INSTITUTIONAL EQUITY RESEARCH Kalpataru Power KPP...

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)

Promoter leverage bogs down a strong fundamental story

INDIA | CAPITAL GOODS | Company Update

14 January 2020

We believe that the recent underperformance of KPP’s stock price (-22% in 6 months vs. peers) has more to do with issues outside its core operations. The promoter group’s exposure to real estate with high leverage, exacerbated by a subdued demand environment, has led to concerns. We analysed the group’s unlisted property holdcos’ financials and concluded that while there could be a mismatch in cash flows in the near term, the group should progressively pare down its debt based on a maturing asset base, sale of lease-earning projects, and some large launches. We maintain our BUY rating on KPP as it continues to outperform on all its ‘controllable’ factors – order inflows, execution and working capital – while also delivering on improving its capital allocation. Core business remains on track; taking steps to offset a long-term slowdown in T&D KPP’s performance YTD FY20 has been above par. It has already secured Rs 60bn of new orders in 9M and is L1 for Rs 24bn vs. its FY20 guidance of Rs 90bn. The management revised up its sales guidance to 20%+ vs. 15-20% earlier after 2Q, indicating a robust sales growth, despite a challenging environment. Its working-capital intensity, at 30%, is in line with estimates and guidance. KPP is working on (1) offsetting higher competition in the railway segment in the near term and (2) the risk of a structural slowdown in domestic T&D beyond FY22 – by growing JMC’s presence in the international market.

Walking the talk on setting right its capital-allocation policy Cash flows from the sale of T&D BOOT assets have started to materialise; transfer of the first asset (Satpura) took place in 3Q, while part payment on another asset (Alipurduar) is likely in 4Q; Kohima will be commissioned in 2HFY21. These inflows (c.Rs 10bn), along with the sale of the Indore real-estate project (c.Rs 3bn), will pave the way for KPP to turn net-cash by FY22 on a standalone basis. Management expects to restructure its roads portfolio in JMC by FY21; these currently require an annual loss funding of Rs 800-900mn (50% of JMC’s PAT).

Promoters’ real-estate business – issues in the near term, but not unresolvable KPP’s promoters have exposure to real estate through their unlisted group companies; limited information on these is an issue, since the performance of the property business has historically had an impact on the promoter pledge level or stake in KPP. To better understand the current state of these unlisted entities, we sifted through FY18-19 financials. Key findings: Gross external leverage in the two holdcos (for over 30+ subsidiaries) was c. Rs 85bn (flat yoy); this debt is supported by inventories of Rs 80bn. Cash-flow mismatch was acute in FY19-20, as payments were made to acquire large land parcels in Mumbai, while end projects could not be launched due to delay in clearances, which have since come through. Nonetheless, the business generated collections of c.Rs 10bn p.a for the past four years, and as multiple projects are likely to be completed in the next two years, cash flows should improve from here, which would help repay debt.

Outlook and valuation KPP, combined with JMC, are plays on seven key infrastructure segments in India and abroad. A 1.9x book-to-bill (B-t-B) for KPP standalone, 2.6x B-t-B for JMC, and an identified opportunity of US$ 117bn over the next five years offers strong revenue visibility, which translates to 24% CAGR for FY19-22 earnings. We see KPP as a prime rerating candidate, as it delivers on improving its capital allocation and as the risk of further stake sale/increase in pledge by promoters reduces over the next two years. The standalone entity trades at 8x PE FY20, for 20% earnings CAGR and visibility on becoming net-cash.

We maintain our BUY rating. However, we have cut our target multiples – for KPP (to 13x from 14x) and JMC (to 10x from 12x) to reflect the risk from promoter-level debt. Consequently, we revise our SOTP-based target to Rs 595 from Rs 695 earlier. Our estimates do not include financials of Linjemontage. Key risks: Material increase in pledge by the promoter and faster-than-anticipated slowdown in domestic T&D ordering.

BUY (Maintain) CMP RS 420 TARGET RS 595 (42%)

SEBI CATEGORY: SMALL CAP

COMPANY DATA

O/S SHARES (MN) : 155

MARKET CAP (RSBN) : 61

MARKET CAP (USDBN) : 0.9

52 - WK HI/LO (RS) : 554 / 327

LIQUIDITY 3M (USDMN) : 0.7

PAR VALUE (RS) : 2

SHARE HOLDING PATTERN, %

Sep 19 Jun 19 Mar 19

PROMOTERS : 54.4 59.3 59.3

FII / NRI : 7.6 4.6 4.4

FI / MF : 28.8 25.6 25.3

NON PRO : 2.1 1.3 1.4

PUBLIC & OTHERS : 7.1 9.1 9.7

PRICE PERFORMANCE, %

1MTH 3MTH 1YR

ABS -12.8 -20.1 5.0

REL TO BSE -14.2 -27.6 -11.9

PRICE VS. SENSEX

KEY FINANCIALS

Rs bn FY19 FY20E FY21E

Net Sales 108.40 127.99 137.03

EBIDTA 13.03 16.17 16.57

Net Profit 4.41 5.66 6.40

EPS, Rs 28.8 36.6 41.4

PER, x 14.6 11.5 10.2

EV/EBIDTA, x 7.4 6.2 4.9

P/BV, x 2.1 1.8 1.5

ROE, % 15.2 17.1 16.2

Total debt/Equity (%) 108.4 101.8 51.5

Source: PhillipCapital India Research Est.

