Zerodha - P&P, BS Lessons

Jan 11, 2019
Transmission Sector Outlook

India Research - Stock Broking
India Power Scenario:

The focus of investments in the Indian Power sector has typically been on the
generation segment, while the importance of Transmission and Distribution segment
has always been undervalued. It is said that the investment in transmission sector shall
be equal to the investment in generation sector. Power sector in India is growing at a
rapid pace. With electricity demand reaching 1894 TWh by 2022 and peak demand
Watch video for a quick summary of increasing every year with T&D losses at an average of 22%, an investment of
this report Rs. 2.6 tn is envisaged during 13th FYP in the Transmission and Distribution sector.
Orders from PGCIL has been flat over previous years, but SEB’s
coming forward:
Order inflow from PGCIL has been consistently down for all the four quarters due to
major focus on TBCB orders and joint ventures with different SEBs of different states
(JV of PGCIL with Bihar and UP).The JV with SEBs and TBCB (Tariff Based Competitive
Bidding) projects would ensure larger orders from the PGCIL in the coming quarters.
However, to compensate the lower PGCIL tenders, the local bodies and SEBs are
actively participating in the ordering activity due to the major support provided by the
government initiated policy UDAY. The private sector ordering activity is still subdued.
The order booking by major T&D EPC players has increased by more than 30% (From
Rs. 8300 cr to Rs. 10800 cr) majorly contributed by the growth of order booking from
the SEB players. We expect the ordering activity to pick up in the coming quarters
on the back of strong government policies like Power for All, UDAY, Deen Dayal
Updadhaya Gram Jyoti Yojana (DDUGJY), Housing for all and Saubhagya scheme.
Exhibit 1&2 table emphasizes the investment to be made in global T&D and India.
We expect niche players of the sector like KEC International and Kalpataru Power to
perform well on the back of strong footing by T&D sector.
Railways ordering activities on a rapid growth and aims to

double their capacity:
The outlook for this sector is very positive. The railway department has set forth the
plans for expansion and also upgradation and modernization of existing infrastructure.
FY19 budget outlay of Rs. 148000 is expected to augur well for the sector. The
railways commissioned around 8000 kms of tracks which are expected to be double
i.e. 16000 kms during FY19. The EPC players like KEC International and Kalpataru
Power are also expecting to double their revenues from railway segment. The railways
have set a 100% electrification target by next four years. The EPC players’ order book
has been already surged by railway orders.
Coverages:
With the growth imperatives in international and domestic T&D sector along with huge
Analyst Contact potential in other infrastructure sectors like Railways and Civil. We initiate a coverage
Ankit Soni with “BUY” rating for a target price on KEC (Rs. 376) and KPTL (Rs. 497).
040 - 3321 6274
soni.ankit@karvy.com
For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material.
Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, Thomson Publishers & Reuters
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Jan 11, 2019
Resurgence of international business:

The EPC players are looking big for an opportunity in the international markets. The
following are the key nations and the T&D demand drivers in respective nations.
Exhibit 1: T&D sector demand drivers across nations

Region Key nations Key demand drivers
Energy, Railways and Civil are the
India India
priorities of government.
Low per capita electricity consumption,
Africa Uganda, Kenya
Interconnections is being planned.
Upcoming ultra mega power plants, grid
Middle East Saudi, UAE, Oman
accessibility is required.
New 228000 kms of lines to be laid, cross
South America Brazil
country lines are also planned.
Afghanistan, Bangladesh, Nepal Expansion of India’s cross border
SAARC
and Bhutan interconnection.
Source: Company, Karvy Research
Exhibit 2: Investment in Power T&D (USD Bn)

Region/Country 2016-25 2026-40 Total 2016-40
Africa 202 598 800
Americas 410 619 1029
Asia 1387 2310 3697
Europe 373 489 862
India 291 566 857
Latam 158 288 446
Source: World energy outlook 2016, Karvy Research
All the EPC players have strong business potential in the above countries and looking
for huge business from the above mentioned countries.
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Jan 11, 2019
Indian Power Scenario:

India is world’s third largest producer of electricity behind China and US and also
ranked fifth when it comes to installed power capacity of 344 GW. India’s power sector
The electricity demand is is dominated by fossil fuels particularly coal producing almost two thirds of electricity.
expected to reach 1894 The Power sector in India is under a major paradigm shift by deleveraging on fossil
TWh entailing a huge fuels and with huge focus on generation of power from renewable energy. The New
growth in production of National Electricity plan calls for 57% of India’s total electricity to come from non fossil
electricity supported by fuel by 2027. Both renewable and conventional sources of fuel have to play a very
growth in generating important role in meeting the demand of electricity in India.
capacities.
India’s power sector is one of the most diversified in the world. Electricity demand in the
country has increased rapidly and is expected to rise further in the years to come. In
order to meet the increasing demand for electricity in the country, massive addition to
the installed generating capacity has been done in the past. Over FY10-17, electricity
production expanded at a CAGR of 5.7%, reaching 1206 billion units (BU) in FY18.
Exhibit 3: Electricity production in India (BU)

1206
1005
804
1206
1160
603
1108
1049
967
912
877
811
402
772
201
0
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18
Electricity production in India (BU)
Source: Company, Karvy Research, Note: 1 unit= 1 KWH = 1000WH
Installed capacity increased at a CAGR of 10.6% in FY07–17:

Among the different sources of power generation in India (~344.00 GW as on Mar
2018), about 64% or 222.09 GW is contributed via thermal power and rest via nuclear
(~1.9% or 6.78 GW), hydro (~13% or 45.29 GW) and renewable source (~20.06%
or ~69.02 GW) as on March 2018. The CAGR growth in the installed capacity over
FY07-17 was 10.9% for thermal power, 24.9% for renewable energy (the fastest among
all), 2.8% for hydro power and 6.3% for nuclear power.
Exhibit 4: Installed capacity (GW) Exhibit 5: Installed capacity from different sources
345
Nuclear Renewable
230 2.0% 20.0%
344
327
298
268
243
223
115
200
Hydro
174
159
Thermal
148
143
132
13.0% 65.0%
0
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
Installed capacity (GW)
Source: Company, Karvy Research Source: Company, Karvy Research
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Jan 11, 2019
For the 12th Five-Year Plan, a total of 88.5 GW of power capacity addition was targeted;
of which, 72.3 GW constitutes thermal power, 10.8GW hydro power and 5.3 GW
nuclear power. Out of 88.5 GW addition plan, about 26,182 MW would be installed by
centre, 15,530 MW by state and 46,825 MW by the private sector. Against the target of
88.5 GW for the 12th Five Year Plan 2012-17, 99 GW capacity additions was done up
to March 2017, constituting about 112% of the target. The individual target achieved by
centre was 78.11%, state was 163.44% and private players was 115.92%.
Exhibit 6: Capacity addition and targets in 12 the five year plan

Therma Hydro Nuclear Total
Target Ach Target Ach Target Ach Target Ach
Central 14878 15869 6004 2584 5300 2000 26182 20453
State 13922 22201 1608 2276 0 0 15530 24477
Private 43540 53661 3285 619 0 0 46825 54280
All India 72340 91731 10897 5479 5300 2000 88537 99210
Source: Central Electricity Authority (CEA) , Karvy Research
India’s per capita electricity consumption is lowest among the BRICS nations. It is also
about 1/3rd of the world’s average per capita electricity consumption and is just 10% of
that of Australia, 7.5% of USA and 6.6% of Canada. The per capita consumption in UK
is also more than five times that of India. India per capita electricity consumption has
been continuously increasing over the years. From 734 kWh in 2008-09, the per capita
consumption has reached 1,122 KWh in 2016-17, an increase of 53% in nine years.
The per capita consumption has been increasing at an average of 6% every year. The
expansion in industrial activity, growing population and increasing per capita usage will
drive demand for electricity.
Exhibit 7: Per capita energy consumption (KWh) Exhibit 8: Energy consumption in (KWh)
1200 7000
1000 6000
6562
800 5000
1122
600
1075
4000
1010
957
914
884
4328
819
779
400
734
717
672
3000
631
3766
200
2000
957
2583
0
1000
2005-06
2006-07
2007-08
2008-09
2009-10
2010-11
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
0
South Africa China India Russia Brazil
Per capita energy consumption (KWh) Energy consumption in (KWh)

Source: Power Ministry, Karvy Research Source: Company, Karvy Research
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Jan 11, 2019
Deficit at peak power demand:

India’s Power sector recorded 0.7% peak deficit for the second year in a row, staying
on course to achieve its goal of surplus power. As much as 164.07 GW was demanded
during peak hours, of which 160.75 GW was supplied, resulting in a peak deficit of
3.31 GW in 2017-18. This was primarily due to sustained and broad-based capacity
addition.
Exhibit 9: Deficit analysis in normal and peak demand scenario

Energy Surplus/Deficit Peak Surplus/Deficit
Year
Requirement Availability MU (%) Peak demand Peak Met MW (%)
2009-10 830594 746644 (83950) (10.1) 119166 104009 (15157) (12.7)
2010-11 861591 788355 (73236) (8.5) 122287 110256 (12031) (9.8)
2011-12 937199 857886 (79313) (8.5) 130006 116191 (13815) (10.6)
2012-13 995557 908652 (86905) (8.7) 135453 123294 (12159) (9.0)
2013-14 1002257 959829 (42428) (4.2) 135918 129815 (6103) (4.5)
2014-15 1068923 1030785 (38138) (3.6) 148166 141160 (7006) (4.7)
2015-16 1114408 1090850 (23558) (2.1) 153366 148463 (4903) (3.2)
2016-17 1142929 1135334 (7595) (0.7) 159542 156934 (2608) (1.6)
2017-18 1212134 1203567 (8567) (0.7) 164066 160752 (3314) (2.0)
2018-19* 769399 764627 (4772) (0.6) 177022 175528 (1494) (0.8)
Source: Power Ministry, Karvy Research, *Up to Oct 2018
Shift to renewable source of power generation but thermal

continues to dominate:
Among the various sources of power generation there was huge capacity built up
A humongous capacity in thermal power with a share of 65% in total power generation. Share of renewable
of 175GW for renewable started to pick up significantly from 11th FYP and currently stands at 20% as on Mar
power is targeted by 2022. 2018. During 11th FYP, thermal power generation capacity grew at CAGR of 9%
Which places transmission whereas renewable power source grew by 26% CAGR during the period. The
sector in the major focus government has targeted a massive target of 175 GW of renewable power capacity
for evacuation of electricity addition by 2022. This comprises generation of 100 GW from solar power, 60 GW from
generated. wind energy, 10 GW from biomass and 5 GW from small hydro projects.
Overview of transmission sector:

The transmission segment plays a key role in transmitting power continuously from
the generation plants to various distribution entities which in turn supplies power to
end consumers. Powergrid Corporation of India Limited (POWERGRID), a Central
Transmission Utilities (CTU), is responsible for planning Inter-State Transmission
System (ISTS). At the same time, there is State Transmission Utilities (STU) like State
Transco/State Electricity Boards (SEBs) engaged in the development of intrastate
transmission systems. The nominal Extra High Voltage lines in vogue are ± 800 kV
High Voltage DC (HVDC) and 765 kV, 400 kV, 230/220 kV, 110 kV and 66 kV AC lines.
The total length of 220 KV and above transmission lines in India has increased from
257,481 ckm in financial year 2011-12 to 364,935 ckm in March 2018. Despite this
growth, the grid is still suffering with congestion today. The reason can be largely
attributed to focus on augmenting the generating capacity and relatively less focus on
planning for evacuation of power or reactive planning of the transmission expansion.
Historically, the generation segment has dominated investments in the Indian Power
sector. Of the total power sector investments, more than 60% were for the generation
sector, while the transmission and distribution segment has lagged with approximately
20% of the total investments.
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Jan 11, 2019
There has been a strong growth in the transmission system at higher voltage levels and
substation capacities (400 kV and above). This is a result of an increase in the demand
for transmission networks to carry bulk power over longer distances and at the same
time optimize the right of way, minimize losses and improve grid reliability.
Competition being restricted to 4-5 players:

