Engg & Cap Goods Emkay PDF

Engineering & Capital Goods
March, 2017 T&D to unfold sizeable opportunities
John Perinchery
Research Analyst
john.perinchery@emkayglobal.com
+91 22 66121374
Engineering & Capital Goods India Equity Research | Sector Report
Contents
T&D to unfold sizeable opportunities ....................................................................................................................................................... 3
Suboptimal investments causing transmission congestion .................................................................................................................... 4
Demand growth coupled with regional imbalances to drive network expansion .................................................................................. 4
Expanding transmission network to bridge regional imbalance ............................................................................................................ 6
INR 2.6 tn opportunity over the next five years ..................................................................................................................................... 9
Dwindling competition boosting margins of established players ........................................................................................................... 9
Companies
Techno Electric Engineering Co - A Power Play.................................................................................................................................. 10
Kalpataru Power Transmission- Execution led growth ........................................................................................................................ 26
KEC International - Margin improvement to drive profitability ............................................................................................................. 41
Emkay Research | March 24, 2017 2

Engineering & Capital Goods
India Equity Research | Engineering & Capital Goods
March 24, 2017
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T&D to unfold sizeable opportunities
Kalpataru Power
BUY
Transmission & Distribution (T&D) on track for major expansion Transmission (SA)
CMP Target Price
While the power sector has seen remarkable accretion in generation capacities, investments
in T&D networks have lagged behind, causing network congestion and inefficiencies. The 285 408
requirement for large scale transmission gets further accentuated as the load centers are
scattered at far off places away from generating stations located in resource rich areas. Initial KEC International
ACCUMULATE
estimates from the 19th Electric Power Survey (EPS) for the annual peak load and load (Consl)
generation balance analysis indicate that massive transmission corridors need to be built in CMP Target Price
Northern and Southern regions for transferring power from other regions. Going forward, we 208 241
expect subdued investments in thermal generation capacities while capex in T&D systems is
expected to gain pace as utilities upgrade and ramp up the T&D infrastructure. Techno Electric
BUY
Engineering (Consl)
INR 2.6 tn opportunity over the next five years
CMP Target Price
Data from the Draft National Electricity Plan December 2016 (DNEP) indicates that the total 349 478
fund requirement for expanding the T&D systems during the 13th plan period will be ~Rs2.6tn,
of which ~Rs1.6tn will be utilized for building 400kv+ transmission systems while the balance
Rs1tn will be used for building 200kv and below transmission systems. The total opportunity
for transmission line players would be ~Rs1.4tn over the next five years while the substation
segment offers opportunities worth Rs1.2tn. Given that the 200kv and below systems are
likely to be catered to by the smaller local EPC players with lower cost structures, the
addressable opportunity for larger EPC players in the transmission lines would be ~Rs900bn
while in the substation segment it would be ~Rs750bn over the next five years.
Dwindling competition boosting margins of established players

The entry of infrastructure companies into the transmission EPC space during FY10-12 has
been a cause of concern for established transmission EPC companies like KEC International
(KECI), Kalpataru Power Transmission (KPP), L&T, Techno Electric & Engineering Company
(TEEC) etc. After encountering execution delays, PGCIL had declined awarding incremental
contracts to these new players until they completed their existing transmission projects -
impacting many of the new entrants who later withdrew from the transmission EPC segment
with losses and high debt. With the exit of new players, the order flow momentum gained
traction for the established transmission EPC players. While the market share did increase
significantly, the operating margins stabilized at ~9-10% from the earlier 5-6%.
Poised to seize opportunities in global transmission EPC

The global transmission market is expected to witness an overall capex of USD1.8tn over
FY2014-30. Few of the domestic transmission EPC companies have a major presence in
LATAM, MENA, South East Asia and these regions are expected to receive cumulative
investments of over USD1tn over FY2014-30. Companies like KPP and KECI have larger
presence in overseas transmission projects with the international projects exceeding 50% of
their T&D order backlog. The strategy of maintaining a strong international presence has
helped these companies survive during the weak phases in the domestic markets.
Prefer TEEC, KPP, KECI

Our top picks in transmission EPC segment are KPP (BUY with TP of Rs408, upside of 43%)
and TEEC (BUY with TP of Rs478, upside of 37%). We have an ACCUMULATE rating on
KECI with TP of Rs241, upside of 16%.
Financial Snapshot John Perinchery

EPS EV/EBITDA P/E john.perinchery@emkayglobal.com
+91 22 66121374
(Rs mn) FY17E FY18E FY17E FY18E FY17E FY18E
Kalpataru Power Transmission (SA) 16.4 19.6 9.0 7.6 17.3 14.5 Amruta Deherkar
amruta.deherkar@emkayglobal.com
KEC International (Consl) 9.7 12.0 9.5 8.3 21.4 17.4 +91 22 66121262
Techno Electric Engineering (Consl) 18.3 19.7 12.5 11.1 19.1 17.7
Emkay Research is also available on www.emkayglobal.com, Bloomberg EMKAY<GO>, Reuters and DOWJONES. Emkay Global Financial Services Ltd.
Suboptimal investments causing transmission congestion

Investments T&D networks have traditionally lagged behind in the past couple of decades as
focus was more on creating the generation capacities. For the installed generation capacities of
~354 GW expected by the end of 12th Five-year plan (FY2017), the aggregate transformation
capacities would stand at ~704,000 MVA. When compared with the global thumb rule of 7MVA
for every MW of generation capacities, the existing transmission capacity at ~2.0 MVA per MW
is much lower, leading to congestion in networks across regions of India.
Exhibit 1: Ratio of Transformation to Installed Generation

Plan MW MVA MVA / MW
6th Plan 42,585 46,621 1.1
7th Plan 63,636 75,322 1.2
8th Plan 85,795 125,042 1.5
9th Plan 105,046 181,743 1.7
10th Plan 132,329 257,439 1.9
11th Plan 198,842 409,551 2.1
12th Plan Expected 354,282 704,137 2.0
Source: DNEP December 2016
While Power Grid Corporation of India Ltd (PGCIL) has been investing heavily in the last 3-4
years in building up the Inter-State Transmission System (ISTS), the state utilities have been
slow to commit corresponding matching investments in the augmentation of Intra State
Transmission System (Intra-STS) and distribution network. Going forward, we expect the
investments in thermal generation capacities to remain subdued while investments in Intra-STS
are expected to gain pace as state transmission utilities upgrade and ramp up investments in
T&D capacities.
Demand growth coupled with regional imbalances to drive network expansion

Initial estimates from the 19th Electric Power Survey (EPS) indicates the peak load to increase at
an annual growth rate of ~8.3% during 13th plan, ~8.1% during 14th plan and then at ~ 6.9% for
the next ten years. In addition to the demand growth, the regional imbalances necessitate
transfer of power from the surplus regions towards the load centers. The requirement for large
scale transmission gets further accentuated as the load centers are scattered at far off places
away from generating stations located in resource rich areas.
As per the "Draft National Electricity Plan December 2016 (DNEP)" the building of the
incremental transmission network for the next 20 years would be based on electricity demand
projections of each region. The expanse of the transmission system would be dependent on the
load demand that the transmission system is required to meet and the available generation
resources that are likely to come up in future. This would also include the peak demand
projections, demand variations over various seasons/months during a year as well as the daily
variations. The projections and estimates for the 13 th Plan, including the projections for the
terminal years of the 14th and 15th plans would be finalized by the 19th EPS at a later date.
However, the initial/ intermediate projections of 19th EPS have been taken into consideration for
transmission planning.
Exhibit 2: Forecast of annual peak load from 11th plan to 15th plan (in MW)
Regions 11th Plan 12th Plan 13th Plan 14th Plan 15th Plan
2011-12 2016-17 2021-2022 2026-27 2031-32
Northern 40,248 54,587 78,283 106,530 148,900
Western 42,352 47,717 72,349 112,450 163,100
Southern 37,599 40,793 61,058 98,210 146,700
Eastern 14,707 19,708 30,135 42,770 63,000
North Eastern 1,920 2,640 4,592 7,020 10,500
ALL INDIA 136,826 165,445 246,417 366,980 532,200
Exports:
Bangladesh 600 1,100
Nepal 200 600
Total 136,826 166,245 248,117 366,980 532,200

Exhibit 3: Forecast of Installed generation capacities from 11th plan to 15th plan (in MW)
Regions 11th Plan 12th Plan 13th Plan 14th Plan 15th Plan
2011-12 2016-17 2021-2022 2026-27 2031-32
Northern 50,253 83,681 125,022 167,218 212,873
Western 65,896 131,020 184,533 244,151 341,831
Southern 44,025 86,694 137,923 190,878 258,927
Eastern 34,368 46,708 74,655 108,161 164,502
North Eastern 2,885 4,637 12,505 15,675 22,751
ALL INDIA 197,426 352,740 534,638 726,083 1,000,883
Bangladesh
Nepal 10,000 20,000
Bhutan 1,416 1,542 5,082 14,336 26,336
SAARC Total 1,416 1,542 5,082 24,336 46,336
Total 198,842 354,282 539,720 750,419 1,047,219
Exhibit 4: Addition in generation capacities under various five year plans (In MW)
Regions 12th Plan 13th Plan 14th Plan 15th Plan
2016-17 2021-2022 2026-27 2031-32
Northern 33,428 41,341 42,196 45,655
Western 65,124 53,513 59,618 97,680
Southern 42,669 51,229 52,955 68,049
Eastern 12,340 27,947 33,506 56,341
North Eastern 1,752 7,868 3,170 7,076
ALL INDIA 155,313 181,898 191,445 274,801
To determine the requirement of the future transmission system, the surplus/deficit of each
region under various conditions provides an estimation of the import/export requirement of that
respective region.
Exhibit 5: Load generation balance analysis for FY 2021-22

2021-22 (Q1) 2021-22 (Q2)
Region Capacity Demand Surplus / (Deficit) Capacity Demand Surplus / (Deficit)
Northern 48,392 71,836 (23,444) 51,444 76,639 (25,195)
Western 79,299 64,119 15,180 76,563 61,622 14,941
Southern 50,870 53,617 (2,747) 51,222 51,826 (604)
Eastern 36,382 27,432 8,950 35,598 29,060 6,538
North Eastern 5,176 4,075 1,101 6,712 4,297 2,415
Total 220,119 221,078 (959) 221,539 223,403 (1,864)
Bangladesh - 1,100 (1,100) - 1,100 (1,100)
Nepal - 600 (600) - 600 (600)
Bhutan 2,541 - 2,541 3,557 - 3,557
All India + SAARC 222,660 222,778 (118) 225,096 225,103 (7)
2021-22 (Q3) 2021-22 (Q4)
Region Capacity Demand Surplus / (Deficit) Capacity Demand Surplus / (Deficit)
Northern 51,318 71,517 (20,199) 51,066 68,895 (17,829)
Western 79,131 67,777 11,354 83,247 70,396 12,851
Southern 48,869 53,792 (4,923) 50,106 59,409 (9,303)
Eastern 39,158 28,231 10,927 40,954 29,321 11,633
North Eastern 5,991 4,411 1,580 5,243 4,468 775
Total 224,466 225,727 (1,261) 230,617 232,469 (1,852)
Bangladesh - 1,100 (1,100) - 1,100 (1,100)
Nepal - 600 (600) - 600 (600)
Bhutan 3,049 - 3,049 3,557 - 3,557
All India + SAARC 227,516 227,427 89 234,175 234,169 6

Exhibit 6: Export / (Import) for various region from FY2021 FY2032

Region/SAARC 2021-22 2026-27 2031-32 2035-36
Northern (18,400) (33,200) (54,800) (80,100)
Western 10,400 14,000 21,300 34,200
Southern (7,400) (16,200) (30,100) (47,700)
Eastern 10,900 22,300 40,600 66,600
North-east 1,800 2,100 3,000 4,000
All INDIA (2,100) (13,400) (26,000) (28,500)
Bangladesh (500) (1,500) (2,000) (2,000)
Nepal (200) 6,100 12,500 15,800
Sri Lanka - - (500) (1,000)
Pakistan - (500) (1,000) (1,000)
Bhutan 2,800 9,300 17,000 17,100
SAARC Total 2,100 13,400 26,000 28,500
Perusal of the load generation balance analysis indicate that massive transmission corridors are
likely to be built in Northern and Southern regions while the other three regions would be in a
position to export power. To cater to the import/export requirement of various regions, several
inter-regional transmission corridors have also been planned.
Expanding transmission network to bridge regional imbalance

Taking into consideration the total transmission requirements, it is estimated that the 13th plan
period would require ~106,000 ckms of transmission lines, 14,000 MW of HVDC terminal
capacity and 292,000 MVA of transformation capacity. While the central transmission utility like
PGCIL is expected to have a significant spend, majority of the investments are likely be in the
Intra State Transmission System (Intra-STS) by respective state transmission utilities.
India currently has high capacity transmission systems with 765 kV and 400kV AC technology
and HVDC systems deploying up to +800kV technology. When quantified, it would entail ~29,400
circuit kilo meters (ckms) of 765kV lines and 157,600 ckms of 400kV lines. The 765kV and 400kV
substation capacities are at ~155,000 MVA and ~234,300 MVA respectively.
PGCIL is planning to adopt the 1,200kV technology as next higher voltage level in the near future.
Going forward, Flexible AC Transmission System (FACTS) including Static VAR compensator
(SVC) and Static Synchronous Compensator (STATCOM) and switchable reactors, are also
likely to be deployed in large numbers to utilize transmission highways and to take care of
variation in demand between peak and off season.
Exhibit 7: Inter Regional Transmission Capacity planned during 13th plan (in MW)
Inter-Regional corridors Present Expected Addition Expected
(as on Nov by end of expected by end of
2016) 12th Plan during 13th 13th Plan
Plan (2021-22)
West - North 13,920 16,920 19,800 36,720
North East - North 3,000 3,000 - 3,000
East - North 19,530 21,030 1,500 22,530
East - West 12,790 12,790 8,400 21,190
East - South 3,630 7,830 - 7,830
West - South 7,920 7,920 16,000 23,920
East - North East 2,860 2,860 - 2,860
Total 63,650 72,350 45,700 118,050

Exhibit 8: Inter Regional Transmission links coming up in the 13th Plan period (in MW)
Inter-Regional corridors Present (as Capacity Likely Capacity
on Nov expected at addition expected at
2016) the end of during 13th the End of
12th Plan Plan 13th Plan
EAST - NORTH
LILO of Biswanath Chariali - Agra +/- 800kv,
3000 MW HVDC Bi-Pole at new pooling station
1,500 1,500 3,000
in Alipurduar and addition of second 3000 MW
module
Sub-total 19,530 21,030 1,500 22,530
EAST - WEST
Jharsuguda - Dharmjaygarh 765kv 2nd D/c line 4,200 4,200
Jharsuguda - Raipur Pool 765kv D/c line 4,200 4,200
Sub-total 12,790 12,790 8,400 21,190
WEST - NORTH
Upgradation of Champa Pool-Kurukshetra
3,000 3,000
HVDC Bipole
Jabalpur - Orai 765kv D/c line 4,200 4,200
LILO of Satna - Gwalior 765kv D/c line at Orai 4,200 4,200
Banaskantha-Chitorgarh 765kv D/c line 4,200 4,200
Vindhyachal-Varanasi 765kv D/c line 4,200 4,200
Sub-total 13,920 16,920 19,800 36,720
EAST - SOUTH
Sub-total 3,630 7,830 - 7,830
WEST - SOUTH
Wardha - Hyderabad 765kv D/c line 4,200 4,200
Warora Pool - Warangal (new) 765kv D/c line 4,200 4,200
Raigarh-Pugulur HVDC line 6,000 6,000
LILO of Narendra - Narendra (New) 400kv
1,600 1,600
(Quad) line at Xeldam (Goa)
Sub-total 7,920 7,920 16,000 23,920
EAST - NORTH EAST

Sub-total 2,860 2,860 - 2,860
NORTH EAST - NORTH

Sub-total 3,000 3,000 - 3,000
Total 63,650 72,350 45,700 118,050

Exhibit 9: Requirement of Transmission lines during 13th Plan (in ckms)

Expected Expected Expected
Voltage level 10th Plan 11th Plan by end of Addition in by end of
12th Plan 13th Plan 13th Plan
HVDC 500kV/800kV Bipole 5,872 9,432 15,535 4,280 19,815
765kV 2,184 5,250 29,431 27,300 56,731
400kV 75,722 106,819 157,644 46,000 203,644
220kV 114,629 135,980 162,325 28,000 190,325
Total (in ckms) 198,407 257,481 364,935 105,580 470,515
Exhibit 10: Requirement of Substations during 13th plan (in MVA)

765kV - 25,000 155,000 114,000 269,000
400kV 92,942 151,027 234,372 103,000 337,372
220kV 156,497 223,774 298,265 75,000 373,265
Total (in MVA) 249,439 399,801 687,637 292,000 979,637
Exhibit 11: Requirement of HVDC during 13th plan (in MW)

Bi-pole link 5,000 6,750 13,500 14,000 27,500
HVDC Back-to Back 3,000 3,000 3,000 3,000
Total HVDC Terminal (in MW) 8,000 9,750 16,500 14,000 30,500
Exhibit 12: SVCs and STATCOMs under implementation in the ISTS network
Dynamic
Compensation Dynamic Mechanically Switched
(STATCOM) Compensation Compensation
Location (MVAr) (SVC) (MVAr) (MVAR) Cost (Rs mn)
Reactor Capacitor 12th Plan 13th Plan
Northern Region
Nalagarh 200 2 x 125 2 x 125 - 4,319
New Lucknow 300 2 x 125 1 x 125 - -
New Wanpoh (+)300/(-)200 8,300 -
Kankroli (+)400/(-)300 - -
Ludhiana (+)600/(-)400 - -
Western Region
Solapur 300 2 x 125 1 x 125 - 10,712
Gwalior 200 2 x 125 1 x 125 - -
Satna 300 2 x 125 1 x 125 - -
Aurangab ad
300 2 x 125 1 x 125 - -
(PG)
Southern Region - -
Hyderabad (PG) 200 2 x 125 1 x 125 - 5,623
Udumalpet 200 2 x 125 1 x 125 - -
Trichy 200 2 x 125 1 x 125 - -
Eastern Region - -
Rourkela 300 2 x 125 - 7,662
Kishanganj 200 2 x 125 - -
Ranchi (New) 300 2 x 125 - -
Jeypore 200 2 x 125 2 x 125 - -
Total 8,300 28,316

Green energy corridor - Integrating renewable energy with regional grids

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. Hence, it would be necessary to create a dedicated
independent transmission corridor to evacuate the resultant infirm 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 Rs430bn will be implemented with financial and technical assistance
from Germany.
INR 2.6 tn opportunity over the next five years.

