 64 64 58 58

Other liabilities & provisions 46 50 49 48

Current liabilities days 237 228 224 225 Net working capital ex-cash 134 105 114 117

KPP - Cash Flow (standalone) FY ends on March 31 (Rs mn) FY18 FY19 FY20E FY21E

PBT 4,993 6,244 7,646 9,034 Add: Depreciation 766 860 976 1,064

Add: Interest expenses 1,033 1,190 1,138 1,070

Less: Other income (466) (512) (564) (623) Op. profit before WC changes 6,284 7,782 9,196 10,545

Changes in inventory (265) (1,393) (1,843) (1,020)

Changes in receivables (11,200) (9,120) (9,607) (9,457) Changes in liabilities 7,629 7,187 6,414 6,672

Change in working capital (3,836) (3,326) (5,036) (3,805)

Cash from operations 2,448 4,456 4,160 6,740 Taxes paid (1,413) (2,075) (2,676) (3,162)

Cash from operating activities 1,035 2,381 1,484 3,578

Capex (1,089) (1,210) (850) (750) Changes in investments (701) 1,364 (1,428) -

Cash from Investing activities (1,876) 906 1,917 (427)

Changes in share capital - - - - Changes in borrowings 784 (1,266) (95) (1,550)

Dividend & dividend tax paid (363) (449) (555) (773)

Interest paid (909) (1,190) (1,138) (1,070) Cash from Financing activities (476) (2,648) (1,788) (3,393)

Change in cash equivalents (1,316) 638 1,613 (242)

Opening cash equivalents 2,065 748 1,387 3,000 Other bank balances 68 68 68 68

Closing cash equivalents 816 1,455 3,068 2,826

Free cash flow (54) 1,171 634 2,828

KPP - Balance Sheet (standalone) FY ends March 31st (Rs mn) FY18 FY19 FY20E FY21E

Shares outstanding (mn) 153 153 153 153 Market cap 75,963 75,958 75,958 75,958

Gross debt 7,732 6,466 6,371 4,821

Net debt / (cash) 6,911 5,006 3,298 1,990 Per share data

EPS - recurring 21.4 26.2 32.4 38.3

Change (% yoy) 18.3% 22.3% 23.8% 18.2% EPS - reported 21.0 26.2 34.9 38.3

Core EPS 19.3 24.0 30.0 35.6

Cash EPS 26.8 31.9 38.7 45.2 DPS 2.5 3.0 4.2 4.6

BVPS 180.5 205.4 236.7 269.9

FCFPS (0.4) 7.6 4.1 18.4 Valuation (x)

P/E - Recurring 22.8 18.7 15.1 12.8

Dividend yield (%) 0.5% 0.6% 0.9% 0.9% P/BV 2.7 2.4 2.1 1.8

Market cap/Sales 1.3 1.1 0.9 0.8

EV/Sales 1.4 1.1 0.9 0.8 EV/EBITDA 12.8 10.3 8.5 7.3

Return ratios (%)

Dividend payout (%) 11.9% 11.5% 12.0% 12.0% RoE (%) 12.5% 13.6% 14.7% 15.1%

RoCE (%) 11.9% 13.1% 14.2% 14.8%

Net debt / equity (x) 0.2 0.2 0.1 0.0




Financials (JMC Standalone)

JMC - Income statement (standalone) FY ends March 31st (Rs mn) FY18 FY19 FY20E FY21E

Order inflows 33,390 56,290 56,949 62,644

Change % yoy 4.3% 68.6% 1.2% 10.0%

Order book 76,160 99,620 1,18,364 1,36,700 Change % yoy 8.1% 30.8% 18.8% 15.5%

Revenue from operations 27,556 32,529 38,205 44,308

Change % yoy 18.3% 18.0% 17.5% 16.0% Cost of goods sold (20,525) (25,057) (29,430) (34,130)

Gross profit 7,031 7,472 8,775 10,177

Gross margin (%) 25.5% 23.0% 23.0% 23.0% Employee costs (2,664) (3,026) (3,529) (3,798)