The entry of infrastructure players into transmission EPC space was a worrisome for
players like KEC, KPP and Larsen & Toubro (L&T). The low entry barriers with decent
Many small infra players profitability have attracted the new players in the transmission EPC industry. The
have burnt their hands new player’s entrance impacted with cut throat competition resulting in aggressive
after jumping in the and competitive bidding. Due to this competition, the established players like KEC,
T&D sector due to lower Kalpataru, etc. have restrained from bidding and let go the orders which resulted
execution capabilities in lower revenues and stagnant performance during FY11-14. At the completion
and bidding clauses of stage, major of these new players could not complete the projects and delayed the
PGCIL. The sector is now projects. PGCIL then started restricting its orders to bidders only with good track record
restricted to major 4-5 of timely delivery and execution of the projects. Vendors who won the orders and could
players. not complete the projects within time are technically not qualified for the next round
of bidding or orders from PGCIL. It is a fact that PGCIL earns fixed Return on Equity
(ROE) on its capitalized assets rather on WIP. The unfinished works by vendor forms
part of WIP giving no returns. Therefore, PGCIL has barred the players from bidding
who don’t have a good track record of execution.
Consolidation has taken place in the sector which could be visible in gaining market
share of the efficient players. The top four players (KEC Int, Kalpataru, L&T, Skipper)
now account for 75% of orders awarded by PGCIL during FY18.
Growth drivers for transmission sector:

With the government’s focus on reducing transmission losses and providing
power to all, it is expected that investments in transmission sector may witness robust
growth with a 33% share in total investment in Power sector. With such large additions
and huge projects, an investment of 3-3.5 tn is expected over FY19-23.
yyRise in electricity demand: The all India demand for electricity is expected to
Transmission sector
grow from 1212BU to 1691BU by 2022 and 2509BU by 2027 representing a CAGR
transitional shift to high
of 8%. The rise in power demand and consumption would lead to higher investment
voltage cable from low
in transmission and distribution space. With such a huge increase in demand, India
voltage cables would
needs a large scale of investment to ensure the delivery of power to consumers.
benefit the established
players in the industry. yyShift towards Renewable energy to push transmission capacity: The
government’s plan of adding 175 GW of renewable power by 2022 would envisage
a yearly capacity addition of 15-20 GW. Given the ambitious target, it is crucial to
plan for evacuation of electricity generated. Renewable power developers have
raised the concern for grid availability in the past which highlights the urgent need
of expansion of grid connectivity to accomplish the renewable energy target.
yyIncreasing inter regional power demand - supply gap: The Indian power
scenario is such that different regions of India has different power demand and
availability leading to some states being power surplus and some states being
power deficit. This translated into a gap between generation and consumption
pockets which demands for higher evacuation capacity leading to increase in
inter-state transmission capacity.
yyGreen Energy Corridor: India is also planning to add massive amounts of renewable
energy (RE) over the next 4-5 years. Renewable energy inherently is volatile and
intermittent and as such would negatively impact the normal transmission networks.
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Jan 11, 2019
Hence, it would be necessary to create a dedicated independent transmission

corridor to evacuate the resultant firm power. The Green Energy Corridor project
would be a dedicated stable network to transmit mass chunks of power from rich
renewable energy power states to the ones with higher energy demands by creating
intra-state and inter-state transmission infrastructure. The intra-state transmission
component would be implemented by respective states, while PGCIL would
execute the inter-state part. The project, initially estimated to cost Rs. 430 bn will be
implemented with financial and technical assistance from Germany.
yyShift to higher voltage an advantage to T&D players: The Indian grid is shifting
its move from low voltage cables to high voltage cables with new and improved
technologies. Currently, inter-state transmission runs at 400/765KV level. Higher
voltage would lead to more transfer of power with reduction in ATC losses. Similarly
new technologies like HVDC, static compensators are being used to make the grid
more stable and consistent.
Government’s thrust on transmission sector:

An extensive network of Transmission lines has been developed over the years for
evacuating power produced by different electricity generating stations and distributing
the same to the consumers. 13,234 circuit kilometers (ckm) of transmission lines have
been commissioned during April-November 2018. This is 58% of the annual target of
22647 ckm fixed for FY19. The capacity of transmission system of 220 KV and above
voltage levels in the country as on November 2016 was 3,64,935 ckm of transmission
lines and 6,87,637 MVA of transformation capacity of substations.
The total expected addition of transmission lines during this plan is expected at
1,05,580 ckm, taking the cumulative addition at the end of the plan to 4,70,515 ckm.
Inter-state lines with a capacity of around 56,000 MW are being planned by the end
of the 13th FYP. Further, the 13th FYP will see 2,92,000 MV addition of transformer
capacity from 6,87,637 MV to 9,79,637 MV and HVDC bipole line will almost double
with the addition of 14,000 MW of HVDC bipole line during this plan reaching 30,500
MV at the end of 13th FYP.
Exhibit 10: Plan wise addition in the transmission industry

Transmission system / At the end of At the end of At the end of Expected during At the end of
Voltage class 10th plan 11th plan 12th plan 13th plan 13th plan
Transmission lines
HVDC bipole lines 5872 9432 15535 4280 19815
765KV 2184 5250 29431 27300 56731
400KV 75722 106819 157644 46000 203644
230/220KV 114629 135980 162325 28000 190325
Total Transmission lines 198407 257481 364935 105580 470515
Substations (MVA)
765KV 0 25000 155000 114000 269000
400 KV 92942 151027 234372 103000 337372
230/220 KV 156497 223774 298265 75000 373265
Total substation 249439 399801 687637 292000 979637
HVDC (MV)
Bi-pole link capacity 5000 6750 13500 14000 27500
Back to back capacity 3000 3000 3000 0 3000
Total HVDC 8000 9750 16500 14000 30500
Source: National Electric Policy (NEP), Karvy Research
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Jan 11, 2019
An addressable Rs. 2.6 Tn opportunity:

Based on the capacity addition required for the inter-state (ISTS) and intra-state
transmission systems, a capex of Rs. 2.6 tn is estimated over the 13th FYP. Out of
the Rs. 2.6 tn transmission capex envisaged during the 13th FYP, PGCIL is expected
to contribute Rs.100000 crore and balance Rs.160000 crore is estimated to be
A huge Rs. 2.6 tn market
contributed by SEBs/Discoms and private players. This reflects a clear shift of capex
is available for the major
from PGCIL to SEBs, indicating increased opportunities from states. As per the draft
industry players.
NEP, a total of 105580 ckm of transmission is planned from FY17-22, of which 69% of
lines are in 400kV and 765kV. This will further benefit bigger organized players such as
KEC International to garner larger share of incremental orders.
Physical Additions
Investment Envisaged
Planned (incl. States)
1,06,000 ckm of
~Rs. 2,60,000 crore
Transmission lines
Powergrid’s Investment 292,000 MVA

Plan Rs. 1,00,000 crore Transformation Capacity
Rest under TBCB and 14,000 MW HVDC

intra-State Bi-pole line
Global power outlook:

The global T&D space envisages an investment of US$ 2.9 tn for 2016-2025 and
US$ 5.0 tn during 2026-40. Of the total investment, India’s share would be
US$ 291 bn and US$ 566 bn for corresponding periods. India will be contributing 30%
of total demand growth, the largest among all the nations and its share will be around
11% of global power by 2040.
The following are the key factors defining the global energy outlook:
yyGlobal energy need rises by 25% majorly from non OECD nations: Global
energy demand is likely to surge nearly 25%. The major nations contributing to this
growth are non-OECD nations (ex. China, India) where demand is likely to surge by
40%.
yyRising middle class people and improvement in standard of living: By 2030,
the world’s middle class is likely to expand from 3 bn to 5 bn. With the growth, there
will also be improvement in living standards with modern business and access
to cars and other necessary items. This would envisage the higher demand of
electricity.
yyRapid deployment and steep declines in the costs of major renewable
energy technologies: Rapid deployment of solar photovoltaics (PV), led by China
and India, will help solar become the largest source of low-carbon capacity by 2040.
Among the most rapidly expanding source of energy will be power from solar and
wind. The combined share of solar and wind to global electricity would be tripled by
2040.
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Jan 11, 2019
yyChanges in China’s economy and energy policy, moving consumption away

from coal: China is entering a new phase in its development, with the emphasis in
energy policy now firmly on electricity, natural gas & cleaner energy, high-efficiency
and digital technologies. China has high presence in coal markets, but the WEO
estimates that coal use is set to decline by almost 15% by 2040.
Exhibit 11: Electricity demand by region Exhibit 12: Investment in power T&D
Region/Country 2020 2025 Growth (%) Region/Country 2016-25 2025-40 Total
Africa 762 921 20.9 Africa 202 598 800
Americas 4948 5100 3.1 Americas 410 619 1029
Asia 8834 10500 18.9 Asia 1387 2310 3697
East Europe 1474 1571 6.6 East Europe 171 266 437
Europe 3316 3424 3.3 Europe 373 489 862
India 1336 1759 31.7 India 291 566 857
Latin America 1094 1238 13.2 Latin America 158 288 446
Middle East 984 1153 17.2 Middle East 95 218 313
South East Asia 966 1206 24.8 South East Asia 221 482 703
World total 23186 25755 11.1 World total 2989 5070 8059
An outlook on major international geographies:

SAARC:
SAARC continues to be the most prominent nation for the companies in T&D space.
SAARC countries to The countries of South Asian Association for Regional Cooperation (SAARC)
provide huge T&D continue to be pictured as having low per capita energy consumption, poor quality of
opportunities due to higher infrastructure , inaccessible and costly energy availability. There is focus on increasing
energy deficits levels the power connectivity in this region as these countries are unable to meet their power
prevailing in the countries. demand. The development of transmission system in these regions will get a balance
between capacity and requirement in an efficient manner. The private investments
in Bangladesh are offering a new market opportunity. The growth is also seen in
multilateral funding from agencies such as AAIB (The Arab-African International Bank)
and EXIM bank. Also in Afghanistan, the shift is majorly towards power generation
with renewable in focus. Referring above developments in the SAARC nations,
T&D markets are expected to grow and flourish in the coming years.
Africa-driven by renewable:
In order to have a sustainable growth, the immediate point to be focused is infrastructure
deficit. Ironically the continent which should be leading the global energy supply is
facing bottlenecks in the power sector. Sub-Saharan Africa has the lowest access
to electricity at just 37.5% which is the least when compared to global average. Per
capita electricity consumption is one fifth the global average with wide variations
within African countries. The T&D space also lacks efficiency resulting in significant
T&D losses leading to lower electricity access. The ratio of distribution losses to power
generated has worsened from 11.9% in 2005 to 21.1% in 2014.
Transmission sector in Africa has begun to get attention with significant financial help
from development agencies. As per Mckinsey report “Powering Africa” the investment
in African transmission sector is pegged to be at USD 345 billion. Growing demand
for energy, regulatory and social reforms and need for infrastructure investment in
Africa is making Africa one of the most top energy investment destinations. With the
increasing demand and government’s thrust many foreign players have begun a seek
opportunities to partner with government and local communities.
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Jan 11, 2019
Upcoming projects:
yyGrid co a state power utility in Ghana, is planning to add around 2426 KM of
new lines and 10 substations to Ghana’s high voltage grid by 2024.
yyTransmission hub project for providing interconnection between major power
centers.
yyPlanning to construct 225KV interconnection as a part of WAPP coastal transmission
backbone project.
yyThe WAPP interconnection project is planned for laying of 225KV lines spanning
1349 KM across countries.
MENA region:
The MENA region was facing slowdown in new tenders during past two years. Since
the oil prices is back to the normalized level and government’s focus is to minimize their
dependency on oil revenues, it is expected that some new tenders would be rolled out
faster. The transmission space for Middle East has grown at 5% over 2006-2015 with
major of investment by government owned enterprises. The sector is taking a flip and
encouraging major infrastructure development from private players. Middle East has
been experiencing a huge demand for power due to growing population and rising
standard of living. It is expected that US$ 56 bn is expected to be invested during
2016-25 with major focus towards high voltage projects and balance 15% towards up
gradation of existing lines culminating into opportunities for the T&D companies.
CRISIL ranking on different infrastructure sector:

CRISIL has launched its infrastructure investability index which has a focus on
tracking, measuring and assessing the development, maturity and attractiveness in the
infrastructure sectors.The ranking of index is based on four parameters - policy direction,
institutional strength & regulatory maturity, financial stability and implementation ease.
The respective sector scoring “1” is the least attractive and score “10” represents the
highly attractive sector.
In the first such report, CRISIL mentioned that India would see an investment of close to
Rs. 3000 Cr per day in the infrastructure sector. As per report, spending on such
magnitude requires expeditious resolution of the problem of stressed assets in
banking, front-ending of bankable projects, comprehensive re-tooling of public-private
partnership frameworks, and deepening of the infrastructure financing ecosystem,
which is of tremendous importance.
But it highlighted that the power transmission sector is the most attractive currently with
a rating of 8.1/10 followed by renewable and highways with the ranking of 7.0 and 6.9
respectively.
Exhibit 13: CRISIL Infrainvex Scores

Power transmission 8.1
Renewables 7.0
Highways 6.9
Ports 6.6
Aviation 6.1
Power distribution 5.4
Railways 5.0
Thermal Generation 4.9
Urban 4.5
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0
Poor Weak Stable Mature
Source: CRISIL Infrainvex Report, Karvy Research
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Jan 11, 2019
Railways electrification driving the order book of T&D

companies:
After Transmission and Distribution opportunities,100% electrification of existing
network plan in Railways has emerged as a very big growth driver for T&D space
companies. The existing 38000 rkm is expected to be electrified converting it to annual
average addition of 7600 rkm representing a fivefold jump from 1560 rkm during
FY13-17.
Indian railways are world’s third largest network and fourth largest freight carrier in the
world. There is huge dependency on railways for transportation and also as freight
carrier and thus railways major focus requires laying of new tracks and modernization
of existing infrastructure.
Both the companies (KEC and Kalpataru) have roped in with CORE, RVNL, IRCON,
RITES and PGCIL for the railways business. The outlook for railway sector is very
positive with the govt. planning for network expansion and 100% electrification of
existing routes. The last railway budget has provided ample opportunities with an
increase in capital allocation for Rs. 1.48L crore from Rs.1.31L crore for renewal of
3900 Km of tracks,100 Km of new line construction and1000 Km of gauge conversion
work. etc. This year govt. has set the target for electrification of 6000 tracks in order to
complete its 100% electrification target by 2021.
yyThe major focus of GOI is to enhance the carrying capacity of railways with a strong
rail network.
yyRs. 1.48L crore was budgeted to spend on capacity addition and maintenance of
track and redevelopment of stations.
yy18000 Km of doubling, third and fourth line works and 5000 km of gauge conversion
would augment the capacity and transform the entire network to broad gauge.
yyFurther electrification for 6000 rkm railway lines yearly to reach 100% electrification
Huge overhead railways target by 2021.
opportunities with yyModernization plan under which around 600 stations are expected to be redeveloped
the mission of 100% which will be equipped with Wi-Fi and CCTV cameras and escalators for stations
electrification of tracks by having footfalls more than 25000.
2022.
Exhibit 14: Govt’s investment plan in Indian Railways till 2032
14000
12000
12040
10000
8000
9190
8900
6000
4000
5190
2000
0
12th FYP 13th FYP 14th FYP 15th FYP
Investment plan (Rs. Bn Crore)
11
Jan 11, 2019
Other big opportunities in the railway sector:

Dedicated Freight Corridor:
A dedicated freight corridor is specifically dedicated for movement of freight trains
and is separate from passenger trains network to have an uninterrupted movement of
freight trains. Railway tracks under DFC are provided with high voltage overhead power
line than the normal passenger trains. The Indian Railways’ quadrilateral linking the
four metropolitan cities of Delhi, Mumbai, Chennai and Howrah, commonly known as
the Golden Quadrilateral; and its two diagonals (Delhi-Chennai and Mumbai-Howrah),
adding up to a total route length of 10,122 km comprising of 16% of the route carried
more than 52% of the passenger traffic and 58% of revenue earning freight traffic of IR.
Government is looking to strengthen the transport system through railways by
constructing dedicated freight corridor. The govt. has planned to construct freight lines
along eastern (1856 Km length) and western (1504 Km length) corridor. Due to DFC
project added capacity and efficiency would result in huge investment in railways giving
a huge opportunity to players like KEC International and Kalpataru Power.
Metro and high speed rail:

A provision of Rs. 7000 cr has been kept for the high speed trains in last budget. A
number of new metro rail projects have been planned in cities across the country like
Mumbai, Pune, Delhi Phase IV, Bangalore Phase II, Vizag, Varanasi, Agra, Dehradun,
Coimbatore. Train protection and warning system is another new opportunity rising in
the country.
12
Jan 11, 2019
Construction & Engineering Transmission Sector Outlook
KEC International Ltd

Bloomberg Code: KECI IN

BUY
Strong Order Book to Support Growth Recommendation (Rs.)
CMP (as on Jan 11, 2019) 284
Strong revenue visibility: The company’s revenue had a strong growth of 14.3% Target Price 376
during FY10-18 on the back of strong order book which has grown at CAGR of 18%
Upside (%) 32
during FY10-18 whereas the order booking has shown a growth of 22% during
FY15-18. The current order book of Rs. 201350 mn stands at 1.9x the revenues Stock Information
Mkt Cap (Rs.mn/US$ mn) 72949 / 1034
which provide a very strong revenue visibility of 16% CAGR during FY18-20E.
Upon the strong order book, company also has Rs. 4000 cr worth of orders in L1 52-wk High/Low (Rs.) 443 / 240
position. We expect 70% of revenues to come from T&D segment and railways 3M Avg. daily value (Rs.mn) 107.0
segment to be contributing around 15% of total sales. Beta (x) 1.0
Sensex/Nifty 36010 / 10795
Railways and Civil to be the growth drivers: The railway business is on a O/S Shares(mn) 257.1
strong footing on the back of govt’s focus on increasing efficiency and connectivity Face Value (Rs.) 2.0
of railways infrastructure. In FY18, the company witnessed a major growth in
Shareholding Pattern (%)
railway business with substantial order inflow and a strong closing order book of
Promoters 51.2
Rs.39540 mn which shows more than 100% growth over FY17. The company
FIIs 9.8
during FY18 has commissioned close to 807 rkm of railway electrification works
DIIs 20.6
constituting 20% of total overhead electrification projects. The current order of
Others 18.5
railway division stands at 5 times its revenue which give the indication of doubling the
railway revenues in the coming years. The company in order to expand its product Stock Performance (%)
portfolio has forayed into civil construction business majorly focusing on industrial 1M 3M 6M 12M
plants, residential buildings and commercial complexes. In the first year of its civil Absolute 1 12 (17) (25)
business, the revenues were Rs. 2880 mn and have reached cash breakeven level Relative to Sensex (2) 6 (16) (28)
with a closing order book of Rs. 3496 mn. KEC has recently entered into smart Source: Bloomberg
infrastructure projects majorly focusing on smart cities and communications. We

Relative Performance*
expect with the already proved expertise in turnkey and EPC business this segment
shall be performing well in the coming years. Management is optimistic and targets 120
to double the revenue of civil segment. 100
Valuation and Risks 80
The revenues are expected to grow at 16% CAGR during FY18-20E by execution 60
Mar-18
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
Jan-19
May-18
Feb-18
of huge order book. The overseas T&D opportunities are strongly visible, also the
Sep-18
non T&D business is gaining traction in the international markets. We value KEC for
KEC International Ltd Sensex
15.0x on FY20E EPS for a target price of Rs. 376 representing an upside potential
Source: Bloomberg; *Index 100
of 32%.
Exhibit 15: Valuation Summary

YE Mar (Rs. Mn) FY16 FY17 FY18 FY19E FY20E
Net Sales 87096 87550 100964 116243 134952
EBITDA 7026 8468 10466 11956 14635
EBITDA Margin (%) 8.1 9.7 10.4 10.3 10.8
Net Profit 1479 3048 4604 5038 6444
EPS (Rs.) 5.8 11.9 17.9 19.6 25.1
RoE (%) 11.5 19.2 23.0 20.7 21.5
PE (x) 26.9 17.6 21.8 14.5 11.3
Source: Company, Karvy Research; *Represents multiples for FY16 - FY18 are based on historic market price
13
Jan 11, 2019
Considerable exposure in international markets: The company has business

across 40 countries with majority of T&D business. Company has acquired
The international SAE towers in Americas, the biggest lattice manufacturing company. The company is
opportunities with the looking for various opportunities in Railways and T&D EPC business in Brazilian and
strong share in domestic other international markets. Company recently also won a order from brazil markets.
T&D business provides a According to World Energy Outlook (WEO) 2015, a total of US$ 8.4 tn investment is
potential for T&D business expected to flow in the global T&D investments between 2015 and 2040, averaging
to grow strongly.
US$320 bn per year.
An opportunity size of Rs. 2.6 trillion: Based on the capacity addition required
for the inter-state (ISTS) and intra-state transmission systems, a capex of Rs. 2.6 tn
is estimated over the 13th FYP. Out of the Rs. 2.6 tn transmission capex envisaged
during the 13th FYP, PGCIL is expected to contribute Rs. 100000 cr and balance
Rs.160000 cr is estimated to be contributed by SEBs/Discoms and private players. This
reflects a clear shift of capex from PGCIL to SEBs, indicating increased opportunities
from states. As per draft NEP total of 105580 ckm of transmission is planned from
FY17-22, of which 69% of lines are in 400kV and 765kV. This will further benefit bigger
organized players such as KEC International to garner larger share of incremental
orders.
Company Background
KEC International Limited is the flagship company of RPG group having presence
in India and overseas. It’s Power Transmission and Distribution business includes
providing end-to-end solutions in power transmission and distribution. Its Cables
service offerings include extra-high voltage (EHV) cabling solutions provided through
Cable Selection and Cabling System, and manufacturing of a range of power cables
(high tension and EHV cables), control, telecommunication and instrumentation
cables. It offers services in all the functional segments of railways infrastructure,
including construction of civil infrastructure, including bridges, tunnels, platforms,
station buildings, along with workshop modernization. Its water services include waste
water treatment, including treatment of sewage and industrial effluent, and water
resource management, including building of canals, construction of dams and water
system, and civil works related to thermal power projects. The company has over
seven decades of experience in transmission EPC and has executed projects in over
60 countries across geographies including South Asia, the Middle East, Africa, Central
Asia, the Americas and Southeast Asia.
Exhibit 16: Shareholding Pattern (%) Exhibit 17: Revenue Segmentation (%)
Transmission
Distribution
Other (SAE towers)
18.5%
10.0%
Cables
Transmission 9.9%
Distribution
DIIs Promoter
20.6% (Excl: SAE Railways
51.2% towers) 8.3%
66.4% Water
2.6%
FIIs Solar
9.8% 2.8%
Source: BSE, Karvy Research Source: Company, Karvy Research
14
Jan 11, 2019
Business Profile
KEC
Power Transmission and