Jonas Bhutta, Research Analyst Vikram Rawat, Research Associate Sandesh Shetty, Research Associate

80

130

180

230

280

Apr-16 Apr-17 Apr-18 Apr-19

Kalpataru Power BSE Sensex

Page | 2 | PHILLIPCAPITAL INDIA RESEARCH

KALPATARU POWER COMPANY UPDATE

KPP’s standalone order inflows are on track to meet guidance

JMC’s order inflows should improve in 2HFY20 on large international orders

KPP Group order inflows

KPP standalone order inflows mix: Share of T&D to reduce structurally

*includes Linjemontage

TBCB projects awarded in the past 6 months

Project Agency Project cost

(Rs mn) L1 or

Winner

Rampur Sambhal Transco RECTPCL 8,000 PGCIL

Lakadia Banaskantha Transco RECTPCL 10,750 Adani

Jam Khambaliya Transco RECTPCL 2,660 Adani

WRSS XXI (A) Transco RECTPCL 8,560 Adani

Ajmer Phagi Transco - Rajasthan SEZ Part-A RECTPCL 5,830 PGCIL

Bhind Guna Transmission RECTPCL 7,100 PGCIL

Udupi Kasargode Transmission RECTPCL 6,200 Sterlite

Khetri Transco - Rajasthan SEZ Part -C RECTPCL 13,650 PGCIL

TS at Meerut & Simbhaoli PFCCL 10,000 PGCIL

RE Projects at BhujII (2000 MW) PFCCL 6,450 PGCIL

WRSS-21 Part-B PFCCL 18,650 Sterlite

TS for Rajasthan SEZ Part-B PFCCL 6,760 PGCIL

TS for Rajasthan SEZ Part-D PFCCL 12,080 Adani

Total

1,16,690

Trend in TBCB projects awarding – a spike after three years of lull

Source: PhillipCapital India Research, Company

74

.5

62

.3

93

.4

83

.4

79

.7 1

02

.4

10

8.7

61

.4

49

.0

22

.1

30

.7

0

20

40

60

80

100

120

FY1

6

FY1

7

FY1

8

FY1

9

FY2

0E

FY2

1E

FY2

2E

9M

FY1

9

9M

FY2

0

4Q

FY1

9

4Q

FY2

0E

(Rs bn) Order inflows - KPP

39%

-20%

31

.6

32

.0

33

.4

56

.3

56

.9

62

.6

69

.2

45

.7

33

.6

10

.6

23

.3

0

20

40

60

80

FY1

6

FY1

7

FY1

8

FY1

9

FY2

0E

FY2

1E

FY2

2E

9M

FY1

9

9M

FY2

0

4Q

FY1

9

4Q

FY2

0E

(Rs bn) Order inflows - JMC

121%

-26%

10

6.0

94

.3 1

26

.8

13

9.7

14

6.8

17

5.2

18

8.0

0

20

40

60

80

100

120

140

160

180

200

FY1

6

FY1

7

FY1

8

FY1

9

FY2

0E

FY2

1E

FY2

2E

(Rs bn) Order inflows - KPTL Group*

59% 50%

58% 54% 54%

23%

19%

23% 20% 21%

18% 31%

20% 25% 26%

0%

20%

40%

60%

80%

100%

FY18 FY19 FY20E FY21E FY22E

Power T&D O&G (pipeline) Railways

-

50

100

150

200

250

FY1

0

FY1

1

FY1

2

FY1

4

FY1

5

FY1

6

FY1

7

FY1

8

FY1

9

FY2

0 Y

TD

(Rs bn) TBCB projects awarding



Upcoming T&D opportunities likely to be awarded in the next 12 months

S. No. Transmission project Total Project costs (Rs bn)

GEC projects costs (Rs bn)