Other expenses (1,672) (1,077) (1,261) (1,817)

EBITDA 2,695 3,369 3,986 4,563 EBITDA margin (%) 9.8% 10.4% 10.4% 10.3%

Change % yoy 38.8% 25.0% 18.3% 14.5%

Depreciation (717) (781) (1,034) (1,105) EBIT 1,979 2,588 2,952 3,458

Interest expenses (890) (951) (1,059) (1,150)

Other Income 123 248 292 410 PBT 1,212 1,885 2,185 2,718

Taxes (326) (464) (623) (815)

Tax rate (%) 26.9% 24.6% 28.5% 30.0% Recurring PAT 885 1,421 1,562 1,903

Rec. PAT margin (%) 3.2% 4.4% 4.1% 4.3%

Change % yoy 101.1% 60.6% 9.9% 21.8% Exceptional 176 - - -

Reported PAT 1,061 1,421 1,562 1,903

Rep. PAT margin (%) 3.9% 4.4% 4.1% 4.3%

Change % yoy 82.2% 33.9% 9.9% 21.8%

Dividend 101 118 134 168

Dividend payout (%) 9.5% 8.3% 8.6% 8.8% Dividend tax 21 24 28 34

Dividend tax rate (%) 20.5% 20.5% 20.5% 20.5%

JMC - Balance Sheet (standalone) FY ends March 31st (Rs mn) FY18 FY19 FY20E FY21E

Equity share capital 336 336 336 336

Networth 7,890 9,233 10,653 12,394

Minority & Pref. capital - - - - Borrowings 7,366 7,657 8,489 8,812

Def. tax liability, net (352) (363) (363) (363)

Capital deployed 14,904 16,527 18,779 20,843 Gross block 5,595 7,143 7,648 8,148

Net block 4,221 4,987 4,459 3,854

CWIP 1 32 27 26 Fixed assets 4,222 5,019 4,485 3,881

Investments 4,164 4,164 4,164 4,164

Inventories 1,923 2,481 2,822 3,273 Trade Receivables 14,229 17,135 20,141 23,380

Cash & bank balances 1,460 770 2,199 2,993

Other assets 7,809 9,501 11,127 13,350 Current assets 25,420 29,886 36,290 42,995

Trade payables 9,376 13,135 15,239 17,580

Customer advances 5,299 4,944 5,731 6,646 Other liabilities 4,226 4,463 5,190 5,971

Current liabilities 18,901 22,542 26,159 30,197

Net Current Assets 6,519 7,344 10,130 12,799 Capital Deployed 14,904 16,527 18,779 20,843

Working capital days

Inventory 25 28 27 27 Trade receivables 188 192 192 193

Other assets, L&A 100 104 104 108

Gross working capital days 314 324 323 327

Trade payable 124 147 146 145

Advances from customer 70 55 55 55

Other liabilities & provisions 56 50 50 49 Current liabilities days 250 253 250 249

Net working capital ex-cash 64 71 73 79

JMC - Cash Flow (standalone) FY ends March 31st (Rs mn) FY18 FY19 FY20E FY21E

PBT 1,450 1,885 2,185 2,718

Add: Depreciation 717 781 1,034 1,105

Add: Interest expenses 858 951 1,059 1,150 Less: Other income (87) (248) (292) (410)

Op. profit before WC changes 3,494 3,369 3,986 4,563

Changes in inventory (368) (558) (341) (451) Changes in receivables (4,073) (4,192) (3,823) (4,292)

Changes in liabilities 3,729 3,641 3,617 4,037

Change in working capital (713) (1,109) (548) (705) Cash from operations 2,781 2,260 3,438 3,858

Taxes paid (223) (475) (623) (815)

Cash from operating activities 2,558 1,785 2,816 3,042 Capex (959) (1,579) (500) (500)

Changes in investments - - - -

Cash from Investing activities (1,413) (1,737) (1,018) (1,259) Changes in share capital - - - -