Extrapolating the current cost of construction of the transmission system built by PGCIL, it has
been estimated by DNEP that the total fund requirement for expanding the transmission system
during the 13th plan period will be ~Rs1.6tn for 400kv+ transmission systems and Rs1tn for 200kv
and below transmission systems which would be entirely in the Intra-STS segment.
On a thumb rule basis, ~55-60% of the T&D expenditure are for transmission lines, while ~40-
45% of the orders will be for substations and equipments like transformers, reactors, insulators,
conductors, HVDC and new high technology products like SVC and STATCOM. The total
opportunity for transmission line players would be ~Rs1.4tn over the next five years while the
substation segment will offer opportunities worth Rs1.2tn. For established larger EPC players
the opportunity will be limited to projects in the +400kV systems. The 200kV and below systems
(largely tendered by state utilities) are catered by the smaller local EPC players with lower cost
structure.
The addressable opportunity for larger EPC players in the transmission lines would be ~Rs900bn
while in the substation segment it would be ~Rs750bn over the next five years. We expect the
listed EPC companies like KECI and KPP to be amongst the key beneficiaries in both the
transmission and substation EPC segment, while TEEC with its expertise in substation space
would immensely benefit in substation EPC and STATCOM installations.
Dwindling competition boosting margins of established players.

The entry of infrastructure companies into the transmission EPC space during FY10-12 has been
a cause of concern for established companies like KECI, KPP, L&T. Post the vendor
development initiatives taken by PGCIL, many construction EPC players were requested by
PGCIL to bid for transmission line orders. The low entry barriers coupled with decent profitability
had attracted these new players to the transmission EPC industry. Some of the structural steel
manufacturers have also tied up with infrastructure companies to get pre-qualified for
transmission EPC. This resulted in over-crowding and cut throat competition resulting in
aggressive and irresponsible bidding by new players in FY10-12 period. Most of the established
transmission EPC players had decided to avoid bidding at lower prices and had let go these
orders from both PGCIL and SEBs during this period stagnant / declining revenues and poor
profitability of these companies in FY11-14 are testimony to the same. At the execution stage,
most of these new players goofed up. Lack of expertise and non-availability of key personnel
have impacted their ability to execute the transmission projects in time and within the quoted
price. As majority of the PGCIL projects got bogged down, the company decided to stop awarding
projects to the new players till they successfully completed their existing projects. Over the next
couple of years, many of these new players had to vacate the transmission EPC segment and
the aggregate market share of the established players increased thereafter. With the exit of the
new entrants, the order flow momentum gained traction for the established transmission EPC
majors and their operating margins have now stabilized at ~9-10% from the earlier 5-6%.
Exhibit 13: Market share in PGCIL Transmission projects (%)

Company FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
KECI 13 2 11 6 30 19 11 24 16
KPP 14 5 11 10 18 14 13 11 3
L&T 7 9 6 11 15 12 17 19 10
Tata projects 9 20 19 17 - 17 20 3 12
Others 57 65 52 57 36 38 39 44 59
Total 100 100 100 100 100 100 100 100 100
Source: Company, Emkay Research

Techno Electric Engineering Co
March 24, 2017
Initiating Coverage Emkay

CMP Target Price
A Power Play Rs349 Rs478
Rating Upside
BUY 37.2 %
Change in Estimates
Techno Electric and Engineering Company (TEEC) is known for its expertise in
EPS Chg FY17E/FY18E (%) NA
400/765kv substation EPC projects. The companys consistent track record of timely
Target Price change (%) NA
execution of complex substations projects, thereby avoiding cost overruns and
penalties, distinguishes it above the rest of the competition. TEECs strategy of Previous Reco NA
selective bidding for projects entailing higher profitability, and low execution and
receivables risk has enabled it to deliver superior profitability (EBIDTAM of ~14-15%), Emkay vs Consensus
efficiently rationalize working capital (~55 days) needs and post high returns (RoCE of EPS Estimates
EPC division is 100%+). The company has decided to exit the low yielding wind power FY17E FY18E
generation business and is planning to utilize the sale proceeds to pare down debts Emkay 18.3 19.7
and fund the equity portion of substation BOOT assets. Going forward, EPC revenues Consensus 17.4 21.6
are expected to post a ~22% CAGR over FY16-19E while PAT is expected to rise at a Mean Consensus TP Rs 411
26% CAGR over FY16-19E. We initiate coverage on TEEC with a BUY rating and SoTP
based price target of Rs478.
Stock Details
Bloomberg Code TEEC IN
Substations and STATCOM Bigger and better opportunities: TEEC is favorably
Face Value (Rs) 2
placed to capitalize on the upcoming opportunities in the domestic transmission segment
Shares outstanding (mn) 114
given that a significant proportion of future T&D capex by PGCIL and SEBs is likely to be
52 Week H/L 384 / 243
deployed in building substations and STATCOMs. As per industry estimates, PGCIL
plans to install ~50 STATCOMs (investment of ~Rs80bn) over the next 3-4 years. TEEC M Cap (Rs bn/USD bn) 40 / 0.61
was the first company to get the initial Rs2.7bn order for installation of a STATCOM in Daily Avg Volume (nos.) 131,666
association with the Chinese company Rongxin Power. Out of the three STATCOM Daily Avg Turnover (US$ mn) 0.7
packages awarded till date, the NR and WR projects have been won by TEEC valued
at ~Rs5bn. Shareholding Pattern Dec '16
Divestment from Wind generation Many unhappy returns: TEECs investments in Promoters 58.0%
wind projects have not yielded desired returns on account of back-downs and delayed FIIs 8.4%
payments from SEBs. Nearly 87% of TEECs capital employed (FY16) was towards wind DIIs 15.3%
projects which yielded only 4% returns as against the 100%+ returns yielded in the EPC Public and Others 18.3%
segment. TEEC has taken the decision to exit the wind power generation business and
allocate the unlocked cash towards PPP substation BOOT projects, debt repayment and
Price Performance
share buyback.
(%) 1M 3M 6M 12M
Foray into BOOT projects Seeking better investment outcome: TEEC has a twin- Absolute (6) 16 15 32
fold objective to invest in T&D BOOT; 1) deploying the excess cash resources to generate Rel. to Nifty (7) 3 12 14
stable and secure returns of ~10-11% and 2) bagging the substation EPC business and
O&M contracts from these BOOT projects. Relative price chart
Valuation and Recommendation: We value TEEC on SoTP basis, assigning different

400 Rs % 30
methodologies and multiples to value each business segment. We initiate coverage on 370 22
TEEC with a BUY rating and a price target of Rs478. 340 14
Financial Snapshot (Consolidated) 310 6
(Rs mn) FY15 FY16 FY17E FY18E FY19E 280 -2
Net Sales 7,939 10,972 14,062 16,531 19,715 250 -10

Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17
EBITDA 2,114 2,203 3,105 3,329 3,853
Techno Electric (LHS) Rel to Nifty (RHS)
EBITDA Margin (%) 26.6 20.1 22.1 20.1 19.5
Source: Bloomberg
APAT 1,051 1,406 2,087 2,244 2,788
EPS (Rs) 9.2 12.3 18.3 19.7 24.4 John Perinchery
EPS (% chg) 20.1 33.8 48.5 7.5 24.3 john.perinchery@emkayglobal.com
ROE (%) 12.0 14.6 19.0 17.7 19.0 +91 22 66121374
P/E (x) 37.9 28.3 19.1 17.7 14.3
Amruta Deherkar
EV/EBITDA (x) 20.9 19.4 12.5 11.1 9.1
P/BV (x) 4.4 3.9 3.4 2.9 2.5
+91 22 66121262
Techno Electric Engineering Co (TEEC IN) India Equity Research | Initiating Coverage
Investment Arguments
Disciplined approach Straight talk, Simple Numbers, Decent Profits!
TEEC is probably the only domestic EPC company to have delivered consistently superior
performance in the last ten years. Such outperformance over competition has its roots in the 1)
company choosing the right mix of orders, 2) relentless focus on execution and 3) timely
collection of receivables. The companys strategy has always been to selectively bid for EPC
contracts with lower execution and receivables risk. TEEC as a policy avoids stepping up the
bidding war in a quest to win orders. Its endeavor is to seek quality orders at decent margins,
aggressively pursue early project closure and ensure timely collection of the accounts
receivables including retention monies. This strategy ensures consistently robust margins
(EBIDTAM of 14-15%) and high return ratios (RoCE in excess of 100%) for the company.
Exhibit 14: Profitability ahead of industry

EBITDAM FY11 FY12 FY13 FY14 FY15 FY16
Kalpataru Power 12% 11% 10% 10% 10% 11%
KEC International 11% 8% 5% 6% 6% 8%
Techno Electric (EPC Segment ) 15% 16% 11% 11% 15% 14%
ABB 5% 4% 6% 7% 9% 9%
Siemens 11% 7% 4% 6% 9% 9%
GET&D 9% 7% 8% 8% 7%
Thermax 10% 10% 9% 9% 9% 8%
Exhibit 15: Spotting Profitability With ROCE

ROCE FY12 FY13 FY14 FY15 FY16
Kalpataru Power 16% 14% 14% 14% 15%
KEC International 21% 13% 14% 17% 16%
Techno Electric (EPC Segment) 263% 86% 96% 117% 128%
ABB 9% 12% 14% 17% 18%
Siemens 19% 5% 11% 19% 16%
GET&D 12% 16% 14% 11%
Thermax 36% 24% 16% 16% 16%
Unlike other EPC companies which have manufacturing operations involving maintenance of
accompanying fixed assets and inventories, TEEC is a pure EPC company sans any
manufacturing operations. Additionally, TEEC has the lowest working capital cycle amongst all
the T&D EPC companies. The relatively lower capital requirements has enabled TEEC to
consistently report superior RoCE (100%+) in its T&D EPC business over the past many years.
Despite having relatively lower contribution margins compared to its peers, TEEC is able to post
higher profitability (PBTM excl. other income) purely driven by operational efficiencies and
incurrence of lower interest costs reflecting the right mix of debt in the capital structure. TEECs
ability to close project sites within contractual timelines ensures that the semi-fixed cost /period
cost stay at controlled levels. TEECs fixed overheads too have been relatively stable over the
past few years. During periods of accelerating revenue growth, the company reported superior
EBIDTAM of ~14-15%, benefitting from the operating leverage. Similarly, the steadfast focus on
collections of accounts receivables ensures that the working capital debt is kept to the bare
minimum, which helps limit the financing cost at ~2.5 - 3.0% of sales. With operating margins of
~14% and asset turns of ~9x, the RoCE had to be in excess of 100%.
Exhibit 16: TEEC - Capital Intensity and RoCE (EPC segment)

FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Revenues 6,488 7,040 5,159 5,705 6,681 10,143 12,760 15,454 18,639
Capital Employed 265 587 725 514 1,123 1,113 1,400 1,696 2,046
Avg Asset Turns 17 8 9 8 9 10 10 10
OPM 16% 11% 10% 14% 14% 15% 15% 15%
RoCE 263% 86% 96% 117% 128% 151% 149% 151%

Exhibit 17: Profitability Metrics TEEC (EPC segment)

TEEC FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Contribution margins 21% 23% 21% 20% 21% 20% 20% 21% 21%
Fixed Exp / sales 6% 8% 10% 10% 7% 6% 6% 6% 6%
EBIDTAM 15% 16% 11% 11% 15% 14% 15% 15% 15%
OPM 15% 16% 11% 10% 14% 14% 15% 15% 15%
Interest cost / sales 2% 3% 4% 3% 3% 2% 1% 1% 0%
PBTM 13% 13% 7% 8% 11% 12% 13% 14% 15%
RoCE 263% 86% 96% 117% 128% 151% 149% 151%
Exhibit 18: Profitability Metrics - Kalpataru Power (Standalone)

KPP FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Fixed Exp / sales 9% 10% 12% 12% 13% 12% 12% 11% 11%
EBIDTAM 12% 11% 10% 10% 10% 11% 11% 11% 11%
OPM 10% 9% 8% 8% 8% 9% 9% 9% 9%
PBTM 7% 6% 4% 4% 5% 6% 7% 7% 8%
RoCE 16% 14% 14% 14% 15% 17% 18% 19%
Exhibit 19: Profitability Metrics KEC International (Consolidated)

KECI FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Fixed Exp / sales 11% 10% 11% 11% 11% 11% 11% 11% 10%
EBIDTAM 11% 8% 5% 6% 6% 8% 9% 9% 9%
OPM 10% 7% 5% 5% 5% 7% 8% 8% 8%
PBTM 7% 5% 2% 2% 1% 4% 4% 5% 6%
RoCE 21% 13% 14% 17% 16% 16% 18% 21%
Patience is not only a virtue it can be profitable

During the periods of heightened competitive intensity and irresponsible bidding by new entrants
(FY2010 - 2014), TEEC consciously let go many PGCIL and SEB orders. The company patiently
waited for most of the new entrants to exit with huge losses and high debts. Apart from resisting
the pressure to bid at aggressive prices, TEEC also followed the discipline to retain order backlog
at ~2x TTM revenues. The company as a policy would have ~20 open sites at any point of time.
Higher order backlog and too many open sites imply spreading the management resources too
thin and longer execution cycle, thereby losing focus and impacting the project execution
timelines. These project delays have accompanying additional costs like higher than anticipated
semi-variable / fixed overheads and exposure to commodity price risks, thereby converting an
otherwise profitable order into loss / low margin order. For TEEC, patience is more than a virtue
its been a necessity for building a best in class EPC Company.
Exhibit 20: PGCIL order wins for TEEC from FY09 17

(Rs mn)
5,000 4,738
4,198
4,000 3,460
3,129
3,000
2,308 2,125
2,000
1,169
814
1,000
- - - - - -
-
FY09 FY12 FY13 FY14 FY15 FY16 FY17
Substation AIS Substation GIS

Prudent working capital management

TEEC has the lowest working capital cycle amongst all the T&D EPC companies. Being a pure
EPC player with no manufacturing facilities the inventories are negligible. In fact, there were
periods prior to FY11, when TEEC had operated on negative working capital. Post FY14, the
working capital cycle has steadily increased as retention monies rose with growing turnover.
TEECs execution cycle is ~24 months and the cumulative retention monies (YTD) of ~Rs1.8bn
are ~10% of trailing 24 month revenues. Excluding the retention monies, the general receivables
are ~Rs1.25bn. Total receivable days are ~100-110 days sales ~40-45 days of general
receivables and ~60-65 days of retention monies.
Focus on substations and STATCOMs Unfolding potential

TEEC believes that significant proportion of future T&D capex outlay would be deployed towards
transformation (substations) and STATCOM (dynamic power management). PGCILs ratio of
investment between transmission lines and transformations (substation, STATCOMS etc.,) has
undergone significant change from the earlier 80:20 to 65:35 at present.Going forward, TEEC
expects substantial number of 400 KV GIS substations to be ordered at the state level while the
765KV and 1200KV substations will largely be undertaken by PGCIL in AIS mode. Majority of
the STATCOM solutions are likely to shift to the generating plant side at the state level while
PGCIL would be installing STATCOM for interstate evacuation of power and maintaining the grid
stability.
As per industry estimates, PGCIL plans to install ~50 STATCOMs over the next 3-4 years. Each
STATCOM package is valued at ~ Rs4.5bn wherein TEECs scope is likely to be Rs2 -2.5bn.
Out of the three STATCOM packages awarded till date, the NR and WR projects are being done
by TEEC valued at ~Rs5bn. For its existing STATCOM business, TEEC has tied up with
Chinese equipment suppliers like Rongxin Power. Under this arrangement, TEECs scope is
limited to only integrating the equipment and the sub-systems. PGCIL will be inking separate
agreements with the equipment suppliers for performance guarantees and other mandatory
requirements like domestic production etc. Even the risk of commodity price fluctuations is with
the equipment supplier. Going forward, we can expect other European equipment suppliers to
enter into similar tie-up with TEEC for STATCOM and GIS tenders.
Exit from wind power Eliminating unproductive assets to improve capital ratios
TEEC has been struggling with its portfolio of wind power generating assets for the past 3-4
years on account of back-downs and delayed payments. These challenges have impacted the
financials of the wind power generating entities - putting a question mark on their operating
viability. Most of these problems have receded during the last 7-8 months with excellent wind
flow and improvement in grid availability. TEEC had recently received payments for the past
dues (over eight months) from Tamil Nadu Electricity Board and the company expects to close
FY2017 with ~50% growth over FY2016.Though the challenges related to the back-downs and
delayed payments have now eased, TEEC has taken a policy decision to sell off wind assets
and completely exit the wind power generation business. Nearly 87% of TEECs capital
employed (FY16) was accounted by the wind projects which yielded only 4% returns as against
100%+ returns yielded by the EPC segment. The company had sold 44.5MW in FY2016 and
33MW during FY2017 and the balance 129.9MW is expected to be sold over the course of next
12-24 months. The company is proposing to utilize the sale proceeds to pare down debts, fund
the equity portion for substation BOOT assets and towards buy back of shares.
Exhibit 21: Portfolio of Wind Assets

Techno Electric Simran Wind Projects Limited
Capacity 12 MW 6 MW 111.9 MW
Location Karnataka Karnataka Tamil Nadu
Capacity (in MW) 8 Nos x 1.5 MW 4 Nos x 1.5 MW 48 Nos x 1.5 MW
19 Nos x 2.1 MW
PLF 18-26% 19-26% 19-26%
Tariff Rs 3.4 Rs3.4 Rs 2.63

Foray into BOOT projects seeking better returns

Having burnt its fingers in the wind asset portfolio, TEEC has decided to invest the excess cash
resources in the relatively less risky T&D BOOT assets. The objective is twin-fold - 1) to deploy
the excess cash resources to generate stable and secure returns of ~10-11% and 2) to bag the
substation EPC business and O&M contracts from these BOOT projects. TEECs preference
would be to bid for projects where the substation or power system content is more than 30-40%
in the package value. This would ensure faster recovery of the equity contribution from the EPC
margins. In case of projects with larger proportion of transmission lines, TEEC would bid in JV
with entities like KPTL, L&T or KEC. For the TBCB projects secured by PGCIL, TEEC would be
keen to bid for the substation EPC.
Exhibit 22: BOOT Assets

Jhajjar Power Transmission Patran Transmission
TEECs Stake 49% 49%
Project Cost Rs 4,440 mn Rs 2,000 mn
Equity contribution Rs 760 mn Rs 500 mn
Govt Grant Rs 920 mn Nil
Debt Rs 2,760 mn Rs 1,500 mn
Project Status Operational since March 2012 Operational since June 2016
Annuity revenue expected Rs 580 mn Rs 300 mn
Concession Period 25 years 35 years
Terminal value 60 months of revenue Nil
Key Risks
Slowdown in order flows would impact earnings.
Majority of the domestic T&D spends are undertaken by central (PGCIL) and state (SEB) utilities
and any slowdown in order flows on account of political changes could impact TEECs revenue
bookings and profitability. It is pertinent to note that TEEC does not prefer to work for private
sector clients. The entire clientele is almost central or state utilities.
Delay in sale of wind assets could impact realizations

Though TEEC has sold ~78MW of wind assets, the company has to dispose a further ~130MW
of wind assets. The recent fall in wind tariffs has the potential to reduce the capex cost, in turn
impacting the sale value of existing wind assets. Going forward, any further decline in wind tariff
could impair the value of wind assets held by TEEC.

