Kalpataru Projects Q1 earnings beat supports FY27 order inflow and margin growth outlook

Investment View and Valuation

PL Research downgraded Kalpataru Projects International (KPIL) to Accumulate from Buy after the recent share-price rally, despite describing Q1 FY27 as healthy and retaining a positive long-term view.

The broker's constructive thesis is based on KPIL's strong multi-segment order pipeline, geographical expansion across the Middle East, Latin America and Europe, increasing pre-qualification for larger contracts, balance-sheet improvement and backward integration. Sustained momentum in Transmission and Distribution (T&D), Building and Factory (B&F), and Oil and Gas (O&G) is expected to support growth and margin improvement.

PL Research's sum-of-the-parts target price is Rs1,472, raised from Rs1,466. The merged KPP and JMC business is valued at 16 times March 2028 earnings, contributing Rs1,403 per share. The balance of the valuation comes from Linjemontage, Fasttel, Shree Shubham Logistics and road BOOT assets. The standalone business represents about 95 per cent of total valuation.

Q1 FY27 Financial Performance

KPIL's standalone Q1 FY27 revenue rose 8.8 per cent year on year to Rs54.8bn, 2.7 per cent above PL Research's estimate of Rs53.4bn. Growth was led by T&D, O&G, B&F and urban infrastructure, partly offset by declines in water and railways revenue.

EBITDA increased 13.9 per cent year on year to Rs4.9bn, exceeding PL Research's Rs4.5bn estimate. EBITDA margin expanded 40 basis points to 8.9 per cent as gross margin increased 242 basis points to 25.6 per cent. This improvement was partly offset by a 21.5 per cent increase in employee cost and a 26.7 per cent increase in other expenditure.

Adjusted PBT rose 31.7 per cent to Rs3.6bn, aided by higher other income and a 19.4 per cent reduction in interest expense. Adjusted PAT increased 32.2 per cent to Rs2.7bn, which was 25 per cent above the broker's estimate.

Order Inflow and Order Book

Q1 FY27 order inflow fell 22.5 per cent year on year to Rs76.7bn because of a sharp decline in B&F inflow. T&D accounted for Rs41.6bn of order intake, followed by B&F at Rs28.2bn, water at Rs3.4bn and railways at Rs1.9bn. The domestic and export mix of order inflow was 69 per cent and 31 per cent, respectively.

The company reported a total order book of Rs666.1bn, equivalent to 2.8 times trailing 12-month sales. The order book comprised 61 per cent domestic and 39 per cent export projects, and KPIL is favourably placed in projects worth about Rs73bn.

Management maintained its FY27 guidance for order inflow of more than Rs300bn, revenue growth of at least 15 per cent and consolidated PBT margin expansion of about 75 basis points.

Growth and Margin Outlook

Transmission and Distribution

Management expects T&D, B&F and O&G to drive margin improvement. It sees an annual T&D addressable market of Rs1-1.25tn over the next five years, including opportunities in HVDC, GIS substations and renewable-energy integration.

International grid-capacity constraints amid rising electricity demand support opportunities in Europe, the Middle East and parts of South America. However, international supply-chain constraints remain a challenge.

Building and Factory

B&F demand is supported by large residential, commercial-office, airport, data-centre and urban-development projects. The B&F order book has an EBITDA margin range of 10-12 per cent.

KPIL has completed two data-centre projects, is executing a third and expects to secure some civil and mechanical, electrical and plumbing projects over the next 6-9 months.

Water and Oil and Gas

KPIL secured its first Middle East water-treatment and supply project and sees desalination as an incremental opportunity. Water collections of about Rs6.5bn year to date have improved, but the business remains at an early stage of building its Middle East order book. Water margins are positive but below those of T&D, B&F and O&G, while PBT was affected by higher interest costs.

O&G growth was supported by Saudi Arabian project execution. The company is bidding for projects in Saudi Arabia, ADNOC, Kuwait and Qatar, with awards expected to pick up in late Q2 or Q3. Individual opportunities range from US$100mn to US$500mn.

Balance Sheet, Forecasts and Key Monitorables

Standalone net debt declined to Rs7.5bn and net working-capital days were 94. Management is targeting net working capital below 100 days in FY27.

PL Research raised its FY27 and FY28 EPS estimates by 3.5 per cent and 1.5 per cent, respectively.

Key risks and monitorables identified by PL Research include:

• International supply-chain constraints.
• Execution in the Middle East.
• Slower water collections.
• Labour shortages.