Kalpana Industries Ltd. Buy

Kalpana Industries Ltd. Buy

CMP : Rs.130 Target : Rs 250

Introduction

Kalpana Industries Ltd. (KIL) is one of the leading downstream processors of polymer compounds providing the basic raw materials largely to power cable industry. It also manufactures compounds for packaging, water pipes and footwear industry. KIL has three well equipped plants at Kolkatta, Daman and Silvassa. The company has been timely expanding its capacities across the segments to cater to growing demand of the user industries. KIL has a wide ranging product basket to suit varied needs of user industries ranging from simple residential cables to core projects in the industrial and power transmission sector.

Investment Rationale:

Massive ongoing industrial capex and planned capex in the power generation and transmission sector will sustain the current high growth momentum

The main user industry, the power cable industry has been growing at a fast pace for last few years and this pace to accelerate further in coming years, thanks to the sustainable domestic economic growth.

Timely execution of capacities to keep the growth momentum intact. Expanding the business in the Northern territory to cater to the demand of local players will lead to saving in the logistic cost.

The company’s revenue is set to grow at CAGR of 44% and Net profit at 94% in over FY07-09. We expect the company to report an EPS of Rs 18.08 for FY08(e) and Rs 31.97 for FY09(e). Based on the P/E valuation we set a target of Rs 250 for FY09. At this level the stock would trade at 7.8x its EPS of Rs 31.97.

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