1 TS for RE projects in Rapar (3GW) & Lakadia (2GW) SEZ - Part A 9.3 9.3

2 TS for RE projects in Rapar (3GW) & Lakadia (2GW) SEZ– Part B 13.7 13.7

3 TS for RE projects in Rapar (3GW) & Lakadia (2GW) SEZ – Part C 21.7 21.7

4 TS for RE projects in Banaskantha (2.5GW) REZ- Part B 3.1 3.1

5 TS for RE projects in at Jamnagar (2.5GW) REZ 13.5 13.5

6 TS for RE projects in Sholapur (1GW Ph-I + 500MW Ph-II) SEZ & Osmanabad area (1 GW) in Maharashtra 5.3 5.3

7 TS for RE projects in Wardha (2.5GW) SEZ in Maharastra 4.7 4.7

8 TS for RE projects in Rajgarh (2.5GW) SEZ in Madhya Pradesh 6.4 6.4

9 TS for RE projects in Khandwa (2.5GW) in Madhya Pradesh 4.5 4.5

10 TS for providing immediate connectivity to 4GW Dholera UMSP 14.2 14.2

11 TS for Solar Energy Zone in Ananthpuram (Ananthapur) (2.5GW) & Kurnool (1GW), Andhra Pradesh 8.2 8.2

12 TS for Solar Energy Zone in Gadag (2.5GW), Karnataka - Part A 5.5 5.5

13 TS Solar Energy Zone in Bidar (2.5GW), Karnataka 13.7 13.7

14 TS for solar energy zones in Rajasthan (8.1 GW) Ph-II - Part A 6.2 6.2

15 TS for solar energy zones in Rajasthan (8.1 GW) Ph-II - Part B 11.2 11.2

16 TS for solar energy zones in Rajasthan (8.1 GW) Ph-II - Part C 21.8 21.8

17 TS for solar energy zones in Rajasthan (8.1 GW) Ph-II - Part D 17.4 17.4

18 TS for solar energy zones in Rajasthan (8.1 GW) Ph-II - Part E 16.4 16.4

19 TS for solar energy zones in Rajasthan (8.1 GW) Ph-II - Part F 21.0 21.0

20 TS for solar energy zones in Rajasthan (8.1 GW) Ph-II - Part G 16.2 16.2

21 TS in Jharkhand (Package-1) 10.3 -




25 TS for Vikhroli scheme (Maharashtra) 7.8 -

Total 280.4 233.9


Oil & gas pipeline opportunities Project Length (kms) Project cost (Rs bn)

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 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

Indradhanush: Plans to build a gas grid in the northeast




JMC standalone order inflows mix

Potential value accretion if JMC merges with KPP (Rs)

JMC Market cap (Rs bn) 17.0

Value of 33% stake of JMC Minority (Rs bn) 5.6

KPP's CMP (Rs) 416

KPP's shares to JMC Minorities (mn) 13.4

KPPs shares O/s - current (mn) 154.7

KPPs shares O/s - revised (mn) 168.1

% Increase in KPP shares O/s 8.6%

KPP standalone EPS - ex-subs dividend (Rs) 34.9

JMC standalone EPS (Rs) 11.2

KPP's Standalone FY21 EPS on diluted base (Rs) 32.1

JMC's FY21 EPS on KPP's diluted base (Rs) 11.2

KPP & JMC merged entity EPS (Rs) 43.3

Target PE multiple (x) 13.0

Target value of Merged standalone (Rs / share) 563

Less: Loss funding of Road SPVs (Rs) (8)

Target value of Merged entity (Rs / share) 555

KPP standalone @ 13x FY21 EPS - (a) 453

67% stake in JMC @ 10x FY21E less 20% holdco disc- (b) 65

Current Valuate in SOTP (Rs /share) - (a+b) 519

Value accretion through merger 6.9%


KPP book-to-bill should remain healthy at 1.9x…

…JMC’s book-to-bill is 2.6x…


…offering visibility of 11% CAGR (FY19-22) in KPP revenues…

… and 15% in JMC revenues


79%

44%

60% 60% 60%

21%

56%

40% 40% 40%

0%

20%

40%

60%

80%

100%


B&F Infra

-

0.5

1.0

1.5

2.0

2.5

0

25

50

75

100

125

150

175


(Rs bn) Order book - KPP Book-to-bill (x)

2.5

2.6

2.7

2.8

2.9

3.0

3.1

3.2

0

25

50

75

100

125

150

175


(Rs bn) Order book - JMC Book-to-bill (x)

43

.0

48

.9

57

.4 71

.2

84

.0

88

.6

96

.6

29

.0

36

.2

42

.2

47

.7

0

20

40

60

80

100

120

FY1

6

FY1

7

FY1

8

FY1

9

FY2

0E

FY2

1E

FY2

2E

1H

FY19

1H

FY20

2H

FY19

2H

FY2

0E

(Rs bn) Revenues - KPP (SA)

13%

25%

24

.0

23

.3

27

.6

32

.5 3

9.7

44

.5 49

.9

14

.2

18

.5

18

.3

21

.2

0

10

20

30

40

50

FY1

6

FY1

7

FY1

8

FY1

9

FY2

0E

FY2

1E

FY2

2E

1H

FY19

1H

FY20

2H

FY19

2H

FY2

0E

(Rs bn) Revenues - JMC (SA)

16% 30%



KPP has been able to maintain margins despite growing share on non-T&D business

JMC’s margins should stabilise after expanding over FY16-20


KPP + JMC should manage working-capital intensity without foregoing growth


Cash flows from T&D BOOT sales have started and should accelerate in FY21… Stake Project cost & funding Deal value & Cash flows

(Rs bn) (%) TPC Grant Equity Sub debt Ext. debt KPPs Invest Total EV KPP share FY20E FY21E FY22E

Satpura 100% 3.4 0.6 0.6 0.1 2.1 0.7 2.3 2.3 2.3 - -

Alipurduar 100% 10.8 - 2.4 - 8.4 2.4 12.5 12.5 3.7 8.7 -

Kohima-Mariani 74% 12.8 - 2.9 - 9.9 2.1 18.0 13.3 - 6.7 6.7

Total

27.0 0.6 5.9 0.1 20.4 5.2 32.8 28.1 6.0 15.4 6.7


11

.0%

11

.1%

11

.1%

10

.7%

11

.0%

11

.0%

11

.0%

11

.3%

11

.0%

10

.7%

10

.9%

0%

2%

4%

6%

8%

10%

12%

FY1

6

FY1

7

FY1

8

FY1

9

FY2

0E

FY2

1E

FY2

2E

1H

FY19

1H

FY20

2H

FY19

2H

FY2

0E

EBITDA margin - KPP (SA)

