Kalpataru Power: T&D surge

Kalpataru Power has the highest operating margin in the tower segment by virtue of better price realisations.

The Kalpataru Power Transmission board has raised Rs 347 crore by placing shares to large institutional investors via the QIP route at Rs 727 per share. Compared to the six-month average price prior to the announcement, this issue is just at a 3.6 per cent discount.

On Friday, the Kalpataru stock was more or less unchanged at Rs 772. Clearly, the transmission and distribution industry, in which Kalpataru operates, has witnessed rapid growth over the past several quarters.

Analysts also highlight that Kalpataru has the highest operating margins in the tower segment of the T&D space.

For instance, in Q1 FY07, Kalpataru's operating profit margins grew 340 basis points y-o-y to 16 per cent, while Jyoti Structures' operating margins grew 139 basis points to 10.75 per cent.

Analysts point out that operating margins of several players in this industry have been helped by better price realisations, largely due to repricing of contracts.

The company's issue price is at a discounting of about 12 times estimated FY07 earnings, while other players in this industry like Jyoti Structures and KEC International command a discounting of 4 times and 11.5 times estimated FY07 earnings respectively.

As far as the proceeds from the QIP issue are concerned, Ajay Munot, executive director, Kalpataru Power, said the company was still evaluating the strategic growth options available.

In the last quarter, Kalpataru Power had grown its net sales by an impressive 129.7 per cent y-o-y to Rs 302.56 crore, and it was largely powered by a 140.5 per cent growth in its T&D divison to Rs 273.4 crore.

Going forward, investors would be betting on the continued high growth trajectory offered in the T&D space, where Kalpataru is poised comfortably.

NIIT Tech: Swiss JV

Mid-cap software companies are increasingly finding innovative solutions to grow their businesses. Several companies have acquired smaller companies to gain clients or expand capabilities.

NIIT Tech has recently announced that it will set up a 50:50 JV with Swiss company Adecco, a global major in HR services ranging from executive search to temporary staffing.

This JV will have its first customer in the 18-billion-euro Adecco's internal IT requirements. Plus, Adecco also has a multi-billion-dollar IT services business, which will bring new customers to the JV.

From this JV, Adecco will gain an offshore facility in India, while for NIIT it will be an easy client acquisition strategy to grow its business.

The JV will initially provide services in the same areas as NIIT Tech, which are BFSI, retail, transportation and manufacturing. NIIT and Adecco will invest 1.5 billion euros each in the JV as equity capital.

While the NIIT Tech management has not provided any estimates in terms of staffing or revenue for the JV, it has significant business potential.

In the June 2006 quarter, NIIT Tech's revenues grew 15 per cent q-o-q, which included almost two months of revenues from its UK-based insurance services provider.

However, operating profit margin declined 210 basis points to 17.2 per cent due to costs attached to the integration of the acquisition. The NIIT Tech stock trades at less than 10 times its estimated FY07 EPS, making it one of the cheapest IT stocks.

PSL: $17 million order

The PSL Ltd stock, which has lost nearly 30 per cent of its value since the beginning of this year, went up over 4 per cent on Friday, as the company announced bagging a $17 million order.

PSL, a manufacturer of specialised pipes like spirally and helically welded steel pipes, has been bagging several contracts thanks to the capex boom, mainly in oil and gas industry.

The recent order will entail in supplying spiral pipes for a high pressure gas pipeline project in the UAE. In the current quarter, it received an order from Reliance Ports for about Rs 97 crore.

It also secured a Rs 72 crore pipeline project from HPCL, a Rs 270 crore water pipe supply contract from L&T and a Rs 218 crore order from GAIL.

Most of these contracts are under implementation and are likely to be finished this year, according to the management.

The company's current order book including Friday's order was at Rs 1,500 crore. PSL has expanded its capacity from 750,000 tonne a year to 1.1 million tonne last year to address the increasing demand in both hydrocarbons and water markets.

For this expansion, it had raised. In the June 2006 quarter, despite a 13.7 per cent decline in its net sales, the company saw its operating profit rise 12.6 per cent.

Lower steel prices and sourcing efficiencies led to a 2.6 per cent fall in its raw material cost as a percentage of sales.

As a result, its operating profit margin improved by 227 basis points to 9.74 per cent. Going forward, the management has confided that there would be a further improvement in margins as steel prices have declined.

The market seems to have priced in the opportunities, as the stock trades at about 12 times FY07 earnings.