Cables Railways Water
Distribution
Transmission
Power Cables Civil & Track Water & Waste
line
(LT/HT/EHV) Works Water Treatment
Substations
Platform &
Latice Towers Telecom Cable
Building
Optic Fiber and
Distribution
Jelly Filled
Networks
Signalling
Hardware
Telecom
Electrification
Tower
A very healthy T&D segment:

The Company with 70+ years of experience in T&D sector is one among the largest
power transmission EPC companies in the world. The business includes building
overhead transmission lines of voltages up to 1200 Kv, air insulated substations up to
1150 Kv, and gas insulated substations 765 Kv and underground high tensions (HT)
and extra high voltage (EHV) cabling works up to 400 Kv. The company is well placed
in the domestic T&D sector with a capacity of 313000MTPA across India, Brazil and
Mexico. KEC also has the largest tower testing centers across globe.
Domestic T&D is having a transitional shift: The domestic T&D segment is having
a transitional shift from PGCIL driven orders to orders from SEB’s and private players.
PGCIL capex of Rs. 90 bn is the lowest since FY09 due to shift of focus towards TBCB
projects and joint ventures with different SEBs of states. The capex for FY18 was lower
by 68% when compared to FY17. Power Grid is cognizant of the fact that GOI’s target
Pick up in ordering
of providing electricity access to all will need strengthening of state electricity to ensure
activities from SEBs
last mile connectivity. The state discoms are also increasing investments in their
and private players will
electricity grids and upgrading their old transmission systems to ensure continuous
be compensating the
power supply with use of high end transmission lines.
declining orders from
India currently has 344 GW of installed power generation capacity with 364935
PGCIL.
ckm of transmission lines and 687637 MVA of substations transformation
capacity. (As per CEA reports). A total of 105580 ckm transmission lines with over
2900000 MVA transformation capacity is expected to be added by FY2022. The target
set is expected to provide huge opportunities of Rs. 2.6 trn to EPC players. The central
government is targeting to award all the new projects through Tariff Based Competitive
Bidding (TBCB) route which would drive the private player’s participation. The private
players’ involvement would ensure large ticket size orders, timely delivery, quality
and cost of the projects. The involvement of private players will be beneficial for the
companies like KEC.
15
Jan 11, 2019
KEC’s domestic order inflows and revenues in upswing: KEC’s order book has
surged from Rs. 71310 mn in FY15 to Rs. 103788 mn in FY18 representing a growth
of 13% CAGR. Though in the declining phase of PGCIL orders, KEC is consistently
maintaining a 25% of the order base from PGCIL and covering incremental large size
ticket orders from State Electricity Boards (SEBs). Of Rs. 2.6 trn capex opportunity
The current order book of
Rs.1.6 trn is expected to come from SEBs and private parties where by KEC is expected
128864 mn representing
to bag the incremental orders and increase its market share among the state orders.
1.8x times the revenues
of FY18. The strong order The current domestic order book is of Rs. 128864 mn stands at 1.8x the FY18 domestic
book provides a huge revenues. The strong order book provides revenue visibility of 9.5% CAGR during
potential for T&D revenues FY18-20E. The company is witnessing pick up in large size transmission lines orders
to grow. as well as substation orders from state utilities and private players. KEC has already
gained an order of Rs. 550 cr from PGCIL in H1FY19 and other Rs. 600 cr PGCIL
orders are in L1 position. Though the industry claims that PGCIL ordering activity is
declining but KEC on the other side is continuously bagging similar share of orders
from PGCIL.
On the back of strong order book, we expect the revenues to grow at CAGR of 9.5%
during FY18-20E with order book reaching Rs. 145191 mn for a CAGR growth of 18%
during FY18-20E.
Exhibit 18: T&D excl SAE order inflow growth Exhibit 19: T&D excl SAE order book and Revenues
110000 150000
145191
88000 125000
101327
92115
125327
100000
80100
66000
76620
103788
75000
90943
63612
81463
44000
55916
71310
70868
70576
50000
67950
64830
62790
60290
22000 25000
0 0
FY15 FY16 FY17 FY18 FY19E FY20E FY15 FY16 FY17 FY18 FY19E FY20E
Order inflow (Rs. Mn) T&D Excl SAE (Rs. Mn) Revenue (Rs. Mn)
Well placed to capitalize international T&D opportunities:

KEC is a global leader in power T&D EPC segment and has been internationally well
recognized and has a footprint in 64 countries across all continents. KEC has secured
large orders in the international market and continues to expand its outreach in the
international substation arena; both in Gas Insulated Substation (GIS) as well as
Air Insulated Substation (AIS) space. Growth in international T&D business will be
driven by increasing power demand and investment in T&D business across the world.
The table in Exhibit 11 & 12 envisage the increase in power demand and the investment
International order book which would be required in T&D sector across the world.
has grown at a 10%
On the international side, company is majorly focused towards MENA region, Africa
CAGR during FY15-18
and SAARC (Srilanka, Afghanistan, Bangladesh and Nepal) regions. KEC has a very
and currently contributes
prominent presence in SAARC region and continues to consolidate its presence on the
around 51% of total T&D
back of a good order mix of transmission and substation projects.
order book.
The current order book stands at Rs. 201350 mn of which about 51% orders come
from exports market. KEC is also willing to expand its non T&D product portfolio to
international geographies. The international order book has grown at a CAGR of 10%
during FY15-18. Higher inflows of order and surge in order book is due to expansion in
new geographies.
16
Jan 11, 2019
Exhibit 20: International order book grows at a 10% CAGR

70000
60000
61408
59366
50000
40000
46589
44410
30000
20000
10000
0
FY15 FY16 FY17 FY18
International order book (Rs. Mn)
SAE turning positive:

The company’s growth strategy is based on de-risking the business through
geographical expansion, diversification of business portfolio, as well as taking the
inorganic growth route whenever required. Following the same strategy in 2010, KEC
acquired US based SAE towers LLC (SAE Towers), one of the largest producers of
SAE entry into T&D EPC steel lattice towers of high voltage power transmission in America. With acquiring SAE
business could be a strong towers, the total tower manufacturing capacity turns up to 313200 MT becoming one
growth driver. of the largest operating capacities globally.
Brazilian government has planned capex of $4bn to improve the transmission network
in Brazil. KEC, through its subsidiary SAE Towers, would be one of the key beneficiaries
of the upcoming capex. Besides supplying towers, SAE Towers also provides EPC
work. KEC expects SAE Towers to register revenue CAGR of 15% over FY18-20, with
an operating margin of ~10%.
Exhibit 21: T&D SAE order book, Order inflows and Revenue (Rs. Mn)
34500
34313
23000
26678
20974
19067
19028
16580
16065
11500
13339
12631
12335
11339
10020
10250
11417
9508
8040
9585
8306
0
FY15 FY16 FY17 FY18 FY19E FY20E
T&D SAE Order inflow Revenue
Railways and civil business on a very strong footing:

Company in order to diversify its product portfolio has entered into the railways business.
KEC is an integrated player in the industry and executes projects like track laying, doubling
and tripling of tracks, building railway stations and bridges and overhead electrification.
With focused and fast execution of the projects, company has commissioned 807 rkm
commanding a 20% share of total overhead electrification projects commissioned by
Indian Railways in 2018. KEC has expanded its client portfolio to include CORE, RVNL,
IRCON RITES and PGCIL. To gain pace and to achieve the target of 100% electrification
of railway tracks, PGCIL has joined hands with other players ensuring larger ticket size
orders and effective management of execution.
17
Jan 11, 2019
KEC acquired Jay Railway Signaling Pvt Ltd. to foray into railway signaling business
for an enterprise value of Rs. 140 mn in Sep 2010 post which they have strengthened
the position of the company by gaining more share in railway orders. KEC along with
doing transmission lines is also doing composite business for railways like construction
of platforms, houses, etc. The budget allocation of Rs.1.4L Cr (highest ever allocation)
majority of funds is expected to be utilized for capacity addition by doubling 18000 rkm
of tracks. All these developments and proposals indicate very bright prospects for the
company to grow in the railway sector.
Railways segment financials:

Railway segment’s revenues have grown at a CAGR of 85% during FY15-18 with
a growth in order book at CAGR of 94%. The order book just tripled in FY17 due to
huge order inflows from Indian Railways. The order inflows have grown at a CAGR of
152% for FY15-18. The management expects the ordering momentum to continue and
guides to double the revenues for FY19. The guidance looks easily achievable and we
expect the revenues to double in FY19 and grow at a CAGR of 56% during FY18-20E
with a strong surge in the order book.
Exhibit 22: Non T&D order book improving significantly Exhibit 23: Non T&D revenues to reach 29% of total revenues
200000 46.7% 50% 100000 28.9% 40%
38.2%
27.5%
29.0% 21.3%
150000 15.9% 18.4%
179504
75000 30%
30%
38463
157051
18.0%
152005
31136
15.8% 13.3%
100000 50000 13.8% 20%
122816
21210
15860
10%
22736
13431
103574
93922
72870
71096
70310
78200
81993
94802
80818
15213
82206
12662
50000
11710
25000 10%
50164
0 -10% 0 0%
FY15 FY16 FY17 FY18 FY19E FY20E FY15 FY16 FY17 FY18 FY19E FY20E
T&D order book (Rs. Mn) T&D revenue (Rs. Mn) Non T&D revenue (Rs. Mn)
Non T&D order book (Rs. Mn)
Non T&D to total order book (%) Non T&D to total revene (%)
Exhibit 24: Significant jump in order inflows , order book and revenues from FY17 (Rs. Mn)
140000 139254
120000
100000
80000
Non T&D revenues
82341
77498
60000
(Railways, Civil, Cables &
20585
15157
40000
Solar) to contribute 28% to
55356
14530
14830
39540
41515
5705
2467
1330
5669
2614
2094
4470
8440
total revenue by FY2020E. 20000

0
Railways Order inflow Revenues
A strong foray into civil segment:

To expand its product portfolio further, company entered into construction business
with a focus towards Industrial plant, residential buildings and commercial complexes
majorly in the mid ticket size segment. Company’s vast experience of EPC business
can add on value to the construction business. The KEC’s water business has been
merged into civil business last year. The water business is been majorly focused to
provide integrated water and waste water management solutions and industry effluent
treatment plants.
18
Jan 11, 2019
The strategy to enter into civil business has rewarded well for the company. In the first
year of its operations, the segment received order inflows of around Rs. 5000 mn and is
cash positive and profitable. Currently, company is executing 15+ projects comprising
factories, warehousing and residential building for clients in sectors like auto, metals &
mining and cement. KEC has recently entered into smart infrastructure projects majorly
focusing on smart cities and communications.
Sector outlook & opportunities:

The plan to construct Rs. 2 cr affordable houses under Pradhan Mantri Awas Yojana
(PMAY) by 2022 for a total investment of Rs. 11L cr is gaining traction with more than
40 Lakh units being sanctioned. Budgetary allocation for affordable housing has been
doubled for FY19 to complete the mission of affordable housing successfully.
The global manufacturing giants have set up or willing to set up their manufacturing
plants in India under the brand “Make in India” initiative and making India a hub for
manufacturing.The government to promote “Make in India” initiative has set up
Electronic Hardware Technology Parks (EHTPs), Special Economic Zones (SEZ) and
has brought favorable FDI policy for in-house manufacturing.
A successful take off for civil business:

The order book has suddenly surged to Rs. 3460 mn from Rs. 1890 mn in 2016 due
to heavy order inflow of Rs.4930 mn from the construction sector. The revenues also
have jumped from Rs.1038mn to Rs. 2680 mn due to fast execution of projects. The
management expects to double the revenues on the base of strong order book which
looks easily achievable. We believe that, with the already proved expertise in turnkey
and EPC business, this segment shall be performing well in the coming years and
expect the revenues to grow at a CAGR of 28% during FY18-20E.
Exhibit 25: Surge in order book to support revenue growth (Rs. Mn)
6000
5965
4000 4497
4385
4385
3803
3460
1263
2680
2000
1038
850
1890
1310
0
Civil Revenues
Cable business:
Cables and cabling systems are the integral part and manufactures power, control
and telecom cables. The company has pioneered in manufacturing cross linked
polyethylene (XLPE) cables in India. The company had three integrated manufacturing
capacities at Vadodara, Mysore and Silvasa which have been shifted to one integrated
facility at Vadodara thus creating a facility manufacturing entire range of products like
EHV HT and LT cables under one roof. The company is a major player in India with a
diversified customer base across industries, utilities, SEBs and distributors.
19
Jan 11, 2019
Segment financials:
The order inflows and revenues have been impacted due to correction in prices of
copper and other metals. For FY18, the revenues were flat due to obstruction caused
by shifting the other manufacturing facilities to Vadodara and Silvasa facility.
Exhibit 26: Cables order book, Inflows and Revenues. (Rs. Mn)
15000
14141
12000
13492
12109
11784
11512
9000
10540
10299
10090
9886
9820
9585
9070
6000
7784
5705
1263
5189
3000
4725
3460
0
Cables Order inflow Revenues
Exhibit 27: Business Assumptions

Y/E Mar (Rs. Mn) FY17 FY18 FY19E FY20E Comments
Consolidated
Revenue 87550 100964 116243 134952 The revenues are expected to grow at CAGR of 15% with T&D
business growing at 10% CAGR and Non T&D business growing
Revenue Growth (%) 0.5 15.3 15.1 16.1 at 29% CAGR during FY18-20E.
EBITDA 8468 10466 11956 14635 EBITDA is expected to grow at 18% CAGR with margins remaining
EBITDA Margins (%) 9.7 10.4 10.3 10.8 flat and reaching 10.8% in FY20E.
PAT (normalized) 3048 4604 5038 6444
Growth in sales and higher other income to drive PAT and EPS
PAT Growth (%) 106.1 51.1 9.4 27.9
growth.
EPS (Rs.) 11.9 17.9 19.6 25.1
EPS Growth (%) 106.0 51.1 9.4 27.9
Stronger sales and efficient operating efficiency will be
CFO 16616 6596 4093 8471 contributing to a positive CFO enabling company to meet its
capex from internal sources.
Capex (670) (1355) (1500) (900)
Net debt 17902 14081 15051 11162
Free cash flow 15946 5241 2593 7571
Exhibit 28: Karvy vs Consensus

Karvy Consensus Divergence (%) Comments
Revenues (Rs. Mn)
FY19E 116243 116427 (0.2) We believe revenues to grow at 16% CAGR
backed by strong order book and timely
FY20E 134952 139976 (3.7) execution of projects.
EBITDA (Rs. Mn)
FY19E 11956 11759 1.6 Higher operating efficiencies to benefit margins

FY20E 14635 14348 2.0 marginally leading to higher EBITDA.
EPS (Rs.)
FY19E 19.6 20.4 (4.1)

PAT is expected to grow in line with PAT numbers.
FY20E 25.1 25.9 (3.3)
Source: Bloomberg, Karvy Research
20
Jan 11, 2019
Exhibit 29: Revenue & Revenue Growth

16.1%
135000 15.3% 15.1% 20% Revenue growth at 16% CAGR during FY18-20E
15% KEC has maintained a CAGR growth of revenue at 14.3% during
0.6% 0.5%
90000
10% FY10-18. The revenues remained flat during FY16 & FY17 due to lower
134952
116243
order bookings from PGCIL. The revenues recovered and have shown a
100964
5%
87550
87096
45000
0%
growth of 15% in FY18 on the back of increased contribution from non T&D
business. We expect the T&D business to show a growth of 10% CAGR
0 -5%
FY16 FY17 FY18 FY19E FY20E and non T&D business to grow at 29% CAGR during FY18-20E.
Revenue (Rs. Mn) Growth (%)
Exhibit 30: EBITDA & EBITDA Margin

15000 15%
10.3% 10.8%
10.4%
9.7%
10000 8.1% 10%
Margins to majorly remain flat
The EBITDA margins improved from 8.1% in FY16 to 10.4% in FY18 on
14635
11956
the back of improving operational efficiency and execution of good margin

10466
5000 5%
8468
orders. We expect the non T&D margins to reach T&D business level and
7026
expect the margins to remain flat.

0 0%
FY16 FY17 FY18 FY19E FY20E
EBITDA (Rs. Mn) EBITDA Margin (%)
Exhibit 31: PAT & PAT Margin

4.6% 4.3% 4.8%
6600 5.0%
3.5% 4.0%
4400
3.0%
The PAT and PAT margins are expected to reciprocate the revenues growth
6444
1.7%
5038
2.0%
4604
2200 and margins scenario. The PAT margins would take dip in FY19E due to
3048
1479
1.0% higher interest cost and then to be on recovery mode in FY20E.

0 0.0%
PAT (Rs. Mn) PAT Margin (%)
Exhibit 32: RoE & RoCE

25% 23.0% 20.7% 21.5%
19.2%
20%
15% 11.5% The return ratios have been consistently improving. We expect ratio to
14.4%
10% 12.7% 12.2% deplete in FY19E due to lower margins and profitability and then recover
8.5%
5% in FY20E.
3.4%
0%
RoE (%) RoCE (%)
21
Jan 11, 2019
Exhibit 33: EPS (Rs.)

30 25.1
19.6
17.9
20
11.9 EPS has shown a good jump from Rs. 5.8 to Rs. 17.9 in FY18 due to
improvement in margins from 8.1% t0 10.4%. We expect the margins to be
10 5.8
flat and EPS to reach 25.1 by FY20E.
0
EPS (Rs.)
Exhibit 34: Improvement in net debt to equity ratio

2.5 2.3
2.0
1.5 1.1
1.0 0.7 0.6 The net debt to equity ratio is expected to improve continuously.
0.4
0.5
0.0
Net debt to equity ratio (x)
Exhibit 35: Company Snapshot (Ratings)

Low High
1 2 3 4 5
Quality of Earnings 33
Domestic Sales 33
Exports 33
Net Debt/Equity 33
Working Capital Requirement 33
Quality of Management 33
Depth of Management 33
Promoter 33
Corporate Governance 33
22
Jan 11, 2019
Valuation & Outlook

The revenues are expected to grow at 16% CAGR during FY18-20E by execution of
huge order book. The overseas T&D opportunities are strongly visible, also the non
T&D business is gaining traction in the international markets. We value KEC for 15x
on FY20E EPS for a target price of Rs. 360 representing an upside potential of 32%.
Exhibit 36: PE Band

40
30
20
10
0
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Sep-11
Dec-11
Sep-12
Dec-12
Sep-13
Dec-13
Sep-14
Dec-14
Sep-15
Dec-15
Sep-16
Dec-16
Sep-17
Dec-17
Sep-18
Dec-18
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
Forward PE Average Forward PE 1 SD -1 SD
Exhibit 37(a): Comparative Valuation Summary

CMP Mcap EV/EBITDA (x) P/E (x) EPS (Rs.)
(Rs.) (Rs. Mn) FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E
KEC International 284 72949 8.4 10.9 7.4 5.7 17.6 21.8 14.5 11.3 11.9 17.9 19.6 25.1
KPTL 381 58438 9.6 12.2 8.5 7.4 18.4 23.0 15.3 13.1 17.5 21.3 25.0 29.3
Skipper 83 8558 8.3 8.6 5.9 4.9 15.1 18.4 13.5 8.8 12.1 11.5 5.9 9.9
Exhibit 37(b): Comparative Operational Metrics Summary

CAGR % (FY17-20E) RoE (%) Price Perf (%) Net Sales (Rs. Mn)
Sales EBITDA EPS FY17 FY18 FY19E FY20E 3m 6m 12m FY17 FY18 FY19E FY20E
KEC International 15.5 20.0 28.3 19.2 23.0 20.7 21.5 12.2 (16.7) (24.8) 87550 100964 116243 134952
KPTL 15.4 16.9 18.6 10.9 11.6 12.3 12.7 24.7 (4.6) (28.3) 50107 57785 66982 77029
Skipper 17.0 4.0 (7.0) 27.2 20.1 10.6 13.7 (9.9) (50.8) (69.1) 16646 20737 22995 26356
23
Jan 11, 2019
Financials
Exhibit 38: Income Statement

Revenues 87096 87550 100964 116243 134952
Growth (%) 0.6 0.5 15.3 15.1 16.1
Operating Expenses 80173 79372 90902 104618 120782
EBITDA 7026 8468 10466 11956 14635
Growth (%) 6.8 20.5 23.6 14.2 22.4
Depreciation & Amortization 1318 1297 1097 1417 1497
Other Income 103 289 404 332 465
EBIT 5708 7171 9368 10540 13138
Interest Expenses 2794 2536 2466 2906 3374
PBT 2914 4635 6902 7634 9764
Tax 1436 1587 2298 2595 3320
PAT 1479 3048 4604 5038 6444
Growth (%) (8.2) 106.1 51.1 9.4 27.9
Exhibit 39: Balance Sheet

Cash & Equivalents 853 2080 2313 1758 3468
Sundry Debtors 47066 42268 50444 54192 61055
Inventory 3602 3947 6274 6879 7221
Loans & Advances 6650 6819 6381 6803 7256
Investments 254 1304 393 393 393
Net Block 11977 11075 11122 11559 10925
CWIP 84 51 781 781 781
Miscellaneous 18425 19738 27682 28360 29071
Total Assets 88910 87281 105390 110726 120170
Current Liabilities & Provisions 44371 49613 67371 67909 73919
Debt 30229 19981 16394 16809 14629
Other Liabilities 1406 1823 1650 1628 1609
Total Liabilities 76006 71418 85415 86346 90157
Shareholders Equity 514 514 514 514 514
Reserves & Surplus 12390 15349 19460 23864 29497
Total Networth 12904 15864 19974 24378 30012
Total Networth & Liabilities 88910 87281 105390 110726 120170
24
Jan 11, 2019
Exhibit 40: Cash Flow Statement

PAT 1479 3048 4604 5038 6444
Depreciation 1318 1297 1097 1417 1497
Interest 2794 2536 2466 2906 3374
Inc/dec in Net WC (8352) 7034 (2338) (4936) (2379)
Other Income (31) (59) (351) (332) (465)
Other non cash items 3371 3804 3412 2595 3320
Tax (1332) (1044) (2296) (2595) (3320)
Cash flow from operating activities (753) 16616 6596 4093 8471
Inc/dec in capital expenditure (235) (670) (1355) (1500) (900)
Others 9 (1161) 1310 332 465
Cash flow from investing activities (226) (1831) (45) (1168) (435)
Inc/Dec in borrowings 3057 (11223) (3765) 414 (2179)
Dividend paid (575) (11) (411) (605) (773)
Interest paid (2758) (2556) (2205) (2906) (3374)
Cash flow from financing activities (276) (13790) (6382) (3096) (6326)
Net change in cash (1255) 995 169 (172) 1710
Exhibit 41: Key Ratios

