Large order wins to propel earnings growth for Kalpataru Projects: Report

Kalpataru Projects is likely to see robust earnings growth driven by large order wins, particularly in the oil & gas (O&G) segment, brokerage firm Motilal Oswal said in a note.

Kalpataru Projects has secured a letter of intent (LoI) from Saudi Aramco for the Engineering, Procurement, and Construction (EPC) of the third expansion phase of MGS-3, with a project worth $10 billion divided into 17 packages. The development reflects company’s prominence in industry, with the company awarded three packages crucial to the project. The tentative order value is estimated to be between $850-950 million, with execution expected to commence in fiscal year 2025 and ramp up sharply from fiscal year 2026 onwards.

Additionally, the company stands to benefit from improving addressable market for domestic Transmission & Distribution (T&D). With the annual addressable market expected to reach close to Rs 40,000 crore, Kalpataru Power aims to increase its market share to 20-25 per cent in the current scenario, the Mumbai-based brokerage noted.

The report also highlights its continuous reduction in promoter pledge, which has further decreased to 12.8 per cent in March 2024. This reduction, coupled with a decline in loan against shares, signifies a positive trajectory for the company. As KPIL nears completion of low-margin projects in domestic T&D and experiences relatively lower commodity prices, margin improvement is anticipated, along with a reduction in the working capital cycle, Motilal Oswal said.

In terms of financial outlook, Motilal Oswal estimates a Compound Annual Growth Rate (CAGR) of 24 per cent, 32 per cent, and 47 per cent in KPIL's revenue, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), and Profit After Tax (PAT) respectively over fiscal years 2024-2026. The growth is expected to be driven by order inflow growth, recovery in EBITDA margin, and control over working capital.

Based on these factors, Motilal Oswal reiterates buy on Kalpataru Projects for target price of Rs 1,200, citing potential valuation re-rating for the company due to its large order wins and pledge reduction. However, the report also highlights key downside risks, including a slowdown in order inflows, commodity price spikes, and increased receivables and working capital.