Assumption
Exhibit 23: EPC (Rs in mn)
Year 2012 2013 2014 2015 2016 2017E 2018E 2019E
Revenue 7,040 5,159 5,705 6,681 10,143 12,760 15,454 18,639
Growth 8.5% -26.7% 10.6% 17.1% 51.8% 25.8% 21.1% 20.6%
EBITDA 1,128 573 602 971 1,440 1,914 2,318 2,842
Growth 14.1% -49.2% 5.0% 61.4% 48.2% 33.0% 21.1% 22.6%
EBITDAM 16.0% 11.1% 10.5% 14.5% 14.2% 15.0% 15.0% 15.3%
Depreciation 8 8 9 13 14 14 6 8
EBIT 1,120 565 593 958 1,426 1,900 2,312 2,834
EBITM 15.9% 10.9% 10.4% 14.3% 14.1% 14.9% 15.0% 15.2%
Finance cost 189 199 155 202 208 179 100 20
PBT 931 366 438 757 1,218 1,721 2,212 2,814
Tax 102 (27) (63) 94 272 516 664 844
PAT 829 392 501 663 946 1,205 1,549 1,970
Exhibit 24: Energy (Rs in mn)

Year FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Revenue 1,158 1,842 1,380 1,258 829 1,302 1,077 1,077
Growth 70.8% 59.1% -25.1% -8.8% -34.1% 57.0% -17.3% 0.0%
EBITDA 1,115 1,773 1,324 1,143 764 1,191 1,011 1,011
Growth 72.6% 59.1% -25.4% -13.6% -33.2% 56.0% -15.1% 0.0%
EBITDAM 96.2% 96.3% 95.9% 90.9% 92.1% 91.5% 93.9% 93.9%
Depreciation 552 647 657 590 480 480 391 391
EBIT 562 1,126 666 553 283 711 620 620
EBITM 48.6% 61.1% 48.3% 43.9% 34.1% 54.6% 57.6% 57.6%
Finance Expense 222 322 299 264 235 196 157 118
PBT 340 804 367 289 48 515 463 502
Exhibit 25: Assumptions sheet (Consolidated)

(Rs in mn) FY15 FY16 FY17E FY18E FY19E
Revenues
EPC 6,681 10,143 12,760 15,454 18,639
Energy 1,172 768 1,302 1,077 1,077
Total Operating revenue 7,939 10,972 14,062 16,531 19,715
EBIT
EPC 958 1,426 1,900 2,312 2,834
Energy 553 283 711 620 620
Total EBIT 1,511 1,709 2,611 2,932 3,454
Add: Other Income 202 629 569 277 322
Less: Interest Cost 465 443 375 257 138
PBT 1,248 1,894 2,805 2,952 3,638
Taxes 185 487 627 664 844
PAT 1,063 1,407 2,177 2,289 2,794
APAT 1,051 1,406 2,087 2,244 2,788
Capital Employed
EPC 1,123 1,113 1,400 1,696 2,046
Energy 7,472 7,707 7,707 7,707 7,707
Total capital employed 8,594 8,821 9,108 9,404 9,753
ROCE
EPC 117% 128% 151% 149% 151%
Energy 7% 4% 9% 8% 8%
Order Inflows 14,931 15,000 18,000 22,050 27,563
Order Backlog 20,250 26,000 31,240 37,836 46,760

Valuation
We have valued TEEC on SoTP basis, assigning different methodologies and multiples to value
each business segment.
Revenue in the EPC segment is expected to increase at ~ 22% CAGR over FY16-19E while the
EBITM is expected to remain steady at ~15%. RoCE in the EPC segment is expected to remain
high at ~100%+. We have assigned P/E multiple of 25x to FY19E earnings to value the core
EPC business. We have valued the transmission PPP portfolio on FCFE with 13% cost of equity.
The investment in the wind generation assets have been valued at 1x book value.
We initiate coverage on TEEC with a BUY rating and a price target of Rs487
Exhibit 26: Valuation Summary

Value TEEC Share TEEC Share Value
Parameters
(In Rs mn) (In %) (In Rs mn) per share
EPC - Standalone 25x P/E on FY19E Earnings 49,247 100% 49,247 431
Energy - Standalone 1x Price to book 392 100% 392 3
Energy - Simran 1x Price to book 3,850 100% 3,850 34
PPP Projects
Jhajjar KT FCFE 1,479 49% 724 6
Patran FCFE 859 49% 421 4
Target Price 478

Financials
TEECs (consolidated) revenues are expected to grow at 22% CAGR (FY16-19E) led by the
robust growth in the EPC segment. We expect 22% CAGR (FY16-19E) in EPC revenues while
the Energy segment is expected to remain stable as the company does not intend to add any
new wind assets. In fact, the endeavor would be to sell off the existing wind assets over the next
12-24 months.
Exhibit 27: Revenue and Growth (%) Exhibit 28: Revenue by segment
(Rs bn) 38 (%) (Rs bn)
24 40 22 19
28
19 15
18 18 25 17
14 12 13
10
12 1 10 11
6 7 7
5 6
6 (15) (5) 6
1 2 1 1 1 1 1 1
7 8 7 7 8 11 14 17 20 1
- (20) -
2019E
2011
2012
2013
2014
2015
2016
2017E
2018E
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
Revenue (LHS) Growth (%) (RHS) EPC Energy
Source: Company, Emkay Research Source: Company, Emkay Research
The EBITDA is likely to increase by 20% CAGR (FY16-19E) in line with increasing turnover in
the EPC segment. EBIDTAM in the EPC segment is expected to stabilise at ~15% while the
Energy segment will continue to report steady EBIDTAM of ~94%.
Exhibit 29: EBIDTA and EBIDTAM Exhibit 30: PAT & PATM
(Rs bn) (%) (Rs bn) (%)
4 36
19
27 27 27 3 17
34
3 23 22 27
20 20 16 17
2 15
15
2 20 18 14 15
2 14
13
13 13
1 9 13
1
2 2 2 2 2 2 3 3 4 1 1 1 1 1 1 2 2 3
- - (0) 11
2018E
2015
2017E
2019E
2011
2012
2013
2014
2016
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
EBITDA (LHS) EBITDAM (RHS) PAT (LHS) PATM (RHS)

We expect the net working capital to remain steady at ~25% of sales. The interest cost is
expected to reduce in line with declining debt.
Exhibit 31: Interest Cost Exhibit 32: Net working capital excluding cash
(Rs mn) (%) (Rs mn) 30 (%)
522 28 26
560 8 6,000 25 26 32
454 465 443
411 7
420 375 6 4,100 13 25 18
6
6 257 4
249 5
280 4
(1,533)
2,200 4
1,771
2,236
3,328
3,718
4,221
4,926
365
893
3 4 138
140 1 2 300 (10)
3
2
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
- -
(1,600) (24)
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
(21)
Net Working capital excluding cash (LHS)
Interest cost (LHS) Interest to Sales (RHS) Wc Ratio to sales (RHS)

Segment financials
The EPC segment revenues increased by 52% in FY16 and are likely to double by FY19E.
Exhibit 33: EPC - Revenues

(Rs bn) (%)
52
24 60
26 21
18 17 30
9 11
12 21 -
(27)
6 (30)
6 7 5 6 7 10 13 15 19
- (60)
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
Revenue (LHS) Growth (%) (RHS)
EBITDA is likely to increase at 25% CAGR (FY16-19E) to Rs3bn while EBITDAM is likely to
remain stable at 15%. EBIT is expected to increase at 26% CAGR (FY16-19E) to Rs3bn. EBITM
is likely to increase by 120bps to 15%.
Exhibit 34: EPC - EBIDTA and EBIDTAM Exhibit 35: EPC - EBIT and EBITM
(Rs mn) (%) (Rs mn) (%)
3,000 20 3,200 20
2,500 16 17 2,400 16 17
15 15 15 15 15 15 15 15
2,000 15 14 14 14
1,500 14 1,600 14
1,000 11 11 11 10
1,440
1,128
1,914
2,318
2,842
1,120
1,426
1,900
2,312
2,834
11 800 11
989
573
602
971
980
565
593
500 958
- 8 - 8
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
2013
2011
2012
2014
2015
2016
2017E
2018E
2019E
EBITDA (LHS) EBITDAM (RHS) EBIT (LHS) EBITM (RHS)
Exhibit 36: EPC - Interest cost Exhibit 37: EPC - Order inflow and backlog
(Rs mn) (%) (Rs bn)
250 208 5 47
189 199 202 48
200 179 4 38
153 155 36 31
150 4 3 26 28
20 22
3 24 18
100 3 3 100 2 14 15 15
2 10 10 10 1212
50 2 20 1 12 5 6
1 0
- 1 - -
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
Interest Cost (LHS) Interest to Sales (RHS) Order Inflow Order book

Revenues in the Energy segment are likely to remain stagnant as the company is not expected
to add any incremental wind assets. TEEC is in the process of selling the existing wind power
generating assets over the next 12-24 months.
Exhibit 38: Energy - Revenues

(Rs bn) (%)
71
2.0 59 57 80
1.5 50
1.0 - 20
(9)
(17)
0.5 (25) (34) (10)
0.7 1.2 1.8 1.4 1.3 0.8 1.3 1.1 1.1
- (40)
2011
2012
2013
2014
2015
2016
2017E
2018E
2019E
Revenue (LHS) Growth (%) (RHS)
Exhibit 39: Energy - EBIDTA and EBIDTAM Exhibit 40: Energy - EBIT and EBITM
(Rs mn) (%) (Rs mn) 66 (%)
1,773
1,800 100 1,200 58 58 68
53 52 55
51 1,126
1,324 47
1,350 1,115 1,143 1,191 98 900 51
1,011 1,011 666 37 711
646 620 620
764 562 553
900 96 96 96 95 600 34
95 347
283
450 94 94 93 300 17
92
- 91 90
91 - -
2016
2011
2012
2013
2014
2015
2017E
2018E
2019E
2013
2011
2012
2014
2015
2016
2017E
2018E
2019E
Exhibit 41: Energy - Interest cost to sales

(Rs mn) (%)
28
350 30
22 21
260 19 24
17
15 15 18
170 12 11
12
80 6
79 222 322 299 264 235 196 157 118
(10) -
2014
2011
2012
2013
2015
2016
2017E
2018E
2019E
Interest Cost (LHS) Interest to Sales (RHS)


Exhibit 42: Quarterly financial (Consolidated)

Rs mn Q4FY15 Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17
Revenue 2,211 2,015 2,531 3,167 3,260 2,709 3,676 3,563
EBITDA 389 476 831 403 506 712 1,115 751
Depreciation 85 119 118 117 140 133 133 133
Operating Income 304 357 713 286 366 579 983 618
Other Income 74 46 60 174 94 82 56 49
Interest 98 115 98 121 110 92 126 80
PBT 280 288 674 339 350 569 913 587
Total Tax 72 158 250 45 76 84 200 185
PAT 208 130 425 294 273 485 713 402
Exhibit 43: Segment financials

EPC
Revenue 2167 1779 2017 3128 3218 2311 2968 3258
EBIT 347 229 325 360 548 335 453 491
EBITM 16 13 16 12 17 15 15 15
Energy
Revenue 40 235 514 39 41 399 708 304
EBIT -31 95 385 -87 -109 239 534 130
EBITM (77) 40 75 (226) (264) 60 75 43

Company background
TEEC specializes in EPC services across the power, steel, fertilizer, metals, petrochemicals, and
other sectors. The company provides turnkey projects extending from complete power
generating plants to system plant packages tailored to complement larger systems supplied by
other companies.
Though TEECs scope of operations are spread across many industries, the company is mainly
recognized for its operations in the power sector. In the power sector, the company provides
EPC services in all three segments viz., generation (captive plants, Balance of Plants),
transmission (substations) and distribution (rural electrification projects). The company also
undertakes industrial projects comprising plant electricals and illuminations, cabling projects,
water and allied systems, installation of fire protection systems, oil handling plants etc.
TEEC along with subsidiary, Simran Wind Projects owns and operates 117.9MW of wind energy
assets. The company also owns 49% stake in two power transmission projects viz., Jhajjar KT
Transco Pvt. Ltd and Patran Transmission.
Exhibit 44: Business Profile
TEEC
Standalone Subsidiary T&D BOOT Assets
Wind Assets Simran

EPC Wind Assets Jhajjar KT
12 MW 117.9 MW
Generation Patran
Transmission &
Distribution
(Substation /
STATCOM)
Industrial

Exhibit 45: Key milestones

1963 Incorporated to provide EPC services to Indias core sector
1980 Announced IPO of Rs20 Lakhs
1985 Extended into the captive power plant segment
1990 Extended into the transmission and distribution segments
2006 Investment by Citigroup Venture Capital in the Company
2009 Acquired a 95.45 MW capacity wind power company (with Tamil Nadu and Karnataka installations)
Entered the transmission network management space via a PPP contract for a 400/220 kV, 2,400 mVA (105 kilometers
2010
long) transmission link at Jhajjar for the Haryana VidyutPrasaran Nigam Limited
Completed installation of a 111.9 MW wind power farm (Tamil Nadu)
2011
Received private equity investment from IFC, Washington,inSimran Wind Project Limited
Bagged first overseas EPC job
2012
Entered the 765 kV substation segment
Bagged a concession from PFC Consulting Limited for a 400 kV, 1,000 mVA GIS transmission network at Patran
2013
(Punjab) on BOOM basis for 35 years
Bagged a STATCOM order in collaboration with Rongxin
2015 Sold 45MW of wind power capacity
Bagged an order for providing 400 kV GIS and 765 kV AIS solution for the Green Energy Corridor
2017 Sold 33MW of wind power capacity
Exhibit 46: Key Projects

Date Order profile Value in mn Country
GIS Substation Package MEG-SS02 for New Shillong (New) GIS Substation, Mawngap GIS
Jun-16 1,480 India
Substation and Byrnihat AIS Substation (Extn)
Substation Package-SS01 and extensions of 765KV Substation Package-SS01 and extentions of
May-16 2,272 India
765KV Ajmer Moga Substations
May-16 GIS SS PKG (220/132/33kV Amingaon, 132/33kV Guwahati, Paltanbazar and 132kV Kamakhya) 1,970 India
May-16 AIS SS PKG (765kV Vindhyachal, Jabalpur, Solapur and 400kV Parli.) 1,769 India
Jul-15 220/132/33 KV at Mushairi&Kishanganj from Bihar Power Transmission CO 1,500 India
Construction of Substation Package for STATCOM Installation at 400kV Solapur, 400kV Satna &
Jul-15 2,679 India
400kV Aurangabad Substation.
Apr-15 765/400 kV Substation package and extension of 400 Substation at Chittorgarh 1,160 India
Apr-15 400/230 kV Pooling station at Tirunelveli and extension of 400kV Tuticorin (AIS) pooling station 1,390 India
Substation Package SS02 for 765/400 kV Ajmer (New) substation and Extention of 400 kV Ajmer
Apr-15 1,150 India
(RVPN) substation
765/400 KV Substation extension package for Solapur, Aurangabad, Kurnool &Raichur and 400KV
Apr-14 1,250 India
package for Sagardighi and Behrampur Substation Extension from PGCIL
Apr-14 400 KV GIS Substation package with associated line at Patran from Patran Transmission Co 1,750 India
220/132/33 KV Grid Substation at Sonenagar and Samastipur from Bihar State Power
Apr-14 1,400 India
Transmission CO
Exhibit 47: Order Book (as on 31stDecember 2016)

Name of the Client Order Values (Rs in mn) %
PGCIL 18,300 75.3
North Bihar Power Distribution Co Ltd 1,600 6.6
NTPC Ltd 2,075 8.5
Rajasthan RajyaVidyutPrasaran Nigam Ltd 1,575 6.5
Bihar State Electricity Board 160 0.7
APTRANSCO Ltd, Hyderabad 240 1.0
Others 350 1.4
Total 24,300 100

Exhibit 48: Management profile

Mr. Padam Prakash Gupta With more than 30 years of experience in the current field, Mr Gupta continues to
Managing Director complement the Company with extensive experience in the space.
Mr Lohia has over 20 years of experience in finance comprising mergers, acquisitions,
Mr. Pradeep Kumar Lohia
banking, project activities & monitoring, corporate finance, taxation and accounts.
President (Finance)
He has been associated with TEEC since 2004.
Mr. Omkar Gupta Mr Gupta has a vast experience in EPC contracting of Transmission Lines, Rural
Executive Director (EPC) Electrification in domestic and international markets.
Mr. Sumanta Chaudhuri Mr Chaudhari has around 37 years of total professional experience in Project Management
President (Business Development) covering both Execution and Project Marketing / Bidding and also as Business Unit Head.
Mr Mitra has been associated with TEEC since 1977.
Mr. Asim Kumar Mitra
He is involved in developing the Engineering, Quality Assurance, Testing & Commissioning
Executive Director (Electrical)
of Electrical System and Civil Construction groups within the organization.
Mr Agrawal has more than 35 years of experience in EPC contracting in Power and
Mr. Ramesh Chandra Agrawal Metallurgical Sector.
Executive Director He is currently heading the Utility Project Division and Business Development of EPC in MW
Scale Solar Plant Project.
Mr. Rajiv Agarwal Mr Agarwal has more than 20 years of experience in commercial activities of the
Director organization.
Mr. Raj Kumar Raina Mr Raina having around 40 years of expertise in the EPC division; has been associated with
Executive Director (Electrical) TEEC since 2001.