Changes in borrowings 984 291 832 323

Dividend & dividend tax paid (61) (121) (142) (162)

Interest paid (858) (951) (1,059) (1,150)

Cash from Financing activities 65 (738) (369) (989)

Change in cash equivalents 1,210 (690) 1,429 794 Opening cash equivalents 249 1,460 770 2,199

Other bank balances 1 - - -

Closing cash equivalents 1,460 770 2,199 2,993

Free cash flow 1,599 206 2,316 2,542

JMC - Balance Sheet (standalone) FY ends March 31st (Rs mn) FY18 FY19 FY20E FY21E

Shares outstanding (mn) 168 168 168 168

Market cap 22,499 22,499 22,499 22,499

Gross debt 7,366 7,657 8,489 8,812 Net debt / (cash) 5,652 6,633 6,036 5,565

Per share data

EPS - recurring 5.3 8.5 9.3 11.3 Change (% yoy) 101.1% 60.6% 9.9% 21.8%

EPS - reported 6.3 8.5 9.3 11.3

Core EPS 4.7 7.4 8.1 9.6 Cash EPS 9.6 13.1 15.5 17.9

DPS 0.6 0.7 0.8 1.0

BVPS 47.0 55.0 63.4 73.8 FCFPS 9.5 1.2 13.8 15.1

Valuation (x)

P/E - Recurring 25.8 16.1 14.6 12.0

Dividend yield (%) 0.4% 0.5% 0.6% 0.7%

P/BV 2.9 2.5 2.1 1.8

Market cap/Sales 0.8 0.7 0.6 0.5

EV/Sales 1.0 0.9 0.8 0.6

EV/EBITDA 10.6 8.7 7.2 6.2

Return ratios (%) Dividend payout (%) 9.5% 8.3% 8.6% 8.8%

RoE (%) 12.0% 16.6% 15.7% 16.5%

RoCE (%) 11.0% 13.6% 13.1% 13.7% Net debt / equity (x) 0.7 0.7 0.6 0.4




JMC - Income statement summary (consolidated) FY ends on Mar31 (Rs mn) FY18 FY19 FY20E FY21E


Change % yoy 16.8% 18.0% 17.7% 15.7%

EBITDA 3,639 4,571 5,418 6,182

EBITDA margin (%) 12.6% 13.4% 13.5% 13.3%

Change % yoy 27.3% 25.6% 18.5% 14.1%

Recurring PAT 89 766 704 1,291

Rec. PAT margin (%) 0.3% 2.2% 1.8% 2.8%

Change % yoy nm 764.5% -8.1% 83.4%

Reported PAT 268 766 704 1,291

EPS - recurring 0.5 4.6 4.2 7.7

Change (% yoy) nm 764.5% -8.1% 83.4%

RoE (%) 1.8% 14.3% 11.8% 18.9%

RoCE (%) 7.4% 11.2% 9.7% 12.5%

Net debt / equity (x) 3.0 2.8 2.3 1.8

JMC - Balance sheet summary (consolidated) FY ends on Mar31 (Rs mn) FY18 FY19 FY20E FY21E

Networth 5,011 5,699 6,262 7,391

Borrowings 16,890 16,770 17,094 16,295


Fixed assets 20,820 21,297 20,127 18,816

Investments - - - -

Cash & bank balances 1,558 817 2,239 3,034

Current assets ex-cash 22,545 27,545 32,144 37,307

Current assets 24,103 28,362 34,383 40,341


Net Current Assets 759 764 2,820 4,462

Capital Deployed 21,580 22,061 22,947 23,278

Net debt / (cash) 15,078 15,699 14,601 13,008

Net working capital ex-cash (13) (3) 3 9

Free cash flow 2,956 2,058 4,090 4,434


Road SPVs - Income statement summary FY ends on Mar31 (Rs mn) FY18 FY19 FY20E FY21E


