Kalpataru Power Transmission: Good Business at A Fair Price

Anuj Didwania presented his in-depth investment thesis on Kalpataru Power Transmission (India NSE: KALPATPOWR) at Best Ideas 2016.

Kalpataru Power Transmission is a good company at a reasonable valuation, with multiple business lines in the infrastructure sector, leveraged to a pick-up of the investment cycle in India. The company has four business lines: power transmission lines, infrastructure and construction, oil and, gas and logistics. It is a diversified global engineering, procurement, and construction company. It represents a play on power (transmission) and infrastructure/construction in India. The company has a diversified book across segments, which gives it strength. It can perform well on multiple fronts when the economy picks up. Margins are at all-time lows. Debt is manageable for an infrastructure company at a debt-to-equity ratio of 0.4x. It is not a high-ROCE business — around 14% — but it is leveraged to the pick-up in the investment cycle in India, which remains near decade-long lows. Price to book for year ending March 2016 is 1.6x and PE is ~19x. Earnings are depressed as margins are at 15-year lows. Earnings should see a disproportionate rise as sales pick up in the coming years. From 2005-2008, the stock traded at 5-9x price to book. As margins revert toward a more normal state (most capital goods companies are experiencing decade-low margins in India). With a pick-up in infrastructure investments in India, the company should continue to see sales growth of 15-20%, which should lead to earnings growth in excess of 25-30%. This is a good company at a fair price, not a fair company at a good price.

About the instructors:

Anuj Didwania is the fund manager of Redart Capital, a fundamental value oriented investment management firm based in India. Prior to Redart Capital, from 2004 to 2005, Anuj was a Vice President solely responsible for the India proprietary trading desk at Merrill Lynch in Hong Kong and also assisted with managing Merrill Lynch’s $2 billion P-note product. From 2000 to 2004 Anuj was a proprietary trader for HSBC in Mumbai and was also responsible for setting up the equity derivatives desk for the company in India. From 2005 to 2009 Anuj has been working in the capacity of an executive director in his family business that is focused on logistics. He introduced strong processes and systems which helped increase margins and deliver consistency whereby the profits of the company have increased 800% since his joining. Since 2009 Anuj has been focused on investing proprietary capital of his family and developing his investment and risk management processes. Anuj received his post graduate degree in Business Administration (MBA) from Manchester Business School (UK) in 2000 and received his undergraduate degree in Commerce (B. Com) from Sydenham college in Mumbai.

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