Key Financials (Consolidated)

Income Statement
Y/E Mar (Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Sales 7,939 10,972 14,062 16,531 19,715
Expenditure 5,825 8,769 10,957 13,202 15,862
EBITDA 2,114 2,203 3,105 3,329 3,853
Depreciation 603 495 495 397 399
EBIT 1,511 1,709 2,611 2,932 3,454
Other Income 202 629 569 277 322
Interest expenses 465 443 375 257 138
PBT 1,248 1,894 2,805 2,952 3,638
Tax 185 487 627 664 844
Extraordinary Items 0 0 0 0 0
Minority Int./Income from Assoc. 0 (2) (90) (45) (5)
Reported Net Income 1,051 1,406 2,087 2,244 2,788
Adjusted PAT 1,051 1,406 2,087 2,244 2,788
Balance Sheet
Equity share capital 114 114 228 228 228
Reserves & surplus 9,033 10,031 11,593 13,343 15,515
Net worth 9,147 10,145 11,821 13,572 15,744
Minority Interest 199 0 0 0 0
Loan Funds 4,725 4,084 3,334 2,034 1,268
Net deferred tax liability 7 8 8 8 8
Total Liabilities 14,078 14,236 15,162 15,613 17,019
Net block 10,209 8,246 5,569 5,222 4,873
Investment 1,347 1,547 1,457 1,412 1,406
Current Assets 5,220 8,744 13,391 14,959 17,579
Cash & bank balance 247 1,116 4,419 4,759 5,814
Other Current Assets 421 1,181 1,181 1,181 1,181
Current liabilities & Provision 2,737 4,300 5,253 5,979 6,839
Net current assets 2,483 4,444 8,137 8,980 10,740
Misc. exp 0 0 0 0 0
Total Assets 14,078 14,236 15,162 15,613 17,019
Cash Flow
PBT (Ex-Other income) (NI+Dep) 1,046 1,266 2,236 2,675 3,316
Other Non-Cash items (151) (627) (659) (322) (327)
Chg in working cap (1,345) (1,091) (390) (503) (705)
Operating Cashflow 302 325 1,998 2,118 2,298
Capital expenditure (122) 1,507 2,183 (50) (50)
Free Cash Flow 180 1,833 4,180 2,068 2,248
Investments 522 (199) 90 45 5
Other Investing Cash Flow 198 (1,862) 0 0 0
Investing Cashflow 801 75 2,842 272 277
Equity Capital Raised 0 0 114 0 0
Loans Taken / (Repaid) (674) (641) (750) (1,300) (765)
Dividend paid (incl tax) (342) (309) (411) (493) (617)
Other Financing Cash Flow 152 (59) (114) 0 0
Financing Cashflow (1,330) (1,451) (1,536) (2,050) (1,520)
Net chg in cash (227) (1,052) 3,303 339 1,056
Opening cash position 481 247 1,116 4,419 4,759
Closing cash position 247 1,116 4,419 4,759 5,814

Key Ratios
Profitability (%) FY15 FY16 FY17E FY18E FY19E
EBITDA Margin 26.6 20.1 22.1 20.1 19.5
EBIT Margin 19.0 15.6 18.6 17.7 17.5
Effective Tax Rate 14.8 25.7 22.4 22.5 23.2
Net Margin 13.4 12.8 15.5 13.8 14.2
ROCE 12.2 16.5 21.6 20.9 23.1
ROE 12.0 14.6 19.0 17.7 19.0
RoIC 12.6 14.2 25.0 31.3 35.9
Per Share Data (Rs) FY15 FY16 FY17E FY18E FY19E

EPS 9.2 12.3 18.3 19.7 24.4
CEPS 14.5 16.6 22.6 23.1 27.9
BVPS 80.1 88.8 103.5 118.9 137.9
DPS 2.0 2.5 3.0 3.6 4.5
Valuations (x) FY15 FY16 FY17E FY18E FY19E

PER 37.9 28.3 19.1 17.7 14.3
P/CEPS 24.1 20.9 15.4 15.1 12.5
P/BV 4.4 3.9 3.4 2.9 2.5
EV / Sales 5.6 3.9 2.8 2.2 1.8
EV / EBITDA 20.9 19.4 12.5 11.1 9.1
Dividend Yield (%) 0.6 0.7 0.9 1.0 1.3
Gearing Ratio (x) FY15 FY16 FY17E FY18E FY19E

Net Debt/ Equity 0.5 0.3 (0.1) (0.2) (0.3)
Net Debt/EBIDTA 2.1 1.3 (0.3) (0.8) (1.2)
Working Cap Cycle (days) 102.8 110.7 96.5 93.2 91.2
Growth (%) FY15 FY16 FY17E FY18E FY19E

Revenue 12.1 38.2 28.2 17.6 19.3
EBITDA 9.8 4.2 40.9 7.2 15.7
EBIT 20.0 13.1 52.8 12.3 17.8
PAT 20.1 33.8 48.5 7.5 24.3
Quarterly (Rs mn) Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17

Revenue 3,167 3,260 2,709 3,676 3,563
EBITDA 403 506 712 1,115 751
EBITDA Margin (%) 12.7 15.5 26.3 30.3 21.1
PAT 296 284 480 704 408
EPS (Rs) 2.6 2.5 4.2 6.2 3.6
Shareholding Pattern (%) Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

Promoters 58.0 58.0 58.0 58.0 58.0
FIIs 7.9 2.4 8.2 9.3 8.4
DIIs 17.4 22.8 17.7 16.5 15.3
Public and Others 16.7 16.8 16.2 16.2 18.3

Kalpataru Power Transmission
March 24, 2017

CMP Target Price
Execution led growth Rs285 Rs408
Rating Upside
BUY 43.1 %
Change in Estimates
Kalpataru Power Transmission (KPP), part of the diversified USD1bn Kalpataru
Group, is one of the leading domestic EPC companies specializing in turnkey T&D
projects. The company is amongst the few transmission EPC players with a track Target Price change (%) NA
record of experience in both the domestic and international markets. Order inflow Previous Reco NA
YTD was at ~Rs75bn and we expect the company to close FY2017 with inflows of
~Rs95bn. Robust order backlog of ~Rs83bn (1.6x FY17E sales) ensures revenue Emkay vs Consensus
visibility for next 6-7 quarters. Going forward, revenues are expected to increase at EPS Estimates
~15% CAGR (FY16-19E) while PAT is expected to post a 21% CAGR over FY16-19E. FY17E FY18E
We initiate coverage on KPP with a BUY rating and SoTP price target of Rs408. Emkay 16.4 19.6
Consensus 9.7 13.0
Strong order book to drive profitability: Revenues are expected to rev up from FY18 Mean Consensus TP Rs 339
post the surge in order flows and backlog of FY16. The company had previously struggled
with muted revenues and profitability impacted by declining inflows and stagnant order Stock Details
backlog during FY2013 - 1HFY16. We expect T&D segment revenue to increase at ~12- Bloomberg Code KPP IN
14% CAGR over FY16-19E while the segmental EBITM is expected to remain steady at Face Value (Rs) 2
~10%. The infrastructure segment is expected to post ~25% revenue CAGR over FY16- Shares outstanding (mn) 153
19E with the benefits of scale driving the segmental EBITM to ~6-7% from the existing
52 Week H/L 301 / 197
2%. Aggregate revenues are expected to increase at ~15% CAGR over FY16-19E while
M Cap (Rs bn/USD bn) 44 / 0.67
PAT is expected to post a 23% CAGR over FY16-19E.
Daily Avg Volume (nos.) 119,920
Balanced presence across multiple geographies: After establishing itself in the Daily Avg Turnover (US$ mn) 0.5
domestic T&D segment, KPP began focusing on the overseas markets from FY2008 and
has been successful in garnering substantial orders from the Middle-East, Africa, South- Shareholding Pattern Dec '16
East Asia and Americas. Exposure to international projects now constitute ~60% of T&D
Promoters 59.5%
order backlog and has helped the company insulate itself against slowdown in the
FIIs 6.1%
domestic markets.
DIIs 21.7%
Infrastructure segment turning profitable and poised for strong growth: The Public and Others 12.8%
infrastructure segment is expected to report strong revenue and profitability growth as
project execution picks up on the back of robust backlog. Management commentary
Price Performance
indicates that incremental order accretion in this segment has come in at relatively better
(%) 1M 3M 6M 12M
margins. KPP expects order flows to gain further pace given that Indian Railways is likely
Absolute (1) 18 7 32
to award large composite projects in the near future. As per industry sources, ~Rs200bn
Rel. to Nifty (3) 4 5 13
of railway electrification and gauge conversion projects are expected to be awarded
during FY18. Relative price chart
Valuation and recommendation: We value KPP on SoTP basis, assigning different 300 Rs % 20
methodologies and multiples to each of the business segments. We initiate coverage on 270 14
KPP with a BUY rating and a SoTP based price target of Rs 408. 240 8
210 2
Financial Snapshot (Standalone)
180 -4
(Rs mn) FY15 FY16 FY17E FY18E FY19E
Net Sales 44,223 43,646 51,529 59,632 65,647 150
Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17
-10
Mar-17
EBITDA 4,267 4,669 5,487 6,432 7,206 Kalpataru Power Transmission Ltd (LHS)
EBITDA Margin (%) 9.6 10.7 10.6 10.8 11.0 Source: Bloomberg
APAT 1,656 1,995 2,524 3,015 3,517
ROE (%) 8.2 9.2 10.7 11.6 12.2 +91 22 66121374
P/E (x) 26.4 21.9 17.3 14.5 12.4
Amruta Deherkar
EV/EBITDA (x) 12.3 10.4 9.0 7.6 6.6
P/BV (x) 2.1 1.9 1.8 1.6 1.4
+91 22 66121262
Kalpataru Power Transmission (KPP IN) India Equity Research | Initiating Coverage
Record inflows to drive profitable growth
KPPs revenue and profitability had slowed down during the FY13-16 period impacted by poor
order accretion in T&D and infrastructure segment. While the order flows in the T&D segment
declined on account of increasing competitive intensity and irresponsible pricing from new
entrants, the infrastructure segment was bogged down with pre-qualifications and initial break-
through orders. The profitability and return rations in the T&D segment were at near optimal
levels (EBITM of ~9.5 10% and RoCE of ~24 27%), the Infrastructure segment grappled with
losses (EBIT losses in FY14 and FY15 and marginal EBIT in FY16). Despite the lower turnover,
KPP reported steady contribution margins indicating the cautious approach followed by the
company in bidding for new orders. However, the lower turnover led to sub-optimal absorption
of fixed overheads with consequential impact on operating margins. The ~65%+ surge in order
accretion in FY16 after a five-year period of declining / stagnant inflows is expected to rev up
revenues from FY18.
Exhibit 49: Profitability Metrics - KPP

KPP FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Fixed Exp / Sales 9% 10% 12% 12% 13% 12% 12% 11% 11%
EBIDTAM 12% 11% 10% 10% 10% 11% 11% 11% 11%
OPM 10% 9% 8% 8% 8% 9% 9% 9% 9%
Interest cost / Sales 3% 4% 4% 4% 3% 3% 2% 2% 2%
PBTM 7% 6% 4% 4% 5% 6% 7% 7% 8%
RoCE 16% 14% 14% 14% 15% 17% 18% 19%
RoE 10% 8% 8% 8% 9% 11% 12% 12%
Though the T&D segment reported ~154% increase in order flows and ~60% increase in order
backlog in FY16, we expect the T&D revenues to increase at ~12 -14% CAGR over FY16-19E
while the EBITM is expected to remain steady at ~10%. In the infrastructure segment, the FY16
inflows and backlog were up ~100% and 60% respectively. We expect the infrastructure segment
to report ~25% revenue CAGR over FY16-19E while the benefits of scale and operational
efficiencies could drive the EBITM to ~6-7% from the existing 2%. We also expect the
improvement in working capital and monetization of real estate assets (Thane and Indore
projects) to help reduce debt and reduce the interest cost to ~1.5% of sales from the existing
2.2%. Total revenues are expected to increase at ~15% CAGR over FY16-19E while PAT is
expected to post a 21% CAGR over FY16-19E.
Balanced presence across multiple geographies

Domestic T&D projects have been the core of KPPs operations for the past three decades. While
the company had steadily grown on the back of order flows from PGCIL and SEBs during the
1990-2010 period, it had limited exposure to overseas T&D projects till FY2008. The company
began focusing on the overseas markets from FY2008 and has been successful in garnering
substantial orders from the Middle-East, Africa, South-East Asia and Americas. Exposure to
international projects now constitute ~60% of T&D order backlog and has helped the company
insulate itself against slowdown in the domestic markets.
Exhibit 50: Order backlog Rs83bn as on 31st December 2016
Domestic MENA 6% Export

SAARC
Infra - Railways 7%
and pipeline CIS/Europe &
27% Far East
Domestic PGCIL 9%
45% 40%
Exports
55% Africa
S. Asia 65%
Private 13%
29%
SEB
4%

Infrastructure segment turning profitable

Leveraging on its core competency in setting up T&D networks, KPP ventured into laying oil &
gas pipelines and railways projects in FY10. The company did incur losses in the initial few years
as it took on smaller low margin orders to build the requisite credentials, qualifications and
execution experience. These legacy orders lingered for a major portion of FY2013-16 and were
largely completed during FY2015. In the interim, the company posted losses in the infrastructure
segment in FY14 and FY15 and reported marginal EBIT in FY16. Going forward, the
infrastructure segment is expected to report strong revenue and profitability growth as project
execution picks up on the back of robust backlog. Order book in the infrastructure segment has
gradually increased from a low of Rs7bn in FY11 to Rs13bn in FY16. Management commentary
indicates that incremental orders in the oil & gas and railway segments have relatively better
margins and the revenue growth (~25%) from FY18E would help absorb fixed overheads
enabling the company to report segmental EBITM of 6-7%.
Exhibit 51: Infrastructure - Revenues

(Rs bn) 76 (%)
15 84
44 10
12 29 56
15 9
9 7 28
(4) 6 22
6 19 -
3 (32) 3
3
3 2 (28)
- (56)
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Infrastructure EPC (LHS) Growth (RHS)
Exhibit 52: Infrastructure EBIT and EBITM

(Rs mn) (%)
6 6 7
1,000 4 9
2
(0) 735
600 484 -
193 252
200 95 (9)
(15)
(200) (13) (24) (18)
(600) (523) (467) (27)

FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
EBIT (Infrastructure EPC) Infrastructure EPC


Robust order pipeline enhances revenue visibility

KPPs order backlog of ~Rs83bn imparts strong revenue visibility for the next 6-7 quarters. Order
inflow in 9MFY2017 was at ~Rs50bn (Rs75bn YTD) and we expect the company to close FY2017
with order inflows of ~Rs95bn. Going forward, KPP expects order flows from PGCIL and SEBs
to gain traction during 2HFY2017. At the SEB level, the focus remains on southern and central
states like Karnataka, Tamil Nadu, West Bengal, MP, UP and Maharashtra which are expected
to invest in upgradation projects in both the transmission and distribution segments. In the
infrastructure segment, the company expects order flows to gain pace given that Indian Railways
is likely to award large composite projects. As per industry sources, ~Rs200bn of railway
electrification and gauge conversion projects are expected to be awarded during the current
year.
Exhibit 53: Order intake and backlog: T&D

(Rs bn)
200 Transmission & Distribution 172
139
150
106
100 80 84 88
63 59 64 70
52 43
31 40 33
50 25
FY18E
FY12
FY13
FY14
FY15
FY16
FY17E
FY19E
Order Intake Order Book
Exhibit 54: Order intake and backlog : Infrastructure EPC

(Rs bn)
45 Infrastructure EPC 41
36 31
27 21 21
18
16
18 13
8 10
7 5 7 5
9 3 4
1
-
FY16
FY12
FY13
FY14
FY15
FY17E
FY18E
FY19E
Order Intake Order Book
Prudent working capital management

The focus on timely closure of projects and collection of retention monies has enabled KPP to
reduce debt and working capital in the last 3-4 quarters. As a result the interest cost has also
seen a remarkable decline during the same period. Going forward, we expect the company to
focus on early project completion and ensure timely collection of accounts receivables. The
working capital levels are expected to further improve as increasing number of international
projects come into execution. It is pertinent to note that working capital is relatively lower in
international projects (90-120 days) vis-a-vis domestic projects (150-180 days).
Monetising real estate assets could help reduce debt

In an unrelated diversification, KPP ventured into real estate development in FY2010. The
company had taken two real estate projects at Thane and Indore though 100% wholly owned
subsidiaries viz., Amber Real Estate (Thane) and Saicharan Properties (Indore). Management
informs that the Thane project has been completed and ~40% of the space has been sold while
the balance space has been leased out. The Indore project is under construction and is expected
to be completed in the next 24-30 months. As on 31st March 2016, KPP has advanced ~Rs4bn
as loans to both the above projects - Thane (~Rs1.48bn) and Indore (~Rs2.47bn). Going forward,
we expect KPP to monetise these real estate assets and reduce the debt in its books.