8.2

%

8.3

% 9.8

%

9.6

%

10

.9%

10

.9%

10

.9%

10

.4%

10

.9%

10

.3%

10

.9%

0%

2%

4%

6%

8%

10%

12%

FY1

6

FY1

7

FY1

8

FY1

9

FY2

0E

FY2

1E

FY2

2E

1H

FY19

1H

FY20

2H

FY19

2H

FY2

0E

EBITDA margin - JMC (SA)

20

%

17

% 19

%

19

%

18

%

27

%

23

%

25

%

23

% 27

%

8%

14

%

15

%

15

%

16

%

0%

5%

10%

15%

20%

25%

30%


NWC ex loans to subs & acceptances - % of sales

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



… which should help KPP turn net cash in FY22

KPP standalone investments and loans to related parties will peak in FY20 and reduce thereafter (Rs mn) FY18 FY19 FY20E FY21E FY22E

JMC 3,209 3,209 3,209 3,209 3,209

SSL 1,163 1,230 1,886 1,886 1,886

Energy link 520 1,540 1,540 1,540 1,540

Kalpataru Metfab 220 220 220 220 220

Amber Real Estate 10 10 10 10 10

KPT Mauritius 29 29 1,457 1,457 1,457

Kalpataru Satpura 565 565 - - -

Alipurduar 1,450 1,946 2,856 - -

Kohima-Mariani 0 777 1,974 2,980 -

Jhajjar KT Transco 382 382 382 382 382

SSL - Pref capital 117 144 1,144 1,144 1,144

Total share capital 7,664 10,050 14,677 12,826 9,847

SSL 639 693 2,140 2,290 2,440

KPT Mauritius 77 56 56 56 56

Kalpataru Satpura 60 - - - -

Alipurduar 355 477 - - -

Kohima-Mariani 251 275 - - -

Jhajjar KT Transco 37 37 - - -

Amber Real Estate 1,413 632 632 632 632

Saicharan Properties 2,696 1,800 2,030 2,330 -

Total loan funding 5,527 3,969 4,858 5,308 3,128

Total Funding 13,191 14,020 19,535 18,135 12,975


However, JMC’s leverage may stay, due to continued loss funding of its road projects…

…resulting in higher loans to related parties (Rs mn) FY18 FY19 FY20E FY21E FY22E

Brij Bhoomi 228 228 228 228 228

Wainganga 303 303 303 303 303

Vindhyachal 275 275 275 275 275

Kurukshetra 983 983 983 983 983

Equity by JMC 1,788 1,788 1,788 1,788 1,788

Brij Bhoomi 197 197 197 197 197

Wainganga 697 697 697 697 697

Vindhyachal 1,476 1,476 1,476 1,476 1,476

Sub debt by JMC 2,371 2,371 2,371 2,371 2,371

Brij Bhoomi 300 308 355 443 482

Wainganga 680 723 1,000 1,290 1,685

Vindhyachal 505 614 735 926 1,179

Kurukshetra 1,380 1,630 2,048 2,400 2,705

Loans by JMC 2,865 3,275 4,139 5,057 6,051

Brij Bhoomi 725 733 780 867 907

Wainganga 1,681 1,724 2,000 2,290 2,686

Vindhyachal 2,257 2,365 2,486 2,677 2,930

Kurukshetra 2,362 2,612 3,031 3,382 3,688

Total 7,024 7,434 8,297 9,216 10,210


7.7 6.5

11.3

6.5

3.4

6.9

4.8

9.0

-0.2

-6.4

-8

-6

-4

-2

0

2

4

6

8

10

12

14


(Rs bn) Gross debt - KPP (SA) Net debt - KPP (SA)

7.4 7.7

9.3 8.7 8.6

5.7

6.5

7.5 6.9

6.3

0

2

4

6

8

10


(Rs bn)

Gross debt - JMC (SA) Net debt - JMC (SA)



Promoter’s exposure to real estate is a near-term challenge KPP’s promoters have exposure to real estate through their unlisted group companies. Lack of information on these entities is an issue since the performance of the property business has historically had an impact on the level of promoter pledge or stake in KPP. The Kalpataru group has two major holdcos, Kalpataru Ltd and Kalpataru Properties, which house a majority of its real-estate operations. These two entities have 30+ subsidiaries between themselves. In our effort to better understand the current state of the unlisted entities we sifted through their FY18-19 financials. We also referred to data on RERA websites to accumulate updates about the status of various projects. Our key findings from this data are:

Gross external leverage in the two holdcos was c.Rs 85bn (flat yoy). This debt is supported by inventories of Rs 80bn.

Cash-flow mismatch was acute in FY19-20, as payments were made to acquire large land parcels in Mumbai while end projects could not be launched due to delay in clearances, which have now come through.

Nonetheless, the business generated collections of c.Rs 10bn p.a for the past four years.

Multiple projects are likely to be completed (OC) in the next two years. Cash flows should improve from here, which will help repay debt.