Change % yoy -7.8% 27.5% 13.2% 9.8%

EBITDA 948 1,288 1,432 1,620

EBITDA margin (%) 71.6% 76.2% 74.9% 77.1%

Change % yoy 3.8% 35.8% 11.2% 13.1%

Recurring PAT (559) (327) (567) (373)

Rec. PAT margin (%) -42.2% -19.4% -29.7% -17.8%

Change % yoy -13.1% -41.5% 73.5% -34.2%

Reported PAT (559) (327) (567) (373)

Road SPVs - Balance sheet summary FY ends on Mar31 (Rs mn) FY18 FY19 FY20E FY21E

Networth 1,317 990 422 49

Borrowings 11,009 10,701 10,569 10,196


Fixed assets 15,963 15,656 15,021 14,314

Cash & bank balances 98 21 15 15

Current assets ex-cash 115 115 115 115

Current assets 212 136 130 130


Net Current Assets (3,910) (4,308) (4,372) (4,412)



Shree Shubham - Income statement summary FY ends on Mar31 (Rs mn) FY18 FY19 FY20E FY21E

Revenue from operations 686 1,235 1,606 2,007

Change % yoy 22.7% 80.0% 30.0% 25.0%

EBITDA 119 364 456 559

EBITDA margin (%) 17.3% 29.5% 28.4% 27.9%

Change % yoy nm 207.1% 25.4% 22.5%

Recurring PAT (415) (154) (81) 32

Rec. PAT margin (%) -60.5% -12.5% -5.0% 1.6%

Change % yoy -44.9% -62.9% -47.6% nm

Reported PAT (415) (154) (81) 32

Shree Shubham - Balance sheet summary FY ends on Mar31 (Rs mn) FY18 FY19 FY20E FY21E

Networth 814 660 579 612

Borrowings 4,282 4,391 4,643 4,099


Fixed assets 3,826 3,603 3,507 3,409

Investments 199 199 199 199

Cash & bank balances 79 49 372 108

Current assets ex-cash 1,561 2,071 2,190 2,227

Current assets 1,640 2,121 2,562 2,336

Current liabilities 638 894 1,068 1,255

Net Current Assets 1,002 1,226 1,494 1,080





Financials (KPP Consolidated) Income Statement Y/E Mar, Rs mn FY18 FY19 FY20e FY21e

Net sales 87,044 1,08,405 1,24,836 1,42,043

Growth, % 16 25 15 14

Raw material expenses (61,951) (78,819) (91,180) (1,03,640)

Employee expenses (6,382) (7,885) (8,766) (9,504)

Other Operating expenses (8,563) (8,229) (9,841) (11,636)

EBITDA (Core) 10,149 13,472 15,048 17,263

Growth, % 17 33 12 15

Margin, % 11.7 12.4 12.1 12.2

Depreciation (1,915) (2,109) (2,776) (3,005)

EBIT 8,234 11,363 12,273 14,258

Growth, % 20 38 8 16

Margin, % 9.5 10.5 9.8 10.0

Interest paid (3,807) (4,011) (3,589) (3,497)

Other Income 190 441 395 536

Pre-tax profit 4,616 7,793 9,079 11,296

Tax provided (1,772) (2,742) (3,294) (3,972)

PAT (pre-minority) 2,844 5,052 5,785 7,324

Others (Minority, associates) (144) (384) (742) (939)

Net Profit (recurring) 2,700 4,667 5,043 6,385

Growth, % 49 73 8 27

Net Profit (reported) 2,807 4,667 5,422 6,385

Unadj. shares (m) 153 153 153 153

Wtd avg shares (m) 153 153 153 153

Balance Sheet Y/E Mar, Rs mn FY18 FY19 FY20e FY21e

Cash & bank 3,140 2,761 5,884 6,217

Debtors 55,790 62,684 74,038 85,541

Inventory 9,921 11,165 13,581 15,303

Other current assets 15,333 31,888 21,113 23,803

Total current assets 84,185 1,08,498 1,14,616 1,30,864

Investments 505 15 15 15

Gross fixed assets 35,428 38,329 39,747 41,036

Less: Depreciation (4,813) (6,922) (9,698) (12,703)