Key Risks
Unrelated diversification provides little synergy: KPPs portfolio of businesses has
traditionally been associated with the engineering and contracting segments. Diversification into
the unrelated segments like real estate and warehousing is likely to divert Management focus
from the core businesses of T&D EPC.
Currency risks and volatility in commodity prices to impact profitability: High proportion of
international business exposes KPTL to currency fluctuations. Since the international T&D EPC
jobs are fixed price contracts, KPP would also be exposed to volatility in commodity prices.
Commodities like aluminum, zinc and copper can be hedged on LME while the same mechanism
is not available for hedging steel.
Assumptions
Exhibit 55: Assumption (Standalone) (Rs in mn)
Segment Analysis FY15 FY16 FY17E FY18E FY19E
Revenue
Transmission & Distribution 40,336 37,390 43,712 50,184 54,493
Growth 7% -7% 17% 15% 9%
Infrastructure EPC 3,186 5,593 7,192 8,803 10,496
Growth 44% 76% 29% 22% 19%
Total Revenue 44,223 43,646 51,529 59,632 65,647
EBITM
Transmission & Distribution 9.4% 9.9% 10.0% 10.0% 10.0%
Infrastructure EPC -14.6% 1.7% 3.5% 5.5% 7.0%
EBIT
Infrastructure EPC (467) 95 252 484 735
Others 138 57 - - -
Total 3,465 3,861 4,623 5,503 6,184
Corporate Expenditure 49 29 40 55 42
Operating Income 3,416 3,832 4,583 5,448 6,142
Other Income 522 508 415 356 342
EBIT 3,938 4,340 4,998 5,804 6,484
Finance Cost 1,409 1,275 1,115 1,165 1,073
PBT 2,529 3,065 3,883 4,639 5,411
Taxes 873 1,070 1,359 1,624 1,894
PAT 1,656 1,995 2,524 3,015 3,517
Order Inflow
Total 30,022 74,134 95,268 101,592 108,466
Order Book
Total 51,500 82,650 127,013 169,618 213,095

Valuation
We expect the revenues and PAT to increase at 15% and 14% CAGR FY16-19E respectively as
execution gains traction in both the T&D and Infrastructure segments. Revenues in the T&D
segment are expected to increase at ~12-14% CAGR FY16-19E while the EBITM is expected to
remain steady at ~10%. In the infrastructure segment, revenues are expected to increase at
~25% CAGR FY16-19E while the benefits of scale and operational efficiencies could drive
EBITM to ~6-7%. We have assigned P/E multiple of 15x to FY19E earnings to value the base
EPC business. We have valued the transmission PPP portfolio on FCFE with 13% cost of equity.
The investment in the real estate projects has been valued at 1x book value while Subham
Logistics has been valued at 0.7x book value. KPPs share in JMC Projects has been taken at
the current market cap less 30% holding company discount. We have valued KPP on SoTP
basis, assigning different methodologies and multiples to value each business segment. We
initiate coverage on KPP with a BUY rating and a price target of Rs408.
Exhibit 56: Valuation Summary

Value KPP Share KPP Share Value
Parameter
(In Rs mn) (In %) (In Rs mn) per share
KPP - Standalone 15x P/E on FY19E Earnings 52,756 100 52,756 344
PPP Projects
Jhajjar KT FCFE 1,479 51 754 5
Kalpatru Satpura FCFE 864 100 864 6
Real Estate Projects

Thane (Amber) 1x P/BV 1,476 100 1,476 10
Indore (Saicharan) 1x P/BV 2,467 100 2,467 16
Shubham Logistics 0.7x P/BV 643 73 469 3
JMC Projects Market Cap less 30% holdco discount 5,569 67 3,741 24
Target Price (In Rs) 408

Financials
In the past (FY14-16) the revenues had stagnated on account of declining inflows and backlog.
The reversal in the revenue trajectory commenced post the strong~147% growth in inflows in
FY16 Order inflows in the T&D segment surged by 154% while that in the Infrastructure
segment increased by 111%. Going forward, revenues are expected to grow at 15% CAGR
(FY16-19E) driven by strong backlog and robust outlook in order pipeline for the T&D and
infrastructure EPC segment.
Exhibit 57: Revenue trend

(Rs bn) (%)
22 66
68 60 24
52
51 44 44 17
41
33 18
29 30 16
34 9
10 9 10
17 5 2
- (1) -6
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Revenues (LHS) Growth (RHS)
Exhibit 58: Revenue composition by segment

(Rs bn)
60 54
50
44
45 38 40
37
30
30 25 26
15 9 10
6 7
3 3 3 2 3
-
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Transmission & Distribution Infrastructure EPC
The EBITDAM is expected to improve to ~11.011.5% as execution picks up in both the T&D
and infrastructure EPC segments. EBITDA is expected to increase at 16% CAGR (FY16-19E) to
Rs7bn.
Exhibit 59: EBIDTA and EBIDTAM Exhibit 60: EBIT and EBITM
(Rs bn) (%) (Rs bn) (%)
8 12 14 8 16
11 11 11 11 11 6
10 10 10 6
6 7 11 6 12 11 5 12
6 10 4
8 4 4
5 4 3 3 3 8
4 5 10 10 10 10
4 5 9 9
3 4
2 3 3 2 4
3
- 0 - 0
FY11
FY12
FY13
FY14
FY15
FY16
FY18E
FY17E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E

The interest costs have declined from Rs1.5bn in FY14 to Rs1.3bn in FY16 aided by reduction
in working capital debt in FY16. The company has reported accelerated collection of accounts
receivables and retention monies in few of the international projects. We expect the debt to
further reduce over the next 2-3 years. PAT is expected to grow at 21% CAGR (FY16-19E) to
Rs4bn while PATM is expected to be ~5%.

Exhibit 61: Interest cost to sales Exhibit 62: PAT & PATM
(Rs mn) (%) (Rs bn) (%)
1,600 1,460 1,409 6 4 4 6
5
1,220 1,275
1,115 1,165 1,073 3
1,200 1,082 4
3 3 5 5
879 4 4
2 3 2 4
800 3.7 2 2 1 2 3
3.6 3.6 1 3
3.1 3.2 2.9 2
400 2 3
2.2 2.0 1 2
1.6
- 0 - 0
FY18E
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Interest cost (LHS) Interest to Sales (RHS) PAT (LHS) PATM (RHS)
Exhibit 63: Net working capital excluding cash Exhibit 64: RoCE and RoE
(Rs bn) (%) (%) 18 19
20 17
32 46 46 60 16 15
42 42 24 14 14 14
40 22 15
24 20 45
15 17
13 17 20
16 11 39 39 30 10
37 36 12 12
8 15 10 11
5 8 9
8 8
- 0
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY18E
FY12
FY13
FY14
FY15
FY16
FY17E
FY19E
Net Working capital excluding cash (LHS)
WC Ratio to Sales (RHS) RoCE RoE
Exhibit 65: Order Intake Exhibit 66: Order book

(Rs bn) (%) (Rs bn) (%)
120 108 200 250 213 200
95 102
147
90 200 170
74 110 127 110
150
60 41 83
34 37 100 68 65
30 20 55 59 52 20
60 54
30 29 50 34
21 14 26
- 7 7 8 (4)
- (11) (19) (70) - (21) (70)
FY12
FY16
FY13
FY14
FY15
FY17E
FY18E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Order Intake (LHS) Growth (RHS) Order Book (LHS) Growth (RHS)
Exhibit 67: Quarterly financials (Standalone)

Revenue 10,710 11,936 9,594 8,986 13,805 11,874 11,433 11,576
EBITDA 1,049 1,150 1,149 905 1,443 1,308 1,220 1,191
Depreciation 210 208 210 211 208 195 194 195
Operating Income 839 943 938 694 1,234 1,113 1,026 995
Other Income 108 141 142 126 121 123 153 115
Interest 328 427 354 263 241 249 297 239
PBT 619 657 726 557 1,114 988 883 871
Total Tax 219 226 251 194 394 343 305 300
PAT 401 430 475 363 720 645 578 571

Segment Financials
Exhibit 68: Revenues T&D Exhibit 69: Revenue Infrastructure EPC

(Rs bn) (%) (Rs bn) 76 (%)
60 28 54 30 15 84
50
44 44 10
40 12 29 56
45 38 37 20 9
30 9 15 28
26 7
30 25 17 10 (4) 6
15 22 19
12 6 -
9 3 (32) 3
15 7 - 3
4 (7) 3 2 (28)
-
- (10) - (56)
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Transmission & Distribution (LHS) Growth (RHS) Infrastructure EPC (LHS) Growth (RHS)
Exhibit 70: EBIT & EBITMT&D Exhibit 71: EBIT & EBITM - Infrastructure EPC
(Rs mn) (%) (Rs mn) (%)
6 6 7
6,000 5,449 12 1,000 4 9
5,018 2
4,371 (0) 735
4,500 11 11 484
3,704 3,793 3,709 600 -
193 252
2,715 2,632 2,710 95
3,000 10 200 (15) (9)
10 10 10 10 10 10
1,500 9 9 8 (200) (18)
(13) (24)
- 7 (600) FY13 (523) (467) (27)

FY12
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY15
FY16
FY11
FY12
FY13
FY14
FY17E
FY18E
FY19E
EBIT (Transmission & Distribution) EBITM EBIT (Infrastructure EPC) EBITM

Exhibit 72: Order Intake & Order Book T&D Exhibit 73: Order Intake & Order Book Infrastructure EPC
(Rs bn) (Rs bn)
200 172 45 41
139 36 31
150
106 27
88 21 21
100 80 84 18
63 59 6470 18 13
16
52 43 10
31 40 33 7 8
50 25 5 7 5
9 3 4
1
- -
FY13
FY12
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Order Intake Order Book Order Intake Order Book


Company background
KPP part of the diversified USD 1bn Kalpataru Group is one of Indias leading EPC companies
specializing in turnkey T&D and infrastructure projects. Incorporated in 1981 as HT Power
Structures Pvt. Ltd, KPP initially undertook job works for Gujarat Electricity Board (GEB) and
obtained its first NTPC order during 1986. The successful execution of the GEB order within the
stipulated time enabled KPP obtain larger orders and thereafter became the preferred EPC
contractor for NTPC and other SEBs. After having established itself in power T&D, KPP has
gradually emerged to become a well-diversified Infrastructure player with presence straddling
across multiple sectors such as civil contracting, oil & gas pipelines, road, & bridges, logistics
etc. Over the years, the company has expanded its footprints across various countries in Asia,
Africa, Middle-East, Americas, CIS region and Far East Asia. The company is amongst the few
companies in the EPC segment with a consistent track record of site closure within the
contractual timelines enabling it to keep the period cost under control and report decent
EBIDTAM.
Exhibit 74: Key milestones

1983 Established tower manufacturing plant
1986 First turnkey transmission line project -400 KV from NTPC
1995 First 800KV tower supply
2001 First overseas turnkey contract 380KV Turkey
2004 First 765 KV turnkey EPC contract
2005 Diversified into civil construction acquired 46% in JMC Projects
2007 Ventured into warehousing & logistics sector acquired SSLL
2008 Expanded fabrication capacity to 108,000 MTs
Won first BOOT transmission project in Haryana
2009 Single largest pipeline laying order 550 kms from HPCL-Mittal
Won largest international contract of India MEW Kuwait US$ 250mn
2010 Won first EHV lines order from Kenya 500 kms
2011 Ventured into railway EPC contract won Rs5bn orders
2012 Commissioned first transmission BOOT project
2014 15 Executed second transmission line BOOT project in MP
KPP
Standalone Subsidiaries T&D Boot Assets
Transmission &
Jaajjar KT
Distribution Civil
Real Estate Warehousing
Construction
Infrastructure Kalpataru
EPC Shubam Satpura
Thane
JMC Projects
Amber Logistics
Alipurduar
Indore Transmission
Saicharan

Business Segments
Power T&D (Standalone)
In the power T&D segment, KPP provides end-to-end solutions ranging from in-house designs,
testing, procurement, fabrication, erection, installing and commissioning of power transmission
lines. The division has over three decades of experience in construction and laying of
transmission lines including extra high tension & high tension (HT) transmission lines &
substation bays (HT/EHV OHL) varying up to 800 / 1200 KV. KPP has installed ~ 17,500 kms of
transmission lines and supplied over 1mn tonnes of transmission towers across the globe. The
company is also one of the largest domestic tower manufacturers with production capacities of
180,000 MT located in Gandhinagar, Gujarat and Raipur, Chhattisgarh. In the substation
segment, the company has executed high voltage substations in both GIS and AIS segments.
Infrastructure EPC (Standalone)

In the infrastructure EPC segment, KPP undertakes EPC contracting for cross country pipelines,
terminals and gas gathering stations for oil & gas sector across diverse territories. In the railways
segment, KPP undertakes civil infrastructure works (including earthworks, bridges, tunnels,
station building and facilities), track laying, signaling and electrification projects etc.,
Transmission BOOT Projects

In addition to the transmission EPC, the company has also taken up three transmission BOOT
projects viz., Jhajjar KT Transco Pvt Ltd and Kalpataru Satpura Transco which have commenced
operations while the third project i.e Alipurduar Transmission line Project is under construction.
Exhibit 76: BOOT Projects

Projects Jhajjar KT Transco Pvt Ltd Kalpataru Satpura Transco Pvt Ltd Alipurduar Transmission Ltd
Model Annuity based Annuity based Annuity based
Transmission system for transfer of power
400 kv/220 kv transmission line of 400 kv SatpuraAshta DCDS
Project Scope from new hydroelectric power projects in
100kms in Haryana transmissionline of 240 kms in MP
Bhutan on BOOM basis
KPP & its associates - 51% & Techno
SPV ownership Kalpataru Power - 100% Kalpataru Power - 100%
Electric - 49%
Project Cost INR 4.5Bn INR 3.4Bn INR 11.5Bn
Concession period 25 years + 10 yrs extendable 25 years + 10 yrs extendable 35 years
Under development, achieved financial
Current Status Generating revenue of Rs540mn p.a. Generating revenue of INR 380mn p.a.
closer
Completion date Commenced operation in March 2012 Commenced operation in April 2015 FY18
Jhajjar KT Transco Pvt Ltd: This project is a joint venture with Techno Electric Engg Ltd,
with KPP and its associates holding 51% stake. The SPV operates with the objective of
exclusive right and authority to construct, operate, maintain and transfer the 400kV/200kV
transmission lines and substations (transmission system) in Haryana on design, build,
finance, operate and transfer (DBFOT) basis and provide transmission services for a period
of 25 years, with an option to extend the period for further 10 years mutually agreed, for
which a transmission license has been granted by the Haryana Electricity Regulatory
Commission (HERC) for transmission of electricity from the 2x660MW thermal power plant
at Jhajjar.
Kalpataru Satpura Transco: KPP won the project from the Madhya Pradesh State
Electricity Board to build, own, operate and transfer 240kms, 400kV double circuit power
transmission line between Satpura to Ashta for a period of 25 years and with an optional
extension of 10 years as mutually agreed for which transmission license has been granted
by Madhya Pradesh Electricity Regulatory Commission (MPERC) for transmission of
electricity from 2X250 MW extension units at Satpura TPH. The project has commenced
operations last year.
Alipurduar Transmission (West Bengal-Bihar-Bhutan): KPP won the order for the
establishment of transmission system strengthening for transfer of power from new hydro-
electric power projects in Bhutan to India. The 400 KV transmission line project is to be
constructed in West Bengal and Bihar. The project has achieved financial closure in
October 2016.

Real Estate Projects

In an unrelated diversification, KPP ventured into real estate development in FY2010. The
company had taken two real estate projects at Thane and Indore through 100% wholly owned
subsidiaries viz., Amber Real Estate (Thane) and Saicharan Properties (Indore). While the
Thane project is a commercial realty (IT Park) with 0.32mn sq.ft, the Indore project is a residential
project with 0.42mn sq.ft. Management informs that the Thane project has been completed and
~40% of the space has been sold while the balance space has been leased out at
~Rs50/sq.ft/month earning ~Rs115mn as annual lease rentals.
Exhibit 77: Real estate projects

Projects Thane IT Park Indore Complex
SPV Name Amber Real Estate Ltd Saicharan PropertiesLtd
Ownership 100% 100%
Saleable Area 0.32 Mnsqft 0.42 Mnsqft
End use 100% Commercial 90% Residential, 10% Retail
Model Lease / Sale Sale
Project Cost Rs1.5 Bn To be finalized
Debt Rs0.8 Bn To be finalized
Equity Rs0.7 Bn To be finalized
Expected Completion Date Completed FY 19
Current Status Sale/lease process underway Saicharan started initial construction
over 15% of saleable area leased activities and has launched the Project
for sale.
Shree Shubham Logistics limping back to normalcy

Another unrelated diversification which failed was KPPs venture into warehousing of agri-
commodities through the acquisition of majority stake in Shree Shubam Logistics (Shubham).
During FY2016 Shubham incurred losses of ~Rs394mn as drought conditions impacted
warehouse utilization levels especially in Madhya Pradesh and Maharashtra. Part of the losses
were attributable to trading and arbitrage activities in agri-commodities. The company further
incurred losses of ~Rs524mn during 9MFY2017 and is likely to incur additional losses of
~Rs200mn during H2FY2017.
During Q1FY2017, KPP had further invested Rs700mn through rights issue in Shubam. Till date,
KPP has invested ~Rs1.8bn in Shubham (equity as on 31st March 2016 Rs359mn, Right Issue
during Q1FY2017 Rs700mn, Preference capital ~Rs135mn and Loans Rs631mn). The company
had filed for IPO during FY2016 and had to withdraw the DRHP before its scheduled IPO last
year due to exit of senior management personnel and change of business strategy.
Going forward, with the new Management in place, the endeavor would be to increase
warehouse utilizations to ~90% from the existing 60-70%. Management informs that the trading
and arbitrage activities have been discontinued and focus would be limited only on warehousing
and related activities viz., collateral management, commodity funding, laboratory testing etc.
JMC Projects Unprofitable road BOT projects drag profits down

The acquisition of majority stake (67.2%) in JMC in FY2007 enabled KPP to mark its entry in the
construction segment and widen its scope of operations beyond the T&D space. Order backlog
in JMC stands at ~Rs60bn. Building & factories, Infrastructure and others constituted 84%, 13%
and 3% of the order book. Order inflow in 9MFY2017 was Rs27.3bn and company expects to
close FY2017 with order inflows of ~Rs30-35bn.
Weak project execution and slowdown in real estate had impacted revenue bookings during
9MFY2017. JMC is now guiding for a flattish revenue growth with EBIDTAM of ~9.5-10%, as
against the earlier guidance of 5-10% revenue growth. JMC also has BOT portfolio of four road
projects in which the collections are at ~Rs4.4mn per day as against the break-even of Rs6mn
per day.
JMC had to raise further equity capital of Rs1.5bn through issue of rights shares in January 2016.
During 1HFY2017, JMC had infused equity of ~Rs350mn in these BOT projects and is expecting
further funding of ~Rs300mn during 2HFY20117. Earnings call commentary indicates that
Management is likely to exit the road BOT projects even at a discount to the equity invested.