Kalpataru – Consolidated summary (Rs mn) FY16 FY17 FY18 FY19

Revenues 9,704 9,141 14,871 13,993

EBITDA 1,251 1,957 1,754 1,899

EBITDA margin (%) 12.9% 21.4% 11.8% 13.6%

Depreciation 371 513 462 417

Finance costs 1,189 1,889 2,143 3,223

Interest coverage (x) 1.05 1.04 0.82 0.59

Other income 1,220 1,446 1,818 2,734

PBT 912 1,000 966 992

Taxes 185 222 418 325

PAT 710 749 439 548

Networth incl. Minority 12,272 13,002 13,440 13,787

Long term debt 14,425 15,864 20,582 26,731

CM of long term debt 3,128 1,217 2,490 4,482

Short term debt 23,318 24,891 35,445 28,923

Gross debt 40,872 41,972 58,517 60,136

Cash 213 789 548 401

Net debt 40,659 41,182 57,968 59,735

Net Debt to Equity (x) 3.3 3.2 4.3 4.3

Customer advances 3,709 5,556 3,898 1,913

Fixed assets 2,795 2,904 2,934 3,134

Investment properties 6,986 6,556 6,429 6,325

Investments 499 521 7,722 7,646

Inventories 35,522 40,472 41,668 40,745

Receivables 1,739 2,145 4,499 5,584

Loans to related parties 2,392 1,771 11,005 10,566

Loans to others 8,620 7,103 3,672 3,713

Kalpataru Properties – Consolidated summary (Rs mn) FY16 FY17 FY18

Revenues 864 1,219 1,983

EBITDA 607 436 231

EBITDA margin (%) 70.2% 35.7% 11.6%

Depreciation 11 7 12

Finance costs 836 843 475

Interest coverage (x) 0.73 0.52 0.49

Other income 63 38 226

PBT (178) (377) (30)

Taxes (37) (5) 10

PAT (143) (373) (42)

Networth incl. Minority 1,067 665 394

Long term debt 3,203 2,613 7,564

CM of long term debt 10 0 13

Short term debt 17,050 15,833 30,721

Gross debt 20,263 18,446 38,298

Cash 28 116 114

Net debt 20,235 18,330 38,184

Net Debt to Equity (x) 19.0 27.6 97.0

Customer advances 8 1,518 3,394

Fixed assets 176 132 830

Investment properties - - -

Investments 3,254 1,487 637

Inventories 15,499 18,372 39,254

Receivables 43 88 617

Loans to related parties 3,868 46 92

Loans to others 1,704 1,845 2,897




Kalpataru Ltd – consolidated cash flows (Rs mn) FY16 FY17 FY18 FY19

PBT 912 1,000 966 992

Add: Depreciation 371 513 462 417

Add: Finance costs 5,047 1,778 1,974 3,159

Less: Interest & dividend income (1,144) (1,190) (1,489) (2,333)

Other adjustments 66 11 199 (108)

Cash from operations WC changes 5,252 2,112 2,113 2,128

- Changes in Inventories (3,234) (4,951) (1,197) 590

- Changes in trade receivables (988) (706) (2,694) (7,937)

- Changes in trade & other liabilities 488 1,853 (566) (1,613)

Change in working capital (3,734) (3,804) (4,457) (8,959)

Cash from operations 1,519 (1,692) (2,344) (6,831)

Taxes paid (495) (415) (471) (578)

Cash flow from operating activities 1,024 (2,108) (2,815) (7,409)

Capex, net (1,034) (122) (409) (570)

Changes in investments (274) (273) (191) (3,258)

Loans/debentures to related parties (2,090) 912 (16,723) 1,092

L&A to other parties 1,452 1,460 3,571 (241)

Interest & other income 1,139 1,185 1,489 2,333

Others incl. CA of partnership firms/LLP 647 131 (13) 3,406

Cash flow from investing activities (160) 3,293 (12,275) 2,762

Changes in share capital - (2,700) - -

Changes in debt 2,583 3,832 16,358 9,086

Interest paid (4,959) (1,825) (1,974) (3,137)

Other adjustments (incl MI) 1,164 71 72 (1,692)

Cash Flow from Financing Activities (1,211) (622) 14,456 4,257

Changes in cash & cash equivalent (347) 563 (634) (389)

Kalpataru Properties – consolidated cash flows (Rs mn) FY16 FY17 FY18

PBT (178) (377) (30)

Add: Depreciation 13 14 12

Add: Finance costs 836 783 436

Less: Interest & dividend income 42 0 28

Other adjustments (614) (517) (301)

Cash from operations WC changes 99 (96) 145

- Changes in Inventories (2,119) (2,881) (4,328)

- Changes in trade receivables 436 (203) (712)

- Changes in trade & other liabilities (165) (861) (1,639)

Change in working capital (1,848) (3,944) (6,679)

Cash from operations (1,749) (4,040) (6,534)

Taxes paid (20) (34) (49)

Cash flow from operating activities (1,769) (4,075) (6,584)

Capex, net (11) (13) (144)

Changes in investments -372.98 1792.2 -98.516

Loans/debentures to related parties - - -

L&A to other parties (2,296) 4,013 29

Interest & other income 443 690 195

Others incl. CA of partnership firms/LLP 331 (25) 15

Cash flow from investing activities (1,906) 6,458 (4)

Changes in share capital - - -

Changes in debt 4,490 (1,074) 7,843

Interest paid (851) (1,228) (490)

Other adjustments (incl MI) - - (876)

Cash Flow from Financing Activities 3,639 (2,302) 6,477

Changes in cash & cash equivalent (36) 81 (111)


Collections have been c.Rs 10bn/year for the past four years (Rs mn) FY16 FY17 FY18 FY19

Kalpataru Ltd (CS) Receivables, net of advances - Opening (3,273) (1,970) (3,411) 601

