Kalpataru Power Reports Decline in Profit, Expects Margin Improvement In FY14

Kalpataru Power Transmission (KPTL), an engineering procurement and construction (EPC) company from Gandhinagar, Gujarat has announced an 11% revenue growth to Rs 878 crore for the third quarter of the current fiscal. The net profit, however, has declined by 13% to Rs 35 crore. The slide in the net profit is mainly due to the rise in the subcontracting and employee expenses. Its order book as of Dec 31, 2012 stands at Rs 11400 crore with an order flow of Rs 1610 crore in the third quarter.

EBITDA margins for the quarter stood at 10.08%, down by 177 basis points (bps) on a YoY basis. (1 bps is a hundredth point of one percent). On a sequential basis, however, the margins have improved by 110 bps largely due to the lower growth in its cost of materials compared to the same in the earlier two quarters. As per cent of sales, cost of materials has declined for the first time in the last four quarters which has improved its EBITDA margins sequentially.

Erection and subcontracting expenses, another cost item has rose by 25% to Rs 233 crore. The rise in the subcontracting expenses indicate that the company is starting major EPC projects due to which revenues are expected to rise in the next fiscal. The management hinted that the margins may remain under pressure in Q4 as well. Its employee expenses during the quarter rose sharply by 36% to Rs 53 crore due to the revision of salaries.

The company, during the quarter, saw the interest expenses declining by 2.5% to Rs 34.73 crore. The taxes in absolute terms have decreased by 7.6% to Rs 15.2 crore, its effective tax rate, however, increased marginally by 31% during the quarter. The company has reported net profit margins of 3.95%, which are highest in the current fiscal (FY13).

The management, during the conference call, said that it is expecting some big orders in next few weeks. It is also expecting a large order from international market through its 67% subsidiary JMC Projects. 

The management also said that it is now set to bag orders in high voltage transmission lines space as the country is looking to increase the high voltage (HV) transmission lines. In that space competition remains low due to which margins will improve going ahead. The company also said that the debt by the end of Dec 31, 2012 remained at Rs 1800 crore which will come down by about Rs 200 crore by March 2013.

Of its current Rs 11400 crore order book, 55% is contributed by Factories and Buildings while rest 45% is from infra and power projects. It has said that at the current scenario, the growth is difficult but remains robust on the next year’s growth outlook.

It has also said that it has enough orders in road projects for the next 18 months and that within the next six months some of its road project orders will be executed. 

The stock has been an out performer in the last six months as it has surged over 30% beating the broader markets. The management has said that in the next quarter, there would be some margin pressure but it will start executing some big ticket high margin orders which will see FY14 starting with good numbers.