Exhibit 78: Key orders

Order Date Order Profile Value (Rs.mn) Country
Feb-17 Transmission line construction project 7,370 West Africa
Jan-17 Various transmission line and substation projects 4,400 Africa and CIS region
Jan-17 Two pipeline projects from Indian Oil Corporation & GAIL 2,770 India
Jul-16 Construction of 225 KV Transmission Line and Substation in Republic of Senegal 13,400 Senegal
Jul-16 Construction of 500 KV transmission line in Islamic Republic of Afghanistan 5,750 Afghanistan
May-16 Construction of 400 KV transmission line (under JV) 5,220 East Africa
Apr-16 Construction and supply of 225 KV & 90 KV overhead transmission lines 9,300 West Africa
Apr-16 Construction of 220KV & 132KV substations, transmission lines and feeder bay work 2,200 India
Mar-16 Transmission line project of 765 KV D/C Vemagiri - Chilakaluripeta 7,780 India
Mar-16 Transmission line supply projects for Gadarwara - Warora Transmission Line 3,530 India
Mar-16 Turnkey transmission line project of 765 KV D/C Vemagiri - Chilakaluripeta 7,780 India
Mar-16 Transmission line supply projects for Gadarwara - Warora Transmission Line project 3,530 India
Jan-16 Construction of 400 KV transmission line project to be constructed in West Bengal and Bihar 8,640 India
Jan-16 Turnkey transmission line project in Nepal 2,380 Nepal
Dec-15 Turnkey transmission line project in Tamil Nadu 7,700 India
Dec-15 Turnkey transmission line project in Telangana 4,370 India
Sep-15 Transmission line projects in international geographies 5,940 Malawi and Kuwait

Mr Mohnot has over 17 years of experience in infrastructure, power, consulting, banking
Mr. Manish Mohnot and business development.
Managing Director He is also on the Board of subsidiaries- JMC Projects (India) Ltd. and Shree Shubham
Logistics Ltd.
Mr. Kamal K Jain Mr Jain has over three decades of experience in Strategic Finance, Corporate Strategy,
Director (Finance) & CFO Accounts and Taxation.
Mr. Dinesh B Patel Mr Patel has more than thirty years of experience in Production, Planning and
Director (Operations) Engineering of Transmission Line Projects.
Mr. Sanjay Dalmia Mr Dalmia has a vast experience in Business Development, Marketing, Procurement,
Director (International Business) Accounting, Costing, Finance and Commercial.
Mr Dalela has rich experience in Profit Center Management, Tendering, Business
Mr. Rajeev Dalela
Development, Project Management, Strategic Planning and Execution within
Head (Domestic Transmission Business)
Transmission business.
Mr. Gyan Prakash Mr Prakash has more than thirty years of experience in management of Infrastructure,
President & CEO (Infrastructure Projects) Oil & Gas Sector.
Mr Kumar has more than 23 years of experience in Railway Sector having in Indian
Mr. Anil Kumar Railway Services of Engineers.
Head Railways He has rich experience in Business Development, Project Management, Contracts
Administration, Contracts Management and Techno Commercial Operations.
Mr. Subhasish Mukherjee
Mr Mukherjee has an industry experience of more than thirty years.
President (International Business)
Mr Dutta has over three decades of experience in Power Sector across Generation,
Mr. Prasun Kumar Dutta
Transmission, Engineering, Sales & Marketing, Project Execution and Business
Head (Substation Division)
Management.
Mr Gupta has around 26 years of experience in developing, managing and delivering
Mr. Saurabh Gupta
multiple infrastructure projects across power, road, metro, rail, port & urban development
Senior Vice President & Head BOOT Assets
sectors in India.

Key Financials (Standalone)

Income Statement
Net Sales 44,223 43,646 51,529 59,632 65,647
Expenditure 39,955 38,977 46,042 53,200 58,441
EBITDA 4,267 4,669 5,487 6,432 7,206
Depreciation 852 837 904 984 1,064
EBIT 3,416 3,832 4,583 5,448 6,142
Other Income 522 508 415 356 342
Interest expenses 1,409 1,275 1,115 1,165 1,073
PBT 2,529 3,065 3,883 4,639 5,411
Tax 873 1,070 1,359 1,624 1,894
Minority Int./Income from Assoc. 0 0 0 0 0
Adjusted PAT 1,656 1,995 2,524 3,015 3,517
Balance Sheet
Net worth 20,708 22,586 24,741 27,296 30,261
Loan Funds 9,714 5,987 6,987 6,537 4,537
Net deferred tax liability 54 (4) (4) (4) (4)
Net block 5,535 5,384 5,481 5,497 5,433
Investment 3,939 4,953 4,953 4,953 4,953
Current Assets 38,413 38,635 44,537 49,077 51,901
Cash & bank balance 753 1,062 1,186 1,164 601
Other Current Assets 4,600 5,180 5,180 5,180 5,180
Misc. exp 0 0 0 0 0
Total Assets 30,475 28,568 31,724 33,829 34,794
Cash Flow
Other Non-Cash items 0 13 0 0 0
Chg in working cap (3,149) 3,008 (3,012) (2,187) (1,668)
Operating Cashflow 373 7,540 1,193 2,698 3,720
Capital expenditure (523) (673) (1,000) (1,000) (1,000)
Free Cash Flow (150) 6,867 193 1,698 2,720
Investments (104) (1,013) 0 0 0
Other Investing Cash Flow (358) (484) 0 0 0
Investing Cashflow (463) (1,662) (585) (644) (658)
Loans Taken / (Repaid) 1,864 (3,727) 1,000 (450) (2,000)
Dividend paid (incl tax) 560 700 1,011 1,134 1,113
Other Financing Cash Flow (812) (1,247) (1,379) (1,595) (1,665)
Financing Cashflow 202 (5,548) (483) (2,076) (3,625)
Net chg in cash 112 329 124 (22) (563)
Opening cash position 647 753 1,062 1,186 1,164
Closing cash position 753 1,062 1,186 1,164 601

Key Ratios
EBITDA Margin 9.6 10.7 10.6 10.8 11.0
EBIT Margin 7.7 8.8 8.9 9.1 9.4
Net Margin 3.7 4.6 4.9 5.1 5.4
ROCE 13.6 14.7 16.6 17.7 18.9
ROE 8.2 9.2 10.7 11.6 12.2
RoIC 14.1 15.9 19.1 20.5 21.6

EPS 10.8 13.0 16.4 19.6 22.9
CEPS 16.3 18.5 22.3 26.1 29.9
BVPS 134.9 147.2 161.2 177.9 197.2
DPS 1.5 1.5 2.0 2.5 3.0

PER 26.4 21.9 17.3 14.5 12.4
P/CEPS 17.4 15.4 12.7 10.9 9.5
P/BV 2.1 1.9 1.8 1.6 1.4
EV / Sales 1.2 1.1 1.0 0.8 0.7
EV / EBITDA 12.3 10.4 9.0 7.6 6.6
Dividend Yield (%) 0.5 0.5 0.7 0.9 1.1

Net Debt/ Equity 0.4 0.2 0.2 0.2 0.1
Net Debt/EBIDTA 2.1 1.1 1.1 0.8 0.5

Revenue 9.1 (1.3) 18.1 15.7 10.1
EBITDA 10.5 9.4 17.5 17.2 12.0
EBIT 7.9 12.2 19.6 18.9 12.7
PAT 13.1 20.5 26.5 19.5 16.6

Revenue 8,986 13,805 11,874 11,433 11,576
EBITDA 905 1,443 1,308 1,220 1,191
EBITDA Margin (%) 10.1 10.4 11.0 10.7 10.3
PAT 363 720 645 578 571
EPS (Rs) 2.4 4.7 4.2 3.8 3.7

Promoters 59.5 59.5 59.5 59.5 59.5
FIIs 8.3 7.5 7.4 7.3 6.1
DIIs 23.1 23.5 22.7 22.6 21.7

KEC International
March 24, 2017

CMP Target Price
Margin improvement to drive Rs208 Rs241
profitability Rating
ACCUMULATE
Upside
15.8 %
Change in Estimates
KECI, part of the USD3bn RPG (Harsh Goenka) group is one of the leading EPC
players in power T&D with high exposure to international projects. The company has
~ 17-18% share of PGCIL orders and is amongst the top 3-4 major players in select Target Price change (%) NA
SEBs. KECI is on the road to recovery after grappling with losses in the railway and Previous Reco NA
water segments. While the railway infrastructure segment has begun reporting profits
in FY17, the company has stopped bidding for new projects in the water segment. The Emkay vs Consensus
companys American subsidiary SAE is also back in the black after posting losses in EPS Estimates
the last 2-3 years. Order backlog of ~Rs112bn (1.3x FY17E sales) coupled with robust FY17E FY18E
order pipeline in T&D and railways gives KECI high revenue visibility over the next Emkay 9.7 12.0
two years. We initiate coverage on KECI with a ACCUMULATE rating and target price Consensus 10.1 12.3
of Rs 241based on 15x FY19EPS. Mean Consensus TP Rs 179
Robust order book spread across verticals and geographies: Apart from having an Stock Details
entrenched presence in the domestic T&D business, KECI also has strong presence Bloomberg Code KECI IN
across many countries in the Middle-East, SAARC region, Far East Asia and the Face Value (Rs) 2
Americas. The presence across multiple verticals and geographies would enable KECI to Shares outstanding (mn) 257
successfully endure regional or sector specific slowdowns and continue on its growth 52 Week H/L 213 / 110
path. Order backlog across all business segments stands at Rs112bn (Domestic
M Cap (Rs bn/USD bn) 54 / 0.82
~Rs58bn. International ~Rs54bn) to be executed over the next 24-30 months.
Daily Avg Volume (nos.) 520,213
SAE back in black, logs strong order inflows: After posting losses during FY14-16 due Daily Avg Turnover (US$ mn) 1.3
to lack of orders and project delays, the American subsidiary SAE Towers has
commenced normal operations on the back of strong demand revival in the past 3-4 Shareholding Pattern Dec '16
quarters. During 3QFY2017, SAE reported 8% EBIDTAM on a turnover of ~Rs2.3bn. The
Promoters 50.9%
order book in SAE stands at ~Rs13bn with relatively better margins when compared with
FIIs 6.8%
the Indian T&D business.
DIIs 25.4%
New businesses turning profitable: The railway infrastructure segment comprising of Public and Others 16.9%
civil infrastructure and track works, railway electrification, signaling etc., has achieved
break-even in FY2017 after posting losses for the past 3-4 years. Going forward, the Price Performance
Management expects margins in the railway segment to inch closer to ~9%, similar to
(%) 1M 3M 6M 12M
T&D margins. The company has exited the loss-making water treatment and water
Absolute 25 55 64 73
resource management business.
Rel. to Nifty 23 37 59 49
Valuation and recommendation: Revenues are expected to increase at 9% CAGR
FY16-19E while PAT is expected to rise at 29% CAGR FY16-19E largely driven by Relative price chart
225 Rs % 50
improvement in profit margins. At CMP of Rs208, KECI trades at 11x FY19E earnings.
We initiate coverage on KECI with a ACCUMULATE rating and target price of Rs241, 200 36
assigning a 15x multiple to FY19E earnings. 175 22
150 8
Financial Snapshot (Consolidated)
(Rs mn) FY15 FY16 FY17E FY18E FY19E 125 -6
Net Sales 84,678 85,163 88,054 97,167 110,563 100 -20

Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17
EBITDA 5,118 6,793 7,804 8,828 10,298
KEC International (LHS) Rel to Nifty (RHS)
EBITDA Margin (%) 6.0 8.0 8.9 9.1 9.3
Source: Bloomberg
APAT 1,610 1,915 2,498 3,083 4,129
ROE (%) 12.8 13.5 15.4 16.5 19.0 +91 22 66121374
P/E (x) 33.3 28.0 21.4 17.4 13.0
Amruta Deherkar
EV/EBITDA (x) 14.4 11.4 9.5 8.3 7.1
P/BV (x) 4.0 3.5 3.1 2.7 2.3
+91 22 66121262
KEC International (KECI IN) India Equity Research | Initiating Coverage
Profitability coming back to normal after turnaround plan takes hold
KECIs decision to acquire America based SAE in FY2011 and venture into new verticals of
railway infrastructure and water treatment had impacted the profitability of the firm. EBIDTAM
which stood at ~11% in FY2011 declined sharply to ~5-6% in FY13 - 15 as losses in SAE and
new ventures kept mounting. The American subsidiary suffered losses in Mexico during FY14
16 due to lack of orders while the Brazilian operations were impacted by project delays, high
interest cost and political uncertainties. In the new verticals of railway infrastructure and water
treatment, the company took low margin orders in consortium with existing players (having poor
balance sheet strength) with the sole objective to achieve pre-qualifications. Majority of these
new orders ultimately ended up in losses by the time the sites were closed. Adding to the losses
from new businesses, the domestic T&D business was going through a low patch during FY12-
14 due to heightened competitive intensity and aggressive bidding by new entrants.
The contribution margins which stood at ~22% in FY11 declined to ~17% during FY12-15,
indicating the lower prices / entry level pricing at which the orders were taken. While the turnover
doubled during FY11-16 period, the fixed expenses also doubled during the same period
indicating lack of operating leverage. Losses at SAE and increasing bad debts in the new
businesses was another problem that had surfaced. The OPM had therefore fallen from ~10%
(FY11) to ~5% (FY15). Adding to these operational challenges, the interest cost increased from
~2.6% of sales in FY11 to 3.6% in FY16 on account of increasing working capital debt.
Exhibit 80: Profitability Metrics - KECI

KEC FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Fixed Exp / Sales 11% 10% 11% 11% 11% 11% 11% 11% 10%
EBIDTAM 11% 8% 5% 6% 6% 8% 9% 9% 9%
OPM 10% 7% 5% 5% 5% 7% 8% 8% 8%
Interest cost / Sales 3% 3% 3% 3% 4% 3% 3% 3% 2%
PBTM 7% 5% 2% 2% 1% 4% 4% 5% 6%
RoCE 21% 13% 14% 17% 16% 16% 18% 21%
RoE 20% 5% 7% 13% 13% 15% 17% 19%
The American subsidiary is now reporting strong order flows with operations having commenced
in both Mexico and Brazil and the subsidiary is now reporting robust EBIDTAM of ~ 8%. KECI
has got the requisite qualifications in railway infrastructure and the company is now bidding for
orders at relatively higher margins. The company has exited the loss-making water treatment
and water resource management business. The benefits of the above changes are being seen
in the recent operational results. The contribution margins have increased to ~21% for 9MFY17
(~22% during 3QFY17) while the fixed cost / sales ratio remained high at ~12% for 9MFY17 due
to ~4% YoY decline in turnover. We believe the fixed cost / sales ratio could reduce to ~10-11%
with increase in turnover during FY18-19. The EBIDTAM and OPM for 9MFY17 have improved
to 9% and 7% respectively and the interest cost / sales has commenced its southward trend
(was at ~3% during 3QFY17).
Best placed to benefit from domestic T&D

KECI is one of the few EPC companies that has successfully managed the cycle of ups and
downs in the domestic T&D business in the last seven decades. Over time, the company has
gained expertise to offer end-to-end solutions in power T&D power transmission line projects,
concept to commissioning of high voltage AIS (upto 1150kv) and GIS (upto 765kv).The company
has also tied up with Korean and Chinese equipment vendors for GIS substation projects and is
currently executing ~ 20 GIS projects. . In the domestic segment, KECI has ~ 17-18-% share of
PGCIL orders and is amongst the top 3-4 major players in SEB orders. The company prefers to
work with few SEBs like Tamil Nadu, Karnataka, West Bengal, Gujarat, Rajasthan etc., which
have the financial backing from multilateral or bilateral agencies. Going forward, KECI is
expected to maintain its share in the domestic T&D orders as the competition from relatively
smaller and insignificant players is likely to be limited with utilities / project developers now
preferring to award larger turnkey projects (Rs8-9bn range) rather than splitting them into multiple
smaller sized contracts.