Add: Sales 9,704 9,141 14,871 13,993

Less: Receivables, net of advances - Closing (1,970) (3,411) 601 3,671

Cash collected 8,400 10,582 10,859 10,924

Kalpataru Properties (CS) Receivables, net of advances - Opening (600) 35 (1,431) NA

Add: Sales 864 1,219 1,983 NA

Less: Receivables, net of advances - Closing 35 (1,431) (2,778) NA

Cash collected 230 2,685 3,330 NA

Monetization of unsold inventory and investment properties (leased) should lead to further cash flows (Rs mn) FY16 FY17 FY18 FY19

Inventories Kalpataru Ltd (CS) 35,522 40,472 41,668 40,745

- Kalpataru Properties (SA) 2,408 3,350 4,090 NA

- Subsidiaries incl. Agile* 13,090 15,022 35,164 36,573

Kalpataru Properties (CS) 15,499 18,372 39,254 36,573

Total Inventories 51,020 58,844 80,922 77,319

Investment Properties incl. CWIP Kalpataru Ltd (CS) 6,986 6,556 6,429 6,325

Inventories & Investment properties 58,006 65,399 87,351 83,643




Currently the group has 20 ongoing projects…

Promoter Project Location Project

Timeline Booking

(%)

Kalpataru Properties Magnus BKC Jun-23 31% Agile Real Estate Immensa Thane Dec-24 65% Agile Real Estate Sector 5 Thane Dec-26 8% Agile Real Estate Sunrise Thane Dec-22 89% Agile - Total

49%

Total (A)

48% Kalpataru Ltd Avana Parel-Sewri Dec-21 54% Kalpataru Ltd Imperia Santacruz (W) Jun-23 4% Kalpataru Ltd Solitaire JVPD scheme Dec-19 51% Kalpataru Const. (Pune) Estate Pune Jun-22 0% Kalpataru Gardens Crest Bhandup (W) Dec-19 88% Kalpataru Gardens Serenity Pune Dec-21-Oct-23 64% Kalpataru Plus Sharyans Waterfront Panvel Dec-20 75% Kalpataru Plus Sharyans Woodsville Chandivali Dec-22 13% Kalpataru Prop. (Thane) Hills Thane Dec-21 94% Kalpataru Prop. (Thane) Amoda Reserve Pune Dec-23 29% Kalpataru Prop. Ventures Yashodhan Andheri Apr-21 83% Kalpataru Retail Ventures Exquisite Pune Dec-23-Dec-24 56% Kiyana Ventures LLP Radiance Goregaon (W) Dec-21 72% Ananta Landmarks Paramount Thane Jun-24 54% Neo Pharma Pvt Avenue Kandivali Dec-20 22% Neo Pharma Pvt Jade Residence Pune Dec-23 65% Total (B)

61%

TOTAL

54%

…most of which should be commissioned in the next three years

Source: PhillipCapital India Research, RERA

KPP promoters’ holding declined by 5% in 2QFY20, as funds were raised to meet demands in the real-estate business

41% of promoters’ holding is pledged and should reduce once leverage in the property business reduces


-

20

40

60

80

100

120

140

160

180

Dec-19 Dec-20 Dec-21 Dec-22 Dec-23 Dec-24 Dec-25 Dec-26

Projects completion schedule ('000 sqm)

63

.7%

63

.7%

55

.0%

55

.8%

57

.8%

59

.5%

59

.5%

59

.5%

59

.5%

59

.3%

59

.3%

59

.3%

54

.4%

54

.4%

0%

10%

20%

30%

40%

50%

60%

70%

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Mar

-16

Mar

-17

Mar

-18

Mar

-19

Jun

-19

Sep

-19

Dec

-19

Promoters holding (%)

32

.9%

9.4

%

16

.9%

43

.8%

33

.2%

36

.9%

22

.7%

35

.9%

38

.3%

34

.1%

43

.7%

39

.1%

41

.9%

41

.4%

0%

10%

20%

30%

40%

50%

Mar

-09

Mar

-10

Mar

-11

Mar

-12

Mar

-13

Mar

-14

Mar

-15

Mar

-16

Mar

-17

Mar

-18

Mar

-19

Jun

-19

Sep

-19

Dec

-19

Pledged shares (% of promoter holding)



Maintain BUY due to deep value KPP, combined with JMC, is a play on seven key infrastructure segments in India and abroad. A 1.9x book-to-bill (B-t-B) for KPP standalone and 2.6x B-t-B for JMC offers strong revenue visibility. This, along with exits from loss-making roads and Indore real-estate segments, and a turnaround in SSL, should translate to 24% CAGR in FY19-22 earnings. We see KPP as a prime rerating candidate, as it delivers on improving its capital allocation and as the risk of further stake sale/increase in pledge by promoters reduces over the next two years. The standalone entity trades at 8x PE FY20, for 20% earnings CAGR and visibility on becoming net cash positive by FY22. We maintain our BUY rating.