Add: Capital WIP 7,241 158 123 116

Net fixed assets 37,856 31,565 30,173 28,449

Total assets 1,22,546 1,40,078 1,44,803 1,59,328


Provisions 4,292 5,056 5,777 6,490

Total current liabilities 62,461 72,956 83,509 94,684

Deferred tax liabilities, net (1,304) (1,270) (1,270) (1,270)

Borrowings 33,190 35,590 25,700 22,808

Total liabilities 31,886 34,320 24,430 21,538

Minority & Preference 1,464 1,607 1,871 2,326

Paid-up capital 307 307 307 307

Reserves & surplus 26,427 30,888 34,686 40,472

Shareholders’ equity 26,734 31,195 34,993 40,779

Total equity & liabilities 1,22,546 1,40,078 1,44,803 1,59,328

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY18 FY19 FY20e FY21e

Pre-tax profit 4,609 7,793 9,079 11,296

Depreciation 1,915 2,109 2,776 3,005

Chg in working capital (2,843) (14,148) 7,521 (4,740)

Total tax paid (1,757) (2,708) (3,294) (3,972)

Cash flow from operating activities 6,221 (3,384) 19,276 8,551

Capital expenditure (6,821) 4,181 (1,383) (1,281)

Chg in investments - 491 (0) -

Cash flow from investing activities (6,504) 5,063 (572) (746)

Free cash flow (600) 798 17,893 7,269

Equity raised/(repaid) - - - -

Debt raised/(repaid) 4,702 2,400 (9,890) (2,892)

Dividend (incl. tax) (373) (449) (555) (773)

Other financing activities (3,682) (4,010) (5,136) (3,807)

Cash flow from financing activities 647 (2,058) (15,581) (7,472)

Net chg in cash 364 (379) 3,123 333

Valuation Ratios

FY18 FY19 FY20e FY21e

Per Share data

EPS (INR) 17.6 30.4 32.9 41.6

Growth, % 49 73 8 27

Book NAV/share (INR) 174.2 203.3 228.0 265.7

FDEPS (INR) 17.6 30.4 32.9 41.6

CEPS (INR) 28.4 43.9 51.0 61.2

DPS (INR) 2.5 3.0 4.2 4.6

Return ratios Return on assets (%) 4.5 5.7 5.5 6.1

Return on equity (%) 10.6 16.1 15.2 16.9

Return on capital employed (%) 8.9 11.7 12.1 14.8

Turnover ratios Asset turnover (x) 1.7 1.9 2.2 2.6

Sales/Total assets (x) 0.8 0.8 0.9 0.9

Sales/Net FA (x) 2.5 3.1 4.0 4.8

Working capital/Sales (x) 0.2 0.3 0.2 0.2

Working capital days 78 110 74 77

Liquidity ratios

Current ratio (x) 1.3 1.5 1.4 1.4

Quick ratio (x) 1.2 1.3 1.2 1.2

Interest cover (x) 0.5 0.4 0.3 0.2

Dividend cover (x) 7.0 10.1 7.9 9.1

Total debt/Equity (%) 118 109 70 53

Net debt/Equity (%) 107 100 54 38

Valuation

PER (x) 27.7 16.0 14.8 11.7

PEG (x) - y-o-y growth 0.6 0.2 1.8 0.4

Price/Book (x) 2.8 2.4 2.1 1.8

Yield (%) 0.5 0.6 0.9 0.9

EV/Net sales (x) 1.2 1.0 0.8 0.6

EV/EBITDA (x) 10.3 8.0 6.3 5.3



Stock Price, Price Target and Rating History

Rating Methodology We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one year.

Rating Criteria Definition

BUY >= +15% Target price is equal to or more than 15% of current market price

NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%

SELL <= -15% Target price is less than or equal to -15%.

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Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below:

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No

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