Exhibit 81: PGCIL order flows to KECI Exhibit 82: PGCIL order flows to KECI - Transmission and AIS
(Rs mn) (Rs mn)
25,000 22,823 25,000
21,518
20,000 20,000
15,000 12,865 15,000 12,692

10,010 9,066 9,011 8,376 8,658 8,376
10,000 8,340 10,000 7,420
5,968 6,094 6,928
5,000 5,000 675 772 1,675 2,382 1,412

772 - -- 915 590 717 588 -353 -- -173 -
- -
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17
Total Order Inflow Transmission Substation AIS Others
Global presence ensures consistent growth

In addition to the Indian T&D markets, KECI also has strong presence in Middle-East, SAARC
region, Far East Asia and the Americas. The international T&D revenues have averaged
~Rs35bn over the last 4-5 years. With its footprint spread across all continents, KECI is
adequately hedged against slowdown in any region. The strategy of maintaining a strong
international presence has also helped the company survive during the weak phases in the
domestic markets. The fall in commodity prices, especially crude oil, has the potential to impact
new project tendering as annual budgets of many MENA countries undergo spending cuts.
However, T&D capex may not see drastic cuts as it is considered a part of the essential
infrastructure in all these countries.
SAE Towers Turning the corner

Though the USD95mn acquisition of SAE in FY2011 enabled KECI gain foothold in the lucrative
American markets, the American subsidiary suffered losses in its Mexican and Brazilian
operations and KECI had to further infuse ~USD10mn during FY2016. Losses in the Mexican
facility were attributable to lack of orders during FY2014-16 while the Brazilian operations were
impacted by project delays related to environmental clearances, high interest cost, political
uncertainties etc. Management commentary suggests that competition in these geographies has
substantially reduced after the shutdown of production facilities of Jyoti Structures, USA and
Abengoa, Mexico. Also, the demand for transmission towers has gradually picked up during the
last 3-4 quarters. As on date, operations at SAE Towers have revived and the subsidiary is now
straddling on an order book of ~Rs13bn executable over 18 months and with relatively better
margins when compared with India T&D business.
Exhibit 83: SAE Order inflow, backlog and revenues
(Rs in bn)
16
13
12
11
12 10 10
9 9 10 10 9
9 9 8 8
8 7 7
8 7
5 5
4
4
-
FY11 FY12 FY13 FY14 FY15 FY16 FY17 YTD
Order Inflows Order Backlog Revenues

Chasing big ticket projects in railways

Over the last five decades, KECI has been associated with Indian Railways (IR) in railway
overhead electrification works. Till date, the company has electrified over 12,000kms of railway
tracks. In the last 5-6 years, KECI gradually ventured into other components of railway
infrastructure through consortiums and acquisitions. Though the strategy of joining hands with
consortium partners did help KECI win orders and obtain the necessary pre-qualifications, the
company had to suffer losses in these new projects. As on date, KECI is qualified to bid for
composite railway projects (civil infrastructure and track works, railway electrification and
signaling) up to Rs3.5bn without any consortium support.
As per industry sources, ~Rs200bn of railway electrification and gauge conversion projects are
expected to be awarded in FY18. Going forward, IR is also expected to award bigger composite
projects in the near term. The competition is expected to reduce as smaller players with weaker
/ poor balance sheets are precluded from bidding for larger composite orders.
Exhibit 84: Railway Segment Order inflow, backlog and revenues
(Rs in bn)
16.0 15
13
12.0
8.0 6
4 5
4 3 4 4
4.0 3 2 2 3 2 2
1 1 2 2 1
0.3
-
FY11 FY12 FY13 FY14 FY15 FY16 FY17 YTD
Order Inflows Order Backlog Revenues

Earnings call commentary indicates that company has bided for ~Rs40bn worth of railway
tenders with an average ticket size of ~Rs3bn (as compared to Rs1bn earlier). When compared
with order bookings of Rs2.6bn in FY2016, KECI has already booked Rs15bn worth of inflows
during the current year and is L1 in another Rs4bn worth of tenders. The increasing order
accretions and revenue bookings is expected to help KECI completely absorb the fixed
overheads and report higher profitability similar to the T&D margins in the next 3-4 quarters. As
on date the gap in margins between railways and T&D is ~75bps.
Cables Power cables and rising commodity prices to drive profitability

Despite operating at ~75-80% capacity utilization, KECIs cable business was incurring losses
at the PBT level while EBITDAM stood at ~4-5%. The primary cause of the losses was the low
copper and aluminium prices which impacted the absorption of fixed overheads. Another issue
was the relatively low proportion of extra high voltage (EHV) cables (high margin product) in the
overall sales mix. The companys EHV facility was recently commissioned ~ two years back and
it took some time to gain the requisite pre-qualifications to bid for large EHV projects. Going
forward, the business from EHV cables is expected to grow to ~Rs2bn from the present
Rs600mn. Post the recent increase in copper and aluminum prices, KECI expects the cable
revenues to increase by ~Rs1bn to Rs11bn witha positive PBT in FY2018.
Solar promising potential but wait could be longer

KECIs expertise in tower manufacturing and transmission EPC could be leveraged to build PV
module mounting structures and undertake execution of large scale solar EPC projects. Given
that Government of India (GoI) plans to add nearly 100GW of solar power in the next 5-6 years,
we believe there exists huge potential (~Rs5tn) for EPC companies specialising in mounting
structures and turnkey solutions. However, KECI believes that order inflow for solar EPC projects
could get delayed in the near term as many SEBs and developers are yet to finalise the power
rates and conclude the PPAs. The company was expecting to book revenues of ~Rs4bn during
FY2017 but had to trim the guidance to ~Rs2bn on account of lower order inflows.

Improving working capital to strengthen cash flows and RoCE

KECIs interest cost had consistently risen from 2.6% of sales in FY11 to ~3.6% of sales in FY15-
16 in line with rising debt and receivables. The business transformation exercise implemented
during FY2016 has begun to show positive results in the last couple of quarters. The execution
cycles for projects have seen significant reduction and the company was able to close few
projects ahead of schedule and recover retention monies much faster. During 9MFY17, the
company reported higher collections helping it reduce the accounts receivables by ~Rs5bn. The
gross debt and acceptances also reduced by ~Rs3bn during the same period. Going forward,
the endeavor would be to reduce the working capital to 180 days from the existing 220 days.
KECI has guided to reduce the interest cost to ~3% of sales in FY2017 and to further reduce it
to ~2.50-2.75% of sales during FY2018.
Exhibit 85: Working capital / interest cost ratio

(%) (%)
36 4 4
3 32
3 3 3
27 3 3
26 25
18 24 2
20
16
9 1
- -
FY11 FY12 FY13 FY14 FY15 FY16
Working Capital to sales Interest to sales
Key Risks
Currency risks and volatility in commodity prices to impact profitability: Significant
proportion of international billings are in currencies other than the USD or Euro, which
exposes the company to cross currency fluctuations and translation losses. Since the
international T& EPC jobs are fixed price contracts, KEC would also be exposed to
volatility in commodity prices. Commodities like aluminum, zinc and copper can be hedged
on LME while the same mechanism is not available for steel.
Slowdown in Middle East & Africa (MENA) and other geographies: KEC derives
majority of its international business from the MENA regions. The sharp correction in crude
oil prices had negatively impacted many infrastructure projects, either leading to their
cancellation or deferral. Similarly, the global slowdown has resulted in lower energy
demand and consequently lower demand for power. With crude oil now settling at over
USD45 - 50/ barrel, we expect increasing budgetary allocation to the infrastructure projects
especially those related to power generation and transmission.

Assumption
Exhibit 86: Consolidated
Rs in mn FY15 FY16 FY17E FY18E FY19E
Revenues
T&D (excl SAE) 64,840 62,800 61,476 64,051 72,697
Growth 6% -3% -2% 4% 13%
SAE 8,030 8,300 9,847 10,635 11,852
Growth -7% 3% 19% 8% 11%
Railways 1,330 2,100 4,032 8,334 11,480
Growth -21% 58% 92% 107% 38%
Cables 9,070 10,260 10,352 10,503 10,918
Growth 44% 13% 1% 1% 4%
Water 1,320 1,030 850 935 104
Growth 1% -22% -17% 10% -89%
Solar 90 930 1,496 2,709 3,511
Growth 933% 61% 81% 30%
Total Operating Revenues 84,678 85,163 88,054 97,167 1,10,563
Growth 7% 1% 3% 10% 14%
EBITDA 5,118 6,793 7,804 8,828 10,298
Depreciation 881 876 1,188 1,268 1,348
Operating Income 4,237 5,917 6,616 7,560 8,950
Other Income 1,462 103 61 82 52
PBIT 5,699 6,020 6,676 7,642 9,002
Finance expenses 3,089 2,774 2,834 2,899 2,650
PBT 2,611 3,246 3,843 4,742 6,352
Tax 1,001 1,331 1,345 1,660 2,223
PAT 1,610 1,915 2,498 3,083 4,129
Order Inflow
T&D (excl SAE) 55,916 63,612 57,251 68,701 82,441
SAE 12,335 9,585 10,544 11,598 13,338
Railways 2,467 2,614 10,457 15,685 18,822
Cables 11,512 9,585 10,065 10,568 11,096
Water - - - - -
Solar 82 1,743 2,614 3,921 4,313
Total 82,312 87,140 90,931 1,10,474 1,30,011
Order Book
T&D (excl SAE) 71,310 70,868 66,642 71,293 81,037
SAE 9,508 11,339 12,036 12,999 14,485
Railways 4,754 5,669 12,095 19,446 26,788
Cables 5,705 4,725 4,437 4,501 4,679
Water 3,803 1,890 1,039 104 -
Solar - 378 1,496 2,709 3,511
Total 95,080 94,868 97,744 1,11,051 1,30,500
Valuation
Order backlog of ~Rs112bn (1.3x FY17E sales) coupled with robust order pipeline in T&D and
railways segments ensures strong revenue visibility over the next couple of years. Revenues are
expected to increase at 9% CAGR over FY16-19E while PAT is expected to rise at 29% CAGR
FY16-19E largely driven by improvement in profit margins. At CMP of Rs208, KECI trades at 11x
FY19E earnings. We initiate coverage on KECI with a ACCUMULATE rating and target price of
Rs241, based on 15x FY19E earnings.

Financials
Revenues (consolidated) are expected to increase at 9% CAGR (FY16-19E) to Rs111bn driven
by growth in T&D and railway infrastructure segment. Revenue in T&D (excl. SAE) is expected
to increase at 5% CAGR (FY16-19E) while SAE is expected to post 13% CAGR (FY16-19E) in
revenues after declining for the past couple of years. The railway infrastructure segment is likely
to post strong revenue growth of 76% CAGR (FY16-19E) driven by strong inflows and backlog.
The company has exited the water resource management business and is in the process of
completing the existing projects. Revenues are likely to remain steady in the cables segment.The
solar segment is expected to post strong growth on a lower base.
Exhibit 87: Revenues (Consolidated)

(Rs bn) (%)
30 111
120 32
97
85 85 88
90 79 24
70
58 13 14
60 20 16
45 10
7
30 3 8
1
- -
FY17E
FY18E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
Revenues (LHS) Growth (RHS)
Exhibit 88: Revenues - T&D (excl SAE) Exhibit 89: Revenues - SAE
(Rs bn) (%) (Rs bn) 158 (%)
26 73 16 164
76 65 64 28
19 63 61 12
17 21 12 10 11 117
57 9 10
61 9 8 8
35 41 14
38 48 8 70
13 7 19
4 13 8 11
(2) 4 3 23
19 6 (3) (7)
4 0 (16)
- -7 - -24
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
T & D (Excl. SAE) (LHS) Growth (RHS) SAE (LHS) Growth (RHS)
Exhibit 90: Revenues - Cables Exhibit 91: Revenues - Railway

(Rs bn) (%) (Rs bn) (%)
44 107 11
12 11 12 114
10 10 11 44
9 8
9 65 58 74
9 28 92
19 6 13 80
6 6 34
6 5 12 4
1
6 14 3 38
3 2 2 2 -6
3 4 -4 1 1
1
(3) (37) (21)
- -20 - -46
FY17E
FY18E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
FY11
FY14
FY17E
FY12
FY13
FY15
FY16
FY18E
FY19E
Cables (LHS) Growth (RHS) Railway (LHS) Growth (RHS)


Exhibit 92: Revenues - Solar Exhibit 93: Revenues- Water

(Rs bn) (%) (Rs bn) (%)
4.5 112 2 10 16
4 1 1 1
81 (17)
84 1 3 1 -11
3.0 61 3 1 1
1
56 1 (22) -38
1 30
1.5 1
28 0 0 -65
0.1 0
- 0 0 -92
(89)
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY17E
FY18E
FY19E
FY15
FY16
Solar (LHS) Growth (RHS) Water (LHS) Growth (RHS)

The EBITDAM is expected to increase from 8.0% in FY16 to 9.3% in FY19E led by increase in
turnover and margin improvement in the railway infrastructure segment. EBITDA is expected to
increase at 15% CAGR (FY16-FY19E).
Exhibit 94: EBITDA and EBITDAM Exhibit 95: EBIT and EBITM
(Rs bn) (Rs bn) 10 (%)

(%)
12 8 8 10
12 12 8 8
11 9 9 7
9 7
8 8 9 6 8 8
9 10 9 5 6 9
6 6 6 7
5 9 6 4 5 4 5
6 8 6 3
7
5 5 3 3
3 5 5 3
4
- -
- -
FY15
FY11
FY12
FY13
FY14
FY16
FY17E
FY18E
FY19E
FY15
FY11
FY12
FY13
FY14
FY16
FY17E
FY18E
FY19E

Interest cost to sales is expected to reduce from 3.3% in FY16 to 2.4%in FY19 on account of
early closure and collection of retention monies. PATM is expected to improve from 2.2% in FY16
to 3.7% in FY19 while PAT is likely to increase at 29% CAGR (FY16-19E).
Exhibit 96: Interest cost Exhibit 97: PAT and PATM
(Rs mn) (Rs bn) (%)

(%)
3,089 5 6
3,200 2,633 2,774 2,834 2,899 2,650 4 4
3 3 3 4 5
2,400 4 3 3 5
3 3 3 4 2
1,944 3 3
1,600 1,176 1,597 2 2 2 3
2 2 2 4
2 3
800 1 1 3 2
1 1 2
2
- - 1 1
- -
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
Interest cost (LHS) Interest to Sales (RHS) PAT (LHS) PATM (RHS)
Source: Emkay Research, Company Source: Emkay Research, Company

The net working capital (excluding cash) is expected to reduce by 280bps from 31.5% of sales
in FY16 to 28.7% of sales by FY19 driven by timely closure of projects and collection of
receivables. Management has also guided at a decline in working capital days to 180 days from
the existing 220 days. We expect the RoCE to improve by 515 bps to 21% in FY19 while RoE is
expected to improve by 560bps to 19.1% by FY19.
Exhibit 98: Net working capital excluding cash Exhibit 99: RoE and RoCE
(Rs bn) 32 (%) (%)
32 27 28 36 24 21
26 26 21
24 21 18
24 32 27 17 16 16
20 29 29 29 18 20
16 13 14
16 25 18 19
12 19 17
10 14 12 15
8 9 13
13
- - 6
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
7
5
0
Net Working capital excluding cash (LHS) FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Wc Ratio to sales (RHS) RoE RoCE
Exhibit 100: Quarterly financial (Consolidated)

Revenue 25,211 19,229 20,656 21,013 25,586 17,847 21,214 19,646
EBITDA 1,847 1,407 1,513 1,672 2,229 1,496 1,853 1,818
Depreciation 223 288 285 313 217 291 308 298
Operating Income 1,624 1,119 1,228 1,359 2,012 1,205 1,546 1,520
Other Income 87 32 37 23 11 50 55 70
Interest 710 710 685 694 705 720 596 583
PBT 1,000 441 580 687 1,317 535 1,005 1,006
Total Tax 371 273 299 425 519 226 353 380
PAT 629 169 282 262 798 309 652 626

Order intake is likely to increase at 14% CAGR (FY16-19E) to Rs130bn driven by steady inflows
in power T&D and strong growth in the railways infrastructure.
Exhibit 101: Order Intake - Consolidated Exhibit 102: Order book - Consolidated
(Rs bn) (%) (Rs bn) (%)
21 130
132 21 131
21
132 111 22
85 87 91 18 95 102 95 95 98
99 82 110 13 86
75 99 78 14
62 62 13 6 18
66 5 66 14 6
4 10 10
8
33 (0) (3) 33 3 (2)
(3) (7) (0)
- (11) - (10)
FY17E
FY18E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
FY17E
FY18E
FY19E
FY11
FY12
FY13
FY14
FY15
FY16
Order Intake (LHS) Growth (RHS) Order Book (LHS) Growth (RHS)
Exhibit 103: Order intake and backlog T&D (excl SAE) Exhibit 104: Order intake and backlog - SAE
(Rs bn) (Rs bn)
88 78 81 82 81 16 14
70 71 71 71 13 13
64 67 69 12 12 12
60 64 11
66 57 56 57 12 10 11
49 9 10 10
46 9
8 7
44 8 7
5 5
22 4
- -
FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E
Order Intake Order book Order Intake Order book
Exhibit 105: Order intake and backlog - Cables Exhibit 106: Order intake and backlog - Railway
(Rs bn) (Rs bn)
27
16 28.0
12 11 19 19
12 10 11 21.0
10
9 16
8 7 14.0 12
6 6 6 10
5 4 5 5
4 5 6
4
1
2 7.0 4 3 4 4 3
1 1 1 2 2
0.3
- -
FY11 FY12 FY13 FY14 FY15 FY16 FY17EFY18EFY19E FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E

Exhibit 107: Order intake and backlog - Solar Exhibit 108: Order intake and backlog - Water
(Rs bn) (Rs bn)
6
5.0 4 6.0
4 4
4.0 4 4
4.5 4
3.0 3 3 3 3
3.0 2
2 2
2.0 1
1.5 1
1.0 0.4 0.3 0.3
0.1 - - - - - 0.1
- -
FY15 FY16 FY17E FY18E FY19E FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E


Company background
KECI, the flagship company of the USD3bn RPG (Harsh Goenka) group, is one of Indias leading
infrastructure EPC majors with presence in verticals of power transmission and distribution,
cables, railways and renewables (solar). The company has over seven decades of experience
in transmission EPC and has executed projects in over 61 countries across geographies
including South Asia, the Middle East, Africa, Central Asia, the Americas and Southeast Asia.
Exhibit 109: Key Milestones
1945 Established for manufacturing, enameling, trading for Hollowware
1950 First tower supply order for BhakraNangal Project, India.
1959 First 220 kV turnkey transmission line project in India.
1960 First export tower supply export order from New Zealand.
1961 First Indian company to get a Railway Electrification order.
1968 First international turnkey transmission project in Sudan.
1982 Taken over by RPG Group.
1999 First 765 kV transmission project.
2007 RPG Transmission and NITEL merged. Telecom, Distribution SBU started.
2009 Railway SBU Started.
Acquires SAE towers in the Americas.
2010 Worlds highest capacity (1,200kV) tower testing station started at Nagpur, India
Acquired and merged RPG Cables.
2011 Forays into Water EPC Business.
Established a world-class Greenfield facility at Vadodara, Gujarat for

2012
manufacturing of high tension (HT) and extra high voltage (EHV) power cables.
2014 Secured first turnkey order in solar space.
2015 First 765 kV GIS Substation in Thiruvalam in South India.