SSL and roads have historically dragged KPP’s consolidated earnings

FY22: Turnaround in SSL and lower losses in roads improve the quality of KPP’s earnings

Source: Company, PhillipCapital India Research

KPP currently trades well below its long-term average PE

…and so does JMC

Source: Bloomberg, PhillipCapital India Research

KPP estimates change: Our estimates do not include financials of Linjemontage

__Revised Est. __ __% Revision__

(Rs bn) FY21E FY22E FY20E FY21E

Sales 137.0 155.4 -1% -3% EBITDA 16.6 18.8 -1% -3%

EBITDA margin (%) 12.1% 12.1% 3 bps 0 bps

Recurring PAT 6.4 8.5 -1% -6%

Recurring EPS (Rs) 41.4 54.6 -1% -6%


3.28

2.71

0.59 0.08 0.30 0.60

0.35

-

1.0

2.0

3.0

4.0

5.0

KP

P (

SA)

JMC

(SA

)

Tran

sco

s

SSL

Ro

ad S

PV

s

Inte

r-gr

ou

p

KP

P (

CS)

(Rs bn) KPP FY18 - PAT Reconciliation

-17%

6.77

8.45 1.52 0.24 0.33 0.21

-

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

KP

P(S

A)

JMC

(SA

)

SSL

Ro

adSP

Vs

Inte

r-gr

ou

p

KP

P (

CS)

(Rs bn) KPP FY22 - PAT Reconciliation

25%

0

5

10

15

20

25

30

35

40

Ap

r-0

6O

ct-0

6A

pr-

07

Oct

-07

Ap

r-0

8O

ct-0

8A

pr-

09

Oct

-09

Ap

r-1

0O

ct-1

0A

pr-

11

Oct

-11

Ap

r-1

2O

ct-1

2A

pr-

13

Oct

-13

Ap

r-1

4O

ct-1

4A

pr-

15

Oct

-15

Ap

r-1

6O

ct-1

6A

pr-

17

Oct

-17

Ap

r-1

8O

ct-1

8A

pr-

19

Oct

-19

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

0

5

10

15

20

25

30

Ap

r-0

6O

ct-0

6A

pr-

07

Oct

-07

Ap

r-0

8O

ct-0

8A

pr-

09

Oct

-09

Ap

r-1

0O

ct-1

0A

pr-

11

Oct

-11

Ap

r-1

2O

ct-1

2A

pr-

13

Oct

-13

Ap

r-1

4O

ct-1

4A

pr-

15

Oct

-15

Ap

r-1

6O

ct-1

6A

pr-

17

Oct

-17

Ap

r-1

8O

ct-1

8A

pr-

19

Oct

-19

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



Revise target price to Rs 595 We revise our SOTP-based target to Rs 595 (Rs 695 earlier) as we have cut our target multiples for KPP (to 13x from 14x) and JMC (to 10x from 12x) to reflect the risk from promoter-level debt.

KPP sum-of-the-parts valuation KPP's Multiple Total Value Holdco KPP'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 13.0 70.3

70.3 454

JMC standalone 67% PE - FY21E 10.0 18.8 20% 10.1 65

Brij Bhoomi expressway 67% Loss funding FY20-24E

(0.2) 0% (0.1) (1)

Wainganga expressway 67% Loss funding FY20-24E

(1.5) 0% (1.0) (6)

Vindhyachal expressway 67% Loss funding FY20-24E

(0.9) 0% (0.6) (4)

Kurukshetra expressway 33% Loss funding FY20-24E

(1.6) 0% (0.5) (3)

JMC Total

14.6

7.8 51

Shree Shubham Logistics 100% PE - FY21E 8.0 1.0 20% 0.8 5

Linjemontage 85% At acquisition value

1.7 0% 1.4 9

Transmission SPVs (ex-Jhajjar) 100% At net cash from deal

9.1 0% 9.1 59

Jhajjar Transco 50% At DCF value 12.5% 0.4 0% 0.2 1

Real Estate (Indore) 100% At 70% of IC

3.9 30% 2.7 18

Total SOTP value

101.0

92.4 597

Source: PhillipCapital India Research



Financials (KPP Consolidated) Income Statement Y/E Mar, Rs mn FY19 FY20e FY21e FY22e

Net sales 1,08,405 1,27,986 1,37,032 1,55,423

Growth, % 25 18 7 13

Raw material expenses (78,819) (92,997) (99,927) (1,13,939)

Employee expenses (7,885) (9,287) (10,086) (11,145)

Other Operating expenses (8,666) (9,532) (10,447) (11,550)

EBITDA (Core) 13,035 16,171 16,571 18,789

Growth, % 28 24 2 13

Margin, % 12.0 12.6 12.1 12.1

Depreciation (2,109) (2,984) (3,414) (3,771)

EBIT 10,925 13,186 13,157 15,018

Growth, % 32 21 (0) 14

Margin, % 10.1 10.3 9.6 9.7

Interest paid (3,959) (5,075) (4,156) (3,372)

Other Income 441 444 589 806

Pre-tax profit 7,407 8,554 9,590 12,451

Tax provided (2,611) (2,465) (2,696) (3,414)

PAT (pre-minority) 4,797 6,090 6,894 9,037

Others (Minority, associates) (384) (429) (496) (586)

Net Profit (recurring) 4,412 5,660 6,398 8,451

Growth, % 63 28 13 32

Net Profit (reported) 4,667 7,185 9,379 8,451

Unadj. shares (m) 153 155 155 155

Wtd avg shares (m) 153 155 155 155

Balance Sheet Y/E Mar, Rs mn FY19 FY20e FY21e FY22e

Cash & bank 2,974 2,618 6,992 12,351

Debtors 67,666 79,403 85,822 95,582

Inventory 11,165 13,679 14,602 11,864

Other current assets 26,693 28,904 20,810 19,400

Total current assets 1,08,498 1,24,604 1,28,225 1,39,198

Investments 15 14 14 14

Gross fixed assets 38,113 41,592 44,171 46,040

Less: Depreciation (6,706) (9,690) (13,104) (16,875)