YE Mar FY16 FY17 FY18 FY19E FY20E
EBITDA Margin (%) 8.1 9.7 10.4 10.3 10.8
EBIT Margin (%) 6.6 8.2 9.3 9.1 9.7
Net Profit Margin (%) 1.7 3.5 4.6 4.3 4.8
Dividend Payout Ratio (%) 17.4 13.5 13.4 19.1 15.0
Net Debt/Equity (x) 2.3 1.1 0.7 0.6 0.4
RoE (%) 11.5 19.2 23.0 20.7 21.5
RoCE (%) 3.4 8.5 12.7 12.2 14.4
Exhibit 42: Valuation Parameters

EPS (Rs.) 5.8 11.9 17.9 19.6 25.1
DPS (Rs.) 1.0 1.6 2.4 3.8 3.8
BVPS (Rs.) 48.1 56.0 69.7 86.3 105.8
PE (x) 26.9 17.6 21.8 14.5 11.3
P/BV (x) 3.2 3.7 5.6 3.3 2.7
EV/EBITDA (x) 9.8 8.4 10.9 7.4 5.7
EV/Sales (x) 0.8 0.8 1.1 0.8 0.6
25
Jan 11, 2019
Construction & Engineering Transmission Sector Outlook
Kalpataru Power Transmission Ltd

Bloomberg Code: KPP IN

BUY
Recommendation (Rs.)
Focus on International T&D Business and Infra Business to
CMP (as on Jan 11, 2019) 381
Provide Growth Target Price 497
Strong Order book: Company’s revenue has been growing at a rate of 10% from Upside (%) 31
2011-18 on the back of strong order book which has grown at 13%. The order book
Stock Information
in last three financial years has seen tremendous growth of 34%. The current order
Mkt Cap (Rs.mn/US$ mn) 58438 / 828
book of Rs.124040 mn stands at 2.2x the revenues which provide a very strong
52-wk High/Low (Rs.) 535 / 267
revenue visibility of 18% CAGR during FY18-20E. Revenue of the transmission
3M Avg. daily value (Rs.mn) 33.6
and distribution business has grown at a CAGR of 9% during FY13-18. Non T&D
Beta (x) 1.2
business has grown by 28% CAGR over FY13-18. Revenue growth guidance for
Sensex/Nifty 36010 / 10795
FY19 is at 15-20% with margins staying at 11%. Order inflow target for FY19 is Rs.
O/S Shares(mn) 153.5
70-90 bn (Rs. 60 bn from T&D, Rs. 20-30 bn from railways and pipeline business).
Face Value (Rs.) 2.0
The guidance looks easily achievable with the strong base of order book majorly
from non T&D business and international T&D business. Shareholding Pattern (%)
Promoters 59.3
Non T&D business to be the significant contributor: The non T&D business FIIs 4.7
(Oil & Gas and Railways) has shown a growth of 28% CAGR over FY13-18 with the DIIs 23.0
order book growth of CAGR 51% during the same period. The non T&D business
Others 13.0
was just contributing around 6% of total revenues in FY14 which improved to 20%
Stock Performance (%)
during FY18. We expect the non T&D business to contribute 25% in FY19 and
1M 3M 6M 12M
around 28% in FY20.
Absolute 9 25 (5) (28)
Valuation and Risks Relative to Sensex 6 18 (4) (31)
A very strong order book in T&D business and a very strong momentum of growth Source: Bloomberg
in Non T&D business would lead the revenues to grow at 15% CAGR during Relative Performance*
FY18-20E. The overseas T&D business is expected to grow on the back of strong
130
orders from Africa, Middle East and SAARC nations. Also Kalpataru is trying to
110
gain traction in the international markets for its non T&D business. With subsidiaries
90
going to perform strongly, it should support the cash flows for the company. We
70
expect the revenues to grow at CAGR of 15% for a strong execution of transmission
50
order book with margins maintained at 11%. We Value Kalpataru on SOTP basis
Mar-18
Jul-18
Aug-18
Nov-18
Dec-18
Apr-18
Oct-18
Jan-18
Jun-18
Jan-19
May-18
Feb-18
Sep-18
with stand alone business at 13x to FY20E EPS, JMC by giving discount to market
cap, SSL on book value, Boot projects on FCFE, and Indore real estate project on Kalpataru Power Transmission Ltd Sensex
B/V. We arrive at a target price of Rs. 497 for a “BUY” rating representing an upside Source: Bloomberg; *Index 100
potential of 31%.
Exhibit 43: Valuation Summary

Net Sales 44088 50107 57785 66982 77029
EBITDA 4531 5291 6313 7355 8460
EBITDA Margin (%) 10.3 10.6 10.9 11.0 11.0
Net Profit 1925 2691 3220 3837 4492
EPS (Rs.) 12.5 17.5 21.3 25.0 29.3
RoE (%) 8.7 10.9 11.6 12.3 12.7
PE (x) 16.4 18.4 23.0 15.3 13.1
26
Jan 11, 2019
Subsidiaries to turnaround:
At SSL (Shubham Logistics Ltd) the utilization levels have breached 80% showing a
significant improvement. Due to effective utilization levels, company has turned PAT
positive in H1FY19 wherein it ended FY18 and FY17 with losses of Rs. 415 mn and
Company turned Profitable
Rs. 753 mn respectively. Management expects to infuse further Rs. 700-800 mn in the
in H1FY19.
subsidiary for repayment of debt.
Management will infuse
equity to reduce debt. Subsidiary JMC had a flat performance during FY14-17 majorly due to weak order
booking. The order inflows have shown a pick up and revenues grew by 18% in FY18.
JMC has received orders worth Rs. 33390 mn in FY18 with remarkable improvement
across profitability parameters. Profitability improved by 83% for a PAT of Rs. 1086 mn
with EBITDA margins reaching 11% showing an improvement of 137 bps.
Value unlocking through monetizing assets:

The current investments in the transmission assets is to the tune of Rs. 3100 mn with
an infusion requirement of around Rs. 1200 mn taking total value of investments to
Rs. 4300 mn by FY19. The capital employed has been on the rise due to infusion
commitments in different subsidiaries. The total investment (via equity, preference
shares and loans) in different subsidiaries (BOOT projects, Real estate projects,
JMC and SSL) stands at more than Rs. 12000 mn making the balance sheet to be
capital intensive. The standalone EPC business operations would find it difficult for
further infusions into BOOT projects, making the management to think about various
options of hiving off the transmission BOOT and real estate projects by monetizing or
demerging the business. The decoupling of BOOT business and the real estate assets
would substantially improve the return ratios and provide immense strength to the
balance sheet. Also plans to hive off their subsidiary SSL could add on the incremental
cash flow. We have not considered any sale of assets other than sale of Thane project
in to our projections.
Exhibit 44: Investments across businessess

4500
4000
4119
3953
3500
3847
3000
3209
3209
3209
3100
2500
2000
2203
2201
2192
1946
1918
1500
1860
1785
1000
1287
1199
1150
1064
1064
1059
500
0
2014 2015 2016 2017 2018
SSL BOOT projects JMC Real estate projects
27
Jan 11, 2019
Company Background
KPTIL is a part of Kalpataru group that was established in 1969, with proven experience
and expertise spanning over three decades, it has established its footprints in more
than 50 countries, implementing brand projects with comprehensive capabilities
that offer comprehensive solutions covering the design, testing, manufacture,
civil construction and construction of transmission lines, oil and gas infrastructure and
railway projects. Its annual production capacity is 180,000 MT of transmission towers;
it has three manufacturing facilities in India and an ultra-modern tower testing facility,
making it amongst the largest global power transmission EPC Company. KPTL’s wide
reach and presence includes international geographies like Africa, CIS countries, the
Middle East, SAARC, Asia-Pacific and the Americas.
KPTIL
Standalone Subsidiaries Boot Projects
Kohima
JMC Projects
Transmission
Jhajjar
Shree Shubham
Infrastructure Logistics Satpura
segment
Alipurduar
Real Estate
Exhibit 45: Shareholding Pattern (%) Exhibit 46: Revenue Segmentation (%)
Other
13.0% Railway and
Pipeline
DIIs 19.1%
23.0%
Promoters
59.3%
T&D
80.9%
FIIs
4.7%
Source: BSE, Karvy Research Source: Company, Karvy Research
28
Jan 11, 2019
Transmission and Distribution (T&D):

Kptil is a market leader in transmission sector. It provides end-to-end solutions, with
capabilities in designing, testing, procurement, and fabrication, erection, installing
Being a market leader in
and commissioning of power transmission lines. KPTL has expanded its operations
transmission sector,which
under the transmission line BOOT projects under Public Private Partnership (PPP)
provides end to end
mode. The Company has successfully developed two projects in Jhajjar (Haryana)
solutions, it has a
and Satpura-Ashta (Madhya Pradesh). Both these projects were completed ahead of
sustainable business
schedule and are operational. The revenue derived from this model is on annuity basis.
model to maintain its
The company’s order inflow for FY18 was at Rs. 84 bn. Kptil is L1 in projects worth
market share.
Rs. 20 bn. The segment’s order book constitutes almost 70% of total order book and
contributes around 80% of total revenues.
Overseas T&D market to support T&D growth: The PGCIL orders are being
declining for past two years which have been replaced by incremental order booking
from SEBs. Private players are also equally coming forward and placing orders. Also
the overseas orders are on a rise compensating the decline in PGCIL orders. The
current order book stands at Rs. 79728 mn representing 1.72x the T&D revenue of
FY18.
The international share of total T&D order book stands at around 60% which is majorly
driven by orders from South Africa (64%) , SAARC (25%) and South East Asia (5%).
While 40% of domestic order book is majorly driven by SEB (46%), Private (35%) and
PGCIL (19%). At around in 2015 and 2016 50% of domestic T&D orders were coming
from PGCIL, with the decline in planned capex by PGCIL, orders are also coming down
and contributing just 19% of total domestic order book.
The company expects international transmission to see better growth than domestic
transmission over the next few years with major order inflows from the African geography,
which has an estimated opportunity size of US$ 345 bn. The management sees huge
traction from Africa and SAARC countries in the international business. Management
is more confident about overseas T&D business than domestic business. The outlook
for global transmission sector for the next few years is very attractive as it benefits
from the rising energy demand in developed and developing markets. Demand from
overseas geographies driven by Africa continues to be healthy and we expect this to
continue.
On the domestic T&D front, order inflow for FY19 is expected to be robust, driven by
state electricity boards (SEBs). PGCIL has capex plans of Rs. 250 bn cr over the course
of next five years, around Rs.1600 bn crore which will be on TBCB basis and SEB and
it is expected to continue with the sustained level of capex to the planned additions
of 105, 580 km of transmission lines by FY23. The SEB has lacked the requisite
investment due to the poor financial health of SEBs. Two key factors have enabled
the turnaround in SEBs. The UDAY scheme enabling improving SEBs financial health
and higher investment by PGCIL for inter-state transmission capacity puts the onus on
SEBs to perform well.
Over the period of FY13-18, the T&D revenues have grown by 9% CAGR with an order
book growth of 6% for the same period. We expect the T&D revenue to grow at a CAGR
of 11% during FY18-20E majorly contributed by overseas T&D revenues.
29
Jan 11, 2019
Exhibit 47: International T&D orders consistent at 60% of total Exhibit 48: Declining PGCIL orders and pick up in SEB and private
T&D order book orders (Rs. Mn)
50000 70.6% 67.5% 65.0% 80% 100%
2320 1080
58.7% 1080 8700
40000 7200 12156
60% 80%
4640
30000 39.6%
17400
60% 13050
14040
40% 7200
20000
40% 11880 16125
41760
29160
27550
42050
46800
25200
49616
34855
20%
10000 10440
20300 10800
0 0% 20%
FY14 FY15 FY16 FY17 FY18 6574
T&D Overseas (Rs. Mn) 0%
T&D Domestic (Rs. Mn) FY14 FY15 FY16 FY17 FY18
T&D Overseas to Total T&D Order Book (%) PGCIl SEB Private
Exhibit 49: Total T&D order book and Revenues

