Axis Securities Initiates Coverage On Kalpataru Projects With 'Buy', Sees 25% Upside—4 Key Reasons

Kalpataru Projects stock rose as much as 2.85% during the day to Rs 1,312.5 apiece on the NSE after Axis Securities initiated coverage. The brokerage has initiated coverage with a 'buy' recommendation and a target price of Rs 1,590 per share. This implies an upside potential of 25% from the current market price.

The company's strong order book, diversified business and disinvestment of non-core assets have been cited as reasons of coverage. As an industry leader with a solid track record, KPIL is well-equipped to leverage its strong order book, efficient execution capabilities, and favourable sector dynamics, according to the brokerage.

Strong Order Book

The company's strong order book is set to drive revenue growth. As of Sep. 30, 2024, the company's order book stands at Rs 60,631 crore, offering revenue visibility for 2-2.5 years.

The order inflow for the next year till date is Rs 17,325 crore. This reinforces confidence in achieving the financial year 2025 order inflow target of Rs 22,000-23,000 crore. It is projected to achieve a CAGR of 18% in revenue, 20% in EBITDA and 33% in PAT over FY24-FY27, reflecting its robust growth potential.

Diversified Business

The company has a diversified business with geographical presence. The order book is well-diversified, according to the brokerage, with 37% allocated to Power Transmission and Distribution, 22% to Buildings and Factories, 17% to Water, 14% to Oil & Gas, 6% to Railways, and 4% to Urban Infrastructure.

This diversification displays the company's presence across multiple infrastructure segments, ensuring profit maximisation and operational stability. For FY25, 80-85% of order inflows are anticipated from high-margin segments such as Transmission and Distribution and Buildings and Factories.

On the international front, the robust T&D order pipeline is expected to drive around 25% year-on-year topline growth in Linjemontage. Fasttel is completing legacy projects and witnessing an uptick in its order backlog. EBITDA margins are projected to improve to 9% and above in the coming periods, reinforcing the company's profitability outlook.

Restructuring Of Business

The company has been restructuring its business through divestment of non-core assets. The company plans to divest its three Road BOOT projects, Warehouse business, and Real Estate business in Indore.

The management expects the divestment of the Indore projects to be completed by the end of the next year. In October 24, the company entered into a definitive agreement to sell its entire 100% stake in Valued Epistemics Ltd to Actis Atlantic Holdings Ltd for an estimated EV of Rs 775 crore. This restructuring aims to create a leaner balance sheet and enhance focus on core profitable businesses, according to the brokerage.

Reduction In Promoter's Pledge

The company's healthy financials are paired with reduction in promoter's pledge. The company maintains a robust financial position, driven by its emphasis on reducing working capital days.

Furthermore, the promoter's pledge has lowered from 32% to 24.6%. This reduction and ongoing asset monetisation initiatives strengthen the company's financial health and improve its overall growth prospects, according to Axis Securities.

Kalpataru Projects Share Price

Kalpataru Projects stock rose as much as 2.85% during the day to Rs 1,312.5 apiece on the NSE.

It was trading 0.51% higher at Rs 1,282.6 apiece, compared to an 0.48% decline in the benchmark Nifty 50 as of 12:56 a.m. It has risen 80.35% in the last 12 months. The relative strength index was at 52.43.

14 out of the 16 analysts tracking EPC company have a 'buy' rating on the stock while two recommend 'hold,' according to Bloomberg data.

The company has established itself as a key player in the international engineering and procurement and construction market, leveraging its high-growth and diversified business model to deliver innovative solutions. Kalpataru Projects consistently focuses on creating sustainable value for diverse stakeholders, reinforcing its reputation as a reliable and forward-looking organisation.