Add: Capital WIP 158 226 178 140

Net fixed assets 31,565 32,128 31,245 29,306

Total assets 1,40,078 1,56,746 1,59,484 1,68,518

Current liabilities 67,925 77,751 85,046 90,469

Provisions 5,056 5,742 6,339 6,898

Total current liabilities 72,981 83,493 91,385 97,367

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

Borrowings 35,565 37,596 23,572 18,815

Total liabilities 34,295 36,325 22,302 17,545

Minority & Preference 1,607 1,753 2,150 2,708

Paid-up capital 307 309 309 309

Reserves & surplus 30,888 34,864 43,338 50,588

Shareholders’ equity 31,195 35,173 43,648 50,898

Total equity & liabilities 1,40,078 1,56,746 1,59,484 1,68,518

Source: Company, PhillipCapital India Research Estimates

Cash Flow Y/E Mar, Rs mn FY19 FY20e FY21e FY22e

Pre-tax profit 7,613 8,554 9,590 12,451

Depreciation 2,109 2,984 3,414 3,771

Chg in working capital (483) (6,203) 8,645 368

Total tax paid (2,918) (2,465) (2,696) (3,414)

Cash flow from operating activities 10,353 7,502 22,519 15,742

Capital expenditure (7,120) (3,547) (2,532) (1,831)

Chg in investments (841) 0 - -

Cash flow from investing activities (8,349) (1,325) 1,039 (1,026)

Free cash flow 3,233 3,955 19,988 13,911

Equity raised/(repaid) - - - -

Debt raised/(repaid) 2,322 2,030 (14,024) (4,757)

Dividend (incl. tax) (469) (539) (629) (1,003)

Other financing activities (4,038) (8,025) (4,533) (3,597)

Cash flow from financing activities (2,185) (6,534) (19,185) (9,357)

Net chg in cash (182) (357) 4,374 5,360

Valuation Ratios

FY19 FY20e FY21e FY22e

Per Share data

EPS (INR) 28.8 36.6 41.4 54.6

Growth, % 63 27 13 32

Book NAV/share (INR) 203.3 227.3 282.1 329.0

FDEPS (INR) 28.8 36.6 41.4 54.6

CEPS (INR) 42.3 55.9 63.4 79.0

DPS (INR) 3.0 3.5 5.5 5.3

Return ratios Return on assets (%) 5.5 6.4 6.2 7.0

Return on equity (%) 15.2 17.1 16.2 17.9

Return on capital employed (%) 11.3 13.6 13.8 16.4

Turnover ratios Asset turnover (x) 2.1 2.5 2.5 2.8

Sales/Total assets (x) 0.8 0.9 0.9 0.9

Sales/Net FA (x) 3.1 4.0 4.3 5.1

Working capital/Sales (x) 0.2 0.2 0.2 0.2

Working capital days 62 70 68 66

Liquidity ratios

Current ratio (x) 1.5 1.5 1.4 1.4

Quick ratio (x) 1.3 1.3 1.2 1.3

Interest cover (x) 0.4 0.4 0.3 0.2

Dividend cover (x) 9.6 10.6 7.5 10.4

Total debt/Equity (%) 108 102 51 35

Net debt/Equity (%) 99 95 36 12

Valuation

PER (x) 14.6 11.5 10.2 7.7

PEG (x) - y-o-y growth 0.2 0.4 0.8 0.2

Price/Book (x) 2.1 1.8 1.5 1.3

Yield (%) 0.7 0.8 1.3 1.3

EV/Net sales (x) 0.9 0.8 0.6 0.5

EV/EBITDA (x) 7.4 6.2 4.9 3.8



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. We have different threshold for large market capitalisation stock and Mid/small market capitalisation stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.

Large cap stocks Rating Criteria Definition

BUY >= +10% Target price is equal to or more than 10% of current market price

NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%

SELL <= -10% Target price is less than or equal to -10%.

Mid cap and Small cap stocks 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%.

Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.

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This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.

J-19 B (TP 700)

B (TP 675)

B (TP 695)

0

100

200

300

400

500

600

D-16 F-17 M-17 M-17 J-17 A-17 O-17 N-17 J-18 F-18 A-18 J-18 J-18 S-18 O-18 D-18 F-19 M-19 M-19 J-19 A-19 O-19 N-19



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Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in

this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the

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Sr. no. Particulars Yes/No

1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL

No

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No

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No

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Kindly note that past performance is not necessarily a guide to future performance.

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IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report is a product of PhillipCapital (India) Pvt. Ltd. which is the employer of the research analyst(s) who has prepared the research report. PhillipCapital (India) Pvt Ltd. is authorized to engage in securities activities in India. PHILLIPCAP is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.

Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through PHILLIPCAP. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor.

The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication Compensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months. Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither PHILLIPCAP nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report.

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Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States.

The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments.

Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by PHILLIPCAP with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein.

No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior written consent of PHILLIPCAP and PHILLIPCAP accepts no liability whatsoever for the actions of third parties in this respect.

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