120000
100000
From FY13-18, the T&D
102342
80000
93038
revenues have grown by
84471
9% CAGR with an order 60000
72000
69600
63000
59160
book growth of 6% for the
56753
40000
50748
46130
same period.
43200
42710
37750
40340
37830
29492
20000
0
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
Transmission order book T&D Revenues
Non T&D business on the spike:

KPTL is executing civil infrastructure, track laying, signaling and electrification
projects for Indian Railway. The Company has also executed an international turnkey
project in Bangladesh. Govt’s thrust on 100% electrification in railways is expected
to result in higher capex for the sector. KPTL has over the last 2 years developed
in-house capability in railways’ design with its 60+ strong design team. It has recently
won an international order from Bangladesh Railways for Rs. 5.5 bn. The key clients of
the railways business are RVNL & CORE (70%) and PGCIL & Konkan (30%). Company
is exploring more international opportunities from SAARC countries such as Srilanka,
Bangladesh and South-East region after building up resources in the domestic market.
Oil and Gas: KPTL undertakes EPC contracts for cross-country pipelines, terminals
and gas gathering stations for oil and gas sector across diverse territories. The
Company is well-qualified for providing end to end solutions. KPTL has extensive
cross country experience and capability for pipeline construction across multiple
terrains like rivers, hilly, marshy region, swamps, deserts, etc. KPTL has constructed
and commissioned more than 3,200 km cross country pipelines over 80 intermediate
stations like Terminals, Pumping stations, etc. Today, KPTL is recognized as a reliable
& trusted EPC contractor for cross-country pipelines, terminals, etc.
30
Jan 11, 2019
Non T&D business financials:

KPTL has seen non T&D business growth at 28% CAGR during FY13-18 whereas
order book has grown by 51% CAGR during the same period. During last 3 years, the
order book has surged by 67% CAGR for FY15-18 due to increasing orders from Indian
Railways. The current order book in railways business for the H1FY19 is Rs. 62387
mn, standing at 5 times the non T&D revenues of FY18. The huge order book provides
a visibility for strong revenues growth for coming years. The management targets to
double the revenues from the non T&D segment for FY19 which looks easily achievable
for a strong base of order book. We expect the non T&D business to strongly contribute
around 30% of total revenues by 2020.
Exhibit 50: Infra order book to contribute significantly (Rs. Mn) Exhibit 51: Infra segment revenue and order book (Rs. Mn)
108000 44.7% 50% 90000
37.2%
32.0%
82782
81000
30% 60000
16.7%
54000 16.7% 15.8%
55188
22075
7.4% 8.9%
15768
14400
10920
13050
10% 30000
39693
6810
5590
102342
8640
5800
5000
3240
3180
2210
27000
63000
59160
43200
69600
72000
84471
39693
93038
55188
82782
13050
14400
5000
5800
8640
0 -10% 0
FY13
FY14
FY15
FY16
FY17
FY18
FY19E
FY20E
FY13 FY14 FY15 FY16 FY17 FY18 FY19E FY20E
T&D order book Infra order book
Infra to Total Order Book (%) Revenue (Railways & Pipeline) Order book
Very promising acquisitions:

JMC Ltd: KPTL acquired JMC Projects, a prominent player in the factories and building
EPC segment, with a view to expand into emerging infrastructure EPC space. After the
acquisition, JMC has transformed into a full scale infrastructure EPC player in all high
Kptil owns 67.18% in JMC, growth verticals viz. Roads & Flyovers, Water and Railways, Industrial and Power BOP.
it is one of the established Over last 3 decades, JMC has gained expertise to deliver end-to-end services catering
players in the infrastructure to Engineering, Procurement and Construction solutions in the field of Infrastructure,
segment. Metros, Buildings & Factory projects, etc. JMC is one of the major contributors in nation
building process by developing civil infrastructure projects even through PPP/BOOT
models. KPTL owns 67.19% stake in JMC which is listed on both NSE and BSE.
Strong order inflows and healthy revenue growth expected:

Strong YTD order book build up and very strong order inflow guidance provide healthy
prospects for the company to grow at a CAGR of 15-20% for coming years. JMC’s
standalone business is gaining huge traction in with EPC order book of Rs. 76 bn
providing a comfort for revenues to grow at a CAGR of 20% for coming years. The
revenues were flat during FY13-18 due to absence of large orders and tepid real estate
market, but revenues have seen a good jump of 18% in FY18 on the back of strong
order book and order inflows. Though the revenues were flat, margins have shown
an improvement from 5% in 2014 to 11% in FY18. JMC’s current order book stands
at Rs. 76160 mn of which 73% consists of factories and building, 16% infrastructure,
6% industrial projects and 6% international projects. The company ventured into new
international markets during FY17 by winning orders from Ethiopia and Sri Lanka.
Company remains keen to increase its presence in the commercial infrastructure
space as residential real estate experiences slowdown. The current order book and L1
status for Rs.15 bn orders provide comfort to revenue growth.
31
Jan 11, 2019
Exhibit 52: JMC order book and inflows (Rs. Mn) Exhibit 53: JMC order book sub classification
80000
B&F - Govt
7.0%
76160
70000
60000
Infra
62000
56740
15.0%
51000
40000
B&F - Private
33390
66.0%
32000
31550
31480
25560
20000 International
6.0%
0
FY14 FY15 FY16 FY17 FY18 Industrial
Order Book Order Inflow 6.0%
Exhibit 54: JMC margin improvement over the period Exhibit 55: Return ratios stand improved in FY18
30000 11.0% 15% 18% 17.2%
9.2% 9.6%
25000 7.3% 10% 14.4%
14.0%
5.4% 15% 13.1%
20000 12.7%
5%
27556
15000
26543
12%
24007
23999
23284
0%
10000
3049
8.8%
2254
2218
1766
1442
-5% 9% 8.1%
5000
6.7%
0 -10%
FY14 FY15 FY16 FY17 FY18 6%
FY15 FY16 FY17 FY18
Revenue (Rs. Mn) EBITDA (Rs. Mn)
EBITDA Margin (%) RoE (%) RoCE (%)
Asset creation through BOOT projects:

Exhibit 56: Transmission based BOOT projects
Projects Jhajjar Satpura Alipurduar Kohima- Mariani
Model Annuity based Annuity based Annuity based Annuity based
Transmission
system for transfer Transmission system for North
400 kv satpura-ashta
40kv/220 kv transmission of power from new Eastern Region Strengthening
Project Scope transmission line of 240
line of 100 kms in Haryana. hydro electric power Scheme (NERSS VI) on BOOT
kms in MP.
projects in Bhutan on basis.
BOOT basis.
SPV Ownership Kptil - 51%, Techno - 49% Kptil -100% Kptil -100% Kptil - 100%
Project Cost Rs. 4.5 bn Rs. 3.4 bn Rs. 11.5 bn Rs. 12.8 bn
Concession Period 25yrs + 10yrs extendable 25yrs + 10yrs extendable 35 yrs 35 yrs
Current Status Revenue of Rs. 540 mnpa 380 mnpa Under development Financial closure achieved
Completion Date March- 2012 April- 2015 FY19 Early FY21
32
Jan 11, 2019
Shree Shubham Logistics Ltd:

SSL specializes in the post-harvest value chain for agri-commodities based on
an integrated business model. Its services and offerings include warehousing,
It is one of the biggest procurement, primary processing, trading, collateral management, funding facilitation,
private players for funding, testing & certification, and pest management in relation to agri-commodities.
warehouse services and The Company’s activities are aimed at a wide spectrum of market participants dealing
undertakes an array of in agri-commodities including farmers, traders & aggregators, government agencies,
activities in post harvest banks and electronic commodity exchanges. SSL manages and operates 149
value chain. warehouses through a hub and spoke model across the states of Rajasthan, Gujarat,
Madhya Pradesh and Maharashtra.
SSL is going under major restructuring activity because three years back the promoters
left the company and new management is working hard to bring changes in the company.
Shubham Logistics (SSL) revenue grew 23% to 68.6 crore in FY18. It is showing signs
of an operational performance improvement. The utilization levels have breached
80% showing a significant improvement. Due to effective utilization levels, company
has turned PAT positive in H1FY19 wherein it ended FY18 and FY17 with losses of
Rs. 415 mn and Rs. 753 mn respectively. We believe SSL should witness turnaround as
its management is keen to undertake leased warehousing in South India. The company
plans to tie up with national bulk handling corporation (NBHC), this requires huge
capital and will be looking at strategic PE investors.
33
Jan 11, 2019
Exhibit 57: Business Assumptions

Y/E Mar (Rs. Mn) FY17 FY18 FY19E FY20E Comments
India Business (Standalone)
Revenue 50107 57785 66982 77029 We expect the revenues to grow at 15.5% CAGR during
FY18-20E backed by strong contribution from Infra segment
Revenue Growth (%) 13.7 15.3 15.9 15.0 and fair growth in T&D segment.
EBITDA 5291 6313 7355 8460 The growth in revenues is expected to lead EBITDA while
EBITDA Margins (%) 10.6 10.9 11.0 11.0 margins are expected to remain flat.
EPS (Rs.) 17.5 21.3 25.0 29.3 Incremental revenue growth with higher other income will be
EPS Growth (%) 240.0 21.7 17.1 17.1 leading PAT indeed leading to EPS growth.
Capex (ex. Acquisition) - cash capex (576) (1064) (1530) (1230)
Net CFO 3218 1036 1690 2509
Net Debt 3416 5593 8729 9143
Free cash flow 2642 (27) 160 1279
Exhibit 58: Karvy vs Consensus

Karvy Consensus Divergence (%) Comments
Revenues (Rs. Mn)
FY19E 66982 67310 (0.5) We believe revenues to grow at 15.5% CAGR
during FY18-20E on the back of strong order
FY20E 77029 77805 (1.0) book and timely execution of projects.
EBITDA (Rs. Mn)
FY19E 7355 7400 (0.6)
FY20E 8460 8663 (2.4)
EPS (Rs.)
FY19E 25.0 25.2 (0.6)
FY20E 29.3 29.6 (1.1)

34
Jan 11, 2019
Exhibit 59: Revenue & Revenue Growth

80000 15.9% 15.0% 20%
15.3%
13.7%
60000
15% Revenue to grow at 15.5% CAGR
-0.3% 10% The revenue has grown at a CAGR of 10.5% during FY11-18. In FY2018
77029
40000
66982
the revenues remained flat due to lower order booking. We expect the
57785
5%
50107
44088
20000
0% revenues to grow at 15.5% CAGR during FY18-20E on the back of strong
order book and significant contribution from non T&D business.
0 -5%
Revenue (Rs. Mn) Revenue Growth (%)
Exhibit 60: EBITDA & EBITDA Margin

9000 11.0% 11.5%
11.0%
10.9%
11.0%
6000 10.6%
10.3% EBITDA margins to remain flat
8460
10.5%
7355
EBITDA margins consistently remained in the 9-11% range in the past. We

6313
5291
3000
4531
10.0% expect the margins to be flat and reach 11% in FY20E.