KEC
Power Transmission
Cables Railways Watter
& Distribution
Water &
Transmission Power Cables Civil & Track
substations Waste Water
Llines LT / HT / EHV Works
Treatment
Lattice Towers Distribution Platforms &

& Poles Network Telecom Building
Cables
Optic Fiber
Telecom
and Jelly filled
Hardware Tower / EPC / Signaling
OPGW
Electrification

Business Segments
Power Transmission: KECI is one of the largest companies in the power transmission EPC
space with capabilities to design, manufacture, test, supply and erect transmission lines on a
turnkey basis up to 1,200 kV. The domestic tower manufacturing capacities aggregate to
~211,000 MTs with facilities spread across India - Nagpur, Maharashtra (Capacity: 78,000MTs),
Jabalpur, Madhya Pradesh (Capacity: 75,600MTs) and Jaipur, Rajasthan (Capacity: 57,600
MTs). Apart from its own manufacturing facilities, the company also has tie-ups with other tower
manufacturing companies across India which offer their facilities to meet KECIs excess
requirements.
During 2010, KECI had acquired 100% stake in Houston based SAE Towers Holdings LLC for
an enterprise value of USD95mn. SAE Towers is one of the leading manufacturers of lattice
transmission towers (~100,000 MTs) in the Americas with manufacturing plants spread over
Monterrey, Mexico (35,000 MTs) and Belo Horizonte, Brazil (65,000 MTs). The acquisition of
SAE Towers helped KECI enter the lucrative markets of North and South America - United
States, Canada, Mexico, Brazil and other neighbouring countries. The Mexico plant is located
close to Laredo, Texas (~150 miles from Monterrey) and has full access to global and US steel
suppliers, allowing for ready availability of both structural angles and plate. SAE Towers also
manufactures poles in this facility. The Brazilian facility also manufactures hardware fittings and
substation structures, in addition to the lattice towers.
Post the acquisition of SAE Towers, KECI emerged as one of the largest tower manufacturing
companies across the globe with aggregate capacities totaling to ~313,000 MTs. The company
is also one of the few companies to have multiple tower testing stations three in India and one
in Brazil. KECIs Nagpur (India) testing station is one of the few testing stations in the world
capable of testing towers up to 1,200 kV. The tower testing station at Brazil is the largest in
America and is capable of testing all type of towers - Lattice Towers, Guyed Towers, Tubular
and Mono Poles.
Power Distribution: In the power distribution segment, KECI undertakes EPC projects of high
voltage electrical switching and distribution sub-stations, distribution network, installation of
optical fibre networks, and HV/EHV cabling project works worldwide. The company offers
complete turnkey solutions from concept to commissioning on turnkey basis for high voltage air
insulated substations (AIS) and gas insulated substations (GIS) from 33kV up to 1150kV level.
Cables: KECI entered the cables business through the acquisition of the group company RPG
Cables in 2010 - one of the oldest and largest fully integrated cable manufacturers in India. As
on date, KECI is amongst the leading manufacturers of cables with a strong pan-India marketing
and distribution network comprising dealers and sales offices. The company has a diverse
clientele across industries including power, oil & gas, steel, engineering, electricity supply etc.
During FY2012, the company had set up a new facility at Vadodara (India) to manufacture HT
and EHV cables up to 220 kV at a cost of ~Rs1.75bn. At peak production, the new facility is
capable of generating Rs3.5bn in revenues. The plant has an installed capacity of 3,600 cable
kms annually and has been designed for capacity expansion in the future.
Railways: In the railways segment, KECI is an complete turnkey solutions provider of railway
infrastructure, having presence in all functional segments of railway infra development viz., civil
infra works, track works, electrification and substation works, signaling and telecom works. In the
civil infra works, KECI constructs bridges, buildings (at stations & yards), platform construction,
workshop modernisation etc. In track works, the company carries out track laying & linking,
preparation of ballast bed, earthwork and rehabilitation of existing tracks. In railway
electrification, the company undertakes overhead electrification, traction substation, general
electrical works (building & station yard lighting). Till date, the company has electrified more than
12,000 kms of Indian Railways. In signaling and telecom works, KECI undertakes interlocking
works, outdoor & indoor supply and installation works.
Renewables (Solar): KECIs experience and expertise in transmission EPC has enabled it to
venture into solar EPC services. The company offers solar turnkey EPC solutions for large solar
PV projects developed by private players and roof-top PV solutions for industrial and commercial
consumers.

Exhibit 111: Key Projects - Executed and ongoing.

Date Details Value (Rs in mn) Country
Turnkey orders for construction of 225 kV Transmission Lines and 225/ 30 kV
Mar-17 Substations in Senegal, 400 kV Overhead Transmission Lines in Jordan and 12,240 Senegal, Jordan, America
Supply and EPC orders across America.
EPC orders for ground mount solar power project (100 MW) and roof top solar
Mar-17 4,500 India
power projects.
Dec-16 500 kV Overhead Transmission Line. 2,480 Egypt
Dec-16 Construction of 275 kV Transmission Line. 4,290 Malaysia
Oct-16 T&D supply orders across America, Africa and turnkey EPC order in Brazil 2,280 America, Africa, Brazil
Oct-16 EPC orders for 765 kV & 400 kV Transmission Lines. 6,310 India
Aug-16 Supply and construction of substation and transmission lines in Karnataka 5,620 India
Aug-16 Railway Overhead Electrification composite order 2,480 India
Composite railway electrification and track laying in connection with doubling
Jun-16 3,170 India
between Rae Bareli &Amethi stations on Lucknow.
Supply and construction of 400 kV transmission line from Barakah Switchyard to
Jun-16 5,820 United Arab Emirates
MadinatZayed Grid Substation.
Construction of Transmission Line associated with Beyond Vemagiri
Mar-16 6,080 India
Transmission System Project.
Mar-16 Construction of Transmission Lines from PGCIL in various parts of India 2,460 India
Mar-16 Construction of Transmission Lines in Ghana 4,040 Africa
Mar-16 Supply Orders in America 2,000 USA
Jan-16 Construction of various Transmission Lines and Substations 6,630 Saudi Arabia

Mr. Vimal Kejriwal Mr. Kejriwal has been associated with KECI since 13 years. He also serves as a Director
Managing Director & CEO on Board of SAE Towers Holdings LLC, USA, a wholly owned subsidiary of KEC
International Ltd.
Mr. Rakesh Amol Mr. Amol has nearly 3 decades of Global experience in manufacturing & EPC business,
President - Infrastructure & Cables across a range of sectors like Power, Oil &Gas, Iron & Steel and other industries.
Mr. Amol currently also serves as the Chairman of the Cables Division of IEEMA.
Mr.RandeepNarang Mr. Narang has over 25 years of experience in the Tyre and Telecommunications sector.
President International - Transmission &
Distribution
Mr.Neeraj Nanda Mr. Nanda, has around 32 years of Global experience in Marketing, Sales, Projects and
President South Asia - Transmission &
P&L Management across the Power Sector.
Distribution and Solar
Mr. Rajeev Aggarwal Mr. Aggarwal has 25 years of rich experience in varied areas of finance in the
Chief Financial Officer Infrastructure and Core sectors.
Mr.VasudevanNarasimha Mr. Narasimha has over 28 years of experience in manufacturing across Asia Pacific
Executive Director - Human Resource and in Banking across Asia, Africa, Middle East, Europe and the Americas.
Mr.Anand Kulkarni Mr. Kulkarni has over 29 years of corporate experience across companies in the
Executive Director - Business Operations manufacturing sector.
Mr.NageshVeeturi
Mr. Veeturi has over 26 years of experience in the Real Estate & Infrastructure sectors.
Senior Vice President & Head Civil Business
Mr. Gustavo Cedeno Mr. Cedeno, CEO for SAE Towers, joined the organization in August 2015.
Chief Executive Officer - SAE Towers He has published several papers for the power industry on the topics of Industrial
automation and Turbomachinery controls.
Mr. Rakesh Gaur Mr. Rakesh Gaur has more than three decades of global experience in handling
Chief Executive - Railways infrastructure and power Transmission & Distribution projects.

Key Financials (Consolidated)

Income Statement
Net Sales 84,678 85,163 88,054 97,167 110,563
Expenditure 79,560 78,370 80,250 88,339 100,264
EBITDA 5,118 6,793 7,804 8,828 10,298
Depreciation 881 876 1,188 1,268 1,348
EBIT 4,237 5,917 6,616 7,560 8,950
Other Income 1,462 103 61 82 52
Interest expenses 3,089 2,774 2,834 2,899 2,650
PBT 2,611 3,246 3,843 4,742 6,352
Tax 1,001 1,331 1,345 1,660 2,223
Minority Int./Income from Assoc. 0 0 0 0 0
Adjusted PAT 1,610 1,915 2,498 3,083 4,129
Balance Sheet
Net worth 13,298 15,119 17,321 19,940 23,452
Loan Funds 22,141 25,207 23,707 21,957 20,207
Net deferred tax liability 527 421 421 421 421
Net block 12,589 12,660 12,472 12,203 11,855
Investment 0 0 0 0 0
Current Assets 64,518 68,357 69,952 74,124 80,706
Cash & bank balance 2,063 1,113 3,163 1,820 364
Other Current Assets 5,814 6,078 6,078 6,078 6,078
Misc. exp 0 0 0 0 0
Total Assets 35,966 40,746 41,448 42,318 44,080
Cash Flow
Other Non-Cash items (523) 1,654 0 0 0
Chg in working cap (2,551) (5,813) 1,159 (2,481) (3,565)
Operating Cashflow 1,529 (508) 7,618 4,687 4,510
Capital expenditure 65 (899) (1,000) (1,000) (1,000)
Free Cash Flow 1,594 (1,407) 6,618 3,687 3,510
Investments 0 0 0 0 0
Other Investing Cash Flow (279) 978 0 0 0
Investing Cashflow 1,248 181 (939) (918) (948)
Loans Taken / (Repaid) 845 3,066 (1,500) (1,750) (1,750)
Dividend paid (incl tax) (175) (575) (296) (463) (617)
Other Financing Cash Flow 261 (348) 0 0 0
Financing Cashflow (2,157) (632) (4,629) (5,112) (5,017)
Net chg in cash 620 (958) 2,050 (1,343) (1,455)
Opening cash position 1,440 2,063 1,113 3,163 1,820
Closing cash position 2,063 1,113 3,163 1,820 364

Key Ratios
EBITDA Margin 6.0 8.0 8.9 9.1 9.3
EBIT Margin 5.0 6.9 7.5 7.8 8.1
Net Margin 1.9 2.2 2.8 3.2 3.7
ROCE 16.4 15.7 16.2 18.2 20.8
ROE 12.8 13.5 15.4 16.5 19.0
RoIC 12.9 16.2 17.0 19.2 21.3

EPS 6.3 7.4 9.7 12.0 16.1
CEPS 9.7 10.9 14.3 16.9 21.3
BVPS 51.7 58.8 67.4 77.6 91.2
DPS 0.9 0.9 1.0 1.5 2.0

PER 33.3 28.0 21.4 17.4 13.0
P/CEPS 21.5 19.2 14.5 12.3 9.8
P/BV 4.0 3.5 3.1 2.7 2.3
EV / Sales 0.9 0.9 0.8 0.8 0.7
EV / EBITDA 14.4 11.4 9.5 8.3 7.1
Dividend Yield (%) 0.4 0.4 0.5 0.7 1.0

Net Debt/ Equity 1.5 1.6 1.2 1.0 0.8
Net Debt/EBIDTA 3.9 3.5 2.6 2.3 1.9

Revenue 7.2 0.6 3.4 10.3 13.8
EBITDA 3.8 32.7 14.9 13.1 16.6
EBIT 0.2 39.7 11.8 14.3 18.4
PAT 141.2 19.0 30.4 23.4 33.9

Revenue 21,013 25,586 17,847 21,214 19,646
EBITDA 1,672 2,229 1,496 1,853 1,818
EBITDA Margin (%) 8.0 8.7 8.4 8.7 9.3
PAT 262 798 309 652 626
EPS (Rs) 1.0 3.1 1.2 2.5 2.4

Promoters 50.5 50.9 50.9 50.9 50.9
FIIs 6.8 6.7 6.8 6.3 6.8
DIIs 25.9 26.3 25.8 25.6 25.4

Emkay Rating Distribution

BUY Expected total return (%) (Stock price appreciation and dividend yield) of over 25% within the next 12-18 months.
ACCUMULATE Expected total return (%) (Stock price appreciation and dividend yield) of over 10% within the next 12-18 months.
HOLD Expected total return (%) (Stock price appreciation and dividend yield) of upto 10% within the next 12-18 months.
REDUCE Expected total return (%) (Stock price depreciation) of upto (-) 10% within the next 12-18 months.
SELL The stock is believed to underperform the broad market indices or its related universe within the next 12-18 months.
Emkay Global Financial Services Ltd.

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management and financing group. Emkay Global Financial Services Limited (EGFSL) along with its affiliates are participants in virtually all securities trading markets in India. EGFSL was established in
1995 and is one of India's leading brokerage and distribution house.EGFSL is a corporate trading member of Bombay Stock Exchange Limited (BSE), National Stock Exchange of India Limited(NSE),
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company(s) covered in this report-:
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Research Analyst or his/her relatives financial interest in the subject company. (NO)
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Emkay Research | March 24, 2017 www.emkayglobal.com

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Engineering & Capital Goods

March, 2017 T&D to unfold sizeable opportunities

Suboptimal investments causing transmission congestion .................................................................................................................... 4

Expanding transmission network to bridge regional imbalance ............................................................................................................ 6

INR 2.6 tn opportunity over the next five years ..................................................................................................................................... 9

Dwindling competition boosting margins of established players ........................................................................................................... 9

Techno Electric Engineering Co - A Power Play.................................................................................................................................. 10

Kalpataru Power Transmission- Execution led growth ........................................................................................................................ 26

KEC International - Margin improvement to drive profitability ............................................................................................................. 41

Emkay Research | March 24, 2017 2

T&D to unfold sizeable opportunities

Dwindling competition boosting margins of established players

Poised to seize opportunities in global transmission EPC

Prefer TEEC, KPP, KECI

Financial Snapshot John Perinchery

Suboptimal investments causing transmission congestion

Exhibit 1: Ratio of Transformation to Installed Generation

Demand growth coupled with regional imbalances to drive network expansion

Emkay Research | March 24, 2017 4

Exhibit 5: Load generation balance analysis for FY 2021-22

Emkay Research | March 24, 2017 5

Exhibit 6: Export / (Import) for various region from FY2021 FY2032

Expanding transmission network to bridge regional imbalance

Emkay Research | March 24, 2017 6

EAST - NORTH EAST

NORTH EAST - NORTH

Emkay Research | March 24, 2017 7

Exhibit 9: Requirement of Transmission lines during 13th Plan (in ckms)

Exhibit 10: Requirement of Substations during 13th plan (in MVA)

Exhibit 11: Requirement of HVDC during 13th plan (in MW)

Emkay Research | March 24, 2017 8

Green energy corridor - Integrating renewable energy with regional grids

INR 2.6 tn opportunity over the next five years.

Dwindling competition boosting margins of established players.

Exhibit 13: Market share in PGCIL Transmission projects (%)

Emkay Research | March 24, 2017 9

CMP Target Price

A Power Play Rs349 Rs478

Valuation and Recommendation: We value TEEC on SoTP basis, assigning different

TEEC with a BUY rating and a price target of Rs478. 340 14

Financial Snapshot (Consolidated) 310 6

(Rs mn) FY15 FY16 FY17E FY18E FY19E 280 -2

Net Sales 7,939 10,972 14,062 16,531 19,715 250 -10

Exhibit 14: Profitability ahead of industry

Exhibit 15: Spotting Profitability With ROCE

Exhibit 16: TEEC - Capital Intensity and RoCE (EPC segment)

Emkay Research | March 24, 2017 11

Exhibit 17: Profitability Metrics TEEC (EPC segment)

Exhibit 18: Profitability Metrics - Kalpataru Power (Standalone)

Exhibit 19: Profitability Metrics KEC International (Consolidated)

Patience is not only a virtue it can be profitable

Exhibit 20: PGCIL order wins for TEEC from FY09 17

Emkay Research | March 24, 2017 12

Prudent working capital management

Focus on substations and STATCOMs Unfolding potential

Exhibit 21: Portfolio of Wind Assets

Emkay Research | March 24, 2017 13

Foray into BOOT projects seeking better returns

Exhibit 22: BOOT Assets

Delay in sale of wind assets could impact realizations

Emkay Research | March 24, 2017 14

Exhibit 24: Energy (Rs in mn)

Exhibit 25: Assumptions sheet (Consolidated)