0 9.5%
EBITDA (Rs. Mn) EBITDA margins (%)
Exhibit 61: PAT & PAT Margin

5000 5.6% 5.7% 5.8% 6.0%
5.4%
4000
4.4% 5.0%
3000
The company is expected to register a PAT growth of 18% on the back of
4492
3837
2000
revenue growth with flat margins.
3220
4.0%
2691
1925
1000
0 3.0%
PAT (Rs. Mn) PAT Margin (%)
Exhibit 62: RoE & RoCE

18% 17.0% 16.4% 16.7%
15.8%
15.0%
16%
14% 12.3% 12.7%
10.9%
11.6% The return ratios have normalized over last few years. The ratios are
12%
expected to remain stable over the coming years.
10% 8.7%
8%
RoE (%) RoCE (%)
35
Jan 11, 2019
Exhibit 63: EPS (Rs.)

30 29.3
25.0
25 21.3
20 17.5
EPS is expected to grow at 17% CAGR in line with PAT.
15 12.5
10
EPS (Rs.)
Exhibit 64: Net debt equity ratio

0.32
0.28
0.26
0.27
0.21 0.20
0.22 Net debt to equity ratio would be higher due to increased borrowings for
infusing money into subsidiaries and other BOOT projects.
0.17 0.14
0.12
Net debt to equity ratio (x)
Exhibit 65: Company Snapshot (Ratings)

Low High
1 2 3 4 5
Quality of Earnings 33
Domestic Sales 33
Exports 33
Net Debt/Equity 33
Working Capital Requirement 33
Quality of Management 33
Depth of Management 33
Promoter 33
Corporate Governance 33
36
Jan 11, 2019
Valuation & Outlook

With a very strong order book in T&D business and a very strong momentum of
growth in Non T&D business would lead the revenues to grow at 15% CAGR during
FY18-FY20E. The overseas T&D business is expected to grow on the back of strong
orders from Africa, Middle East and SAARC nations. Also Kalpataru is trying to gain
traction in the international markets for its non T&D business. With subsidiaries going
to perform strongly should strongly support the cash flows for the company. We expect
the revenues to grow at CAGR of 15% for a strong execution of transmission order
book with margins maintained at 11%. We Value Kalpataru on SOTP basis with stand
alone business at 14x to FY20E EPS, JMC by giving discount to market cap, SSL on
book value, Boot projects on FCFE, and Indore real estate project on B/V. We arrive at
a target price of Rs. 497 for a “BUY” rating representing an upside potential of 31%.
Exhibit 66: SOTP Based Valuation

Business Method Multiple/Value Share Price
Standalone PE 14 100 410
JMC Market cap 14977 67 49
Boot Projects
Jhajjar FCFE 1961 50 6
Satpura FCFE 982 100 6
SSL Book Value 1963 100 10
Indore Real Estate Project Book Value 2696 100 17
Total 497
Exhibit 67: PE Band

25
20
15
10
0
Mar-12
Mar-13
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18
Sep-11
Dec-11
Sep-12
Dec-12
Sep-13
Dec-13
Sep-14
Dec-14
Sep-15
Dec-15
Sep-16
Dec-16
Sep-17
Dec-17
Sep-18
Dec-18
Jun-11
Jun-12
Jun-13
Jun-14
Jun-15
Jun-16
Jun-17
Jun-18
1 Year Forward PE Average Forward PE 1 SD -1 SD
Exhibit 68(a): Comparative Valuation Summary

CMP Mcap EV/EBITDA (x) P/E (x) EPS (Rs.)
(Rs.) (Rs. Mn) FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E FY17 FY18 FY19E FY20E
KPTL 381 58438 9.6 12.2 8.5 7.4 18.4 23.0 15.3 13.1 17.5 21.3 25.0 29.3
KEC International 284 72949 8.4 10.9 7.4 5.7 17.6 21.8 14.5 11.3 11.9 17.9 19.6 25.1
Skipper 83 8558 8.3 8.6 5.9 4.9 15.1 18.4 13.5 8.8 12.1 11.5 5.9 9.9
Exhibit 68(b): Comparative Operational Metrics Summary

CAGR % (FY17-20E) RoE (%) Price Perf (%) Net Sales (Rs. Mn)
Sales EBITDA EPS FY17 FY18 FY19E FY20E 3m 6m 12m FY17 FY18 FY19E FY20E
KPTL 15.4 16.9 18.6 10.9 11.6 12.3 12.7 24.7 (4.6) (28.3) 50107 57785 66982 77029
KEC International 15.5 20.0 28.3 19.2 23.0 20.7 21.5 12.2 (16.7) (24.8) 87550 100964 116243 134952
Skipper 17.0 4.0 (7.0) 27.2 20.1 10.6 13.7 (9.9) (50.8) (69.1) 16646 20737 22995 26356
37
Jan 11, 2019
Financials
Exhibit 69: Income Statement

Revenues 44088 50107 57785 66982 77029
Growth (%) (0.3) 13.7 15.3 15.9 15.0
Operating Expenses 39557 44816 51472 59627 68569
EBITDA 4531 5291 6313 7355 8460
Growth (%) 6.2 16.8 19.3 16.5 15.0
Depreciation & Amortization 837 777 766 801 921
Revenue and EBITDA Other Income 537 493 480 513 552
growing at 15% for EBIT 4231 5008 6026 7067 8091
forecast on back of good
Interest Expenses 1274 982 1033 1340 1387
order book.
PBT 2958 4026 4994 5727 6704
Tax 1033 1335 1773 1890 2212
Adjusted PAT 1925 2691 3220 3837 4492
Growth (%) 3.4 (18.1) 14.9 8.4 15.5
Exhibit 70: Balance Sheet

Cash & Equivalents 1062 2110 816 1351 1491
Sundry Debtors 23046 28480 33805 35752 39927
Inventory 4244 4542 4828 5170 5945
Loans & Advances 5388 5507 5969 6169 6659
Investments 5177 7159 7849 9579 9579
Net Block 5425 5236 5434 6086 6369
Debt is increasing because Miscellaneous 8102 7962 14084 16435 19056
company needs money to Total Assets 52444 60995 72785 80541 89025
execute the projects. Current Liabilities & Provisions 24120 30087 36926 37274 40931
Debt 5586 5526 6409 10080 10634
Other Liabilities 594 597 1750 2021 2201
Total Liabilities 30300 36210 45086 49375 53767
Shareholders Equity 307 307 307 307 307
Reserves & Surplus 21842 24479 27393 30859 34952
Total Networth 22149 24785 27700 31165 35259
Total Networth & Liabilities 52444 60996 72785 80541 89026
38
Jan 11, 2019
Exhibit 71: Cash Flow Statement

PAT 1924 2691 3220 3837 4492
Depreciation 837 777 766 801 921
Interest 1274 982 1033 1340 1387
Inc/dec in Net WC 4064 (714) (3835) (3775) (3739)
Other Income (500) (468) (459) (513) (552)
Other non cash items 1000 1503 1724 1890 2212
Tax (1044) (1553) (1413) (1890) (2212)
Cash flow from operating activities 7555 3218 1036 1690 2509
Inc/dec in capital expenditure (949) (576) (1064) (1530) (1230)
Others (731) (1538) (812) (1664) 67
Cash flow from investing activities (1680) (2114) (1876) (3194) (1163)
Inc/Dec in borrowings (3759) 970 784 3671 554
Dividend paid (549) 0 (363) (461) (539)
Interest paid (1239) (1001) (909) (1184) (1225)
Cash flow from financing activities (5547) (31) (488) 2026 (1211)
Net change in cash 329 1073 (1328) 523 135
Exhibit 72: Key Ratios

EBITDA Margin (%) 10.3 10.6 10.9 11.0 11.0
EBIT Margin (%) 9.6 10.0 10.4 10.6 10.5
Net Profit Margin (%) 4.4 5.4 5.6 5.7 5.8
Dividend Payout Ratio (%) 12.0 11.4 11.7 10.0 8.5
Net Debt/Equity (x) 0.2 0.1 0.2 0.3 0.3
RoE (%) 8.7 10.9 11.6 12.3 12.7
RoCE (%) 15.0 15.8 17.0 16.4 16.7
Exhibit 73: Valuation Parameters

EPS (Rs.) 12.5 17.5 21.3 25.0 29.3
EPS is growing at 17% DPS (Rs.) 1.5 2.0 2.5 2.5 2.5
which reflects that the BVPS (Rs.) 139.1 152.4 170.4 191.1 215.7
profit of the company will PE (x) 16.4 18.4 23.0 15.3 13.1
also grow. P/BV (x) 1.5 2.1 2.8 2.0 1.8
EV/EBITDA (x) 7.3 9.6 12.2 8.5 7.4
EV/Sales (x) 0.8 1.0 1.3 0.9 0.8
39
Jan 11, 2019
Stock Ratings
Absolute Returns
Buy : > 15%
Hold : 5-15%
Sell : < 5%
Connect & Discuss More at

1800 419 8283 (Toll Free) research@karvy.com Live Chat f in
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Jan 11, 2019

Transmission Sector Outlook

Transmission Sector Outlook

India Power Scenario:

Railways ordering activities on a rapid growth and aims to

Resurgence of international business:

Exhibit 1: T&D sector demand drivers across nations

Exhibit 2: Investment in Power T&D (USD Bn)

Indian Power Scenario:

Exhibit 3: Electricity production in India (BU)

Source: Company, Karvy Research, Note: 1 unit= 1 KWH = 1000WH

Installed capacity increased at a CAGR of 10.6% in FY07–17:

Installed capacity (GW)

Source: Company, Karvy Research Source: Company, Karvy Research

Exhibit 6: Capacity addition and targets in 12 the five year plan

Per capita energy consumption (KWh) Energy consumption in (KWh)

Deficit at peak power demand:

Exhibit 9: Deficit analysis in normal and peak demand scenario

Shift to renewable source of power generation but thermal

Overview of transmission sector:

Competition being restricted to 4-5 players:

Growth drivers for transmission sector:

Hence, it would be necessary to create a dedicated independent transmission

Government’s thrust on transmission sector:

Exhibit 10: Plan wise addition in the transmission industry

An addressable Rs. 2.6 Tn opportunity:

Powergrid’s Investment 292,000 MVA

Rest under TBCB and 14,000 MW HVDC

Global power outlook:

yyChanges in China’s economy and energy policy, moving consumption away

An outlook on major international geographies:

CRISIL ranking on different infrastructure sector:

Exhibit 13: CRISIL Infrainvex Scores

Source: CRISIL Infrainvex Report, Karvy Research

Railways electrification driving the order book of T&D

Other big opportunities in the railway sector:

Metro and high speed rail:

KEC International Ltd

India Research - Stock Broking

infrastructure projects majorly focusing on smart cities and communications. We

to double the revenue of civil segment. 100

Valuation and Risks 80

Exhibit 15: Valuation Summary

Considerable exposure in international markets: The company has business

Source: BSE, Karvy Research Source: Company, Karvy Research

Power Transmission and

A very healthy T&D segment:

Well placed to capitalize international T&D opportunities:

Exhibit 20: International order book grows at a 10% CAGR

Source: Company, Karvy Research

SAE turning positive:

Railways and civil business on a very strong footing:

Railways segment financials:

Source: Company, Karvy Research Source: Company, Karvy Research

total revenue by FY2020E. 20000

A strong foray into civil segment:

Sector outlook & opportunities:

A successful take off for civil business:

Exhibit 27: Business Assumptions

Exhibit 28: Karvy vs Consensus

FY19E 11956 11759 1.6 Higher operating efficiencies to benefit margins

FY19E 19.6 20.4 (4.1)

Exhibit 29: Revenue & Revenue Growth