After a stellar performance over the past year, brokerage house SBI Securities has picked multibagger renewable energy stock KPI Green Energy as one of its 'Rising Stars' for 2024. The stock has experienced a remarkable surge, increasing nearly 253 percent in the past year and over 108 percent year-to-date (YTD) in 2024.
At the current price, the stock is trading at 47.2x/29.5x of its FY25E/FY26E earnings respectively. SBI Securities maintains a ‘buy’ rating on the stock with an upgraded price target of ₹1,246, implying an upside of almost 25 percent.
In August alone, the stock has risen by 10 percent, following a nearly 3 percent increase in July. This comes on the heels of a minor decline of around 1 percent in June. Prior to that, KPI Green Energy saw a modest gain of 0.7 percent in May, a substantial 19 percent rise in April after a 12.5 percent drop in March, and impressive increases of over 43 percent in February and 24 percent in January.
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KPI Green Energy recently hit a record high of ₹1,116, though it is currently trading at ₹1,011. The stock has surged 196 percent from its 52-week low of ₹255.46, reached on September 12, 2023.
The exceptional performance of KPI Green Energy has made it a standout pick for investors, with SBI Securities recognising its significant growth potential in 2024. The stock's impressive gains and recent highs underscore its strong position in the renewable energy sector, marking it as a key player to watch this year.
Investment Rationale
Execution led growth
KPI Green Energy has demonstrated remarkable growth in the latest quarter, with substantial year-on-year (YoY) increases across key financial metrics. The company reported an 83.8 percent growth in sales, reaching ₹348.0 crore, a 90.8 percent increase in EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to ₹132.1 crore, and a notable 98.8 percent rise in profit after tax (PAT) to ₹66.1 crore. This impressive growth is primarily driven by the successful execution of both Captive Power Plant (CPP) and Independent Power Producer (IPP) orders, with 15 MW and 13 MW of capacity installed respectively during the quarter, said the brokerage.
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Additionally, IPP energy production surged by 29 percent YoY, totaling 6.2 crore units. For FY25, the company anticipates producing approximately 32 crore units of power under the IPP segment. It further stated that the company's EBITDA margin for the quarter improved significantly, up by 590 basis points quarter-on-quarter (QoQ) and 140 basis points YoY, reaching 38 percent due to lower raw material costs and a favorable revenue mix.
Order book and strategic vision
As of August 7, 2024, KPI Green Energy boasts a robust order book totaling 2,327 MW, split between 1,260 MW in IPP and 1,067 MW in CPP, informed SBI Sec. Over the first five months of FY25, the company has secured new orders amounting to 1,117 MW, including 916 MW in IPP and 201 MW in CPP. These CPP orders are expected to be completed within the next 12-15 months, while the new IPP orders are projected to be fully executed by FY27, noted the brokerage.
At full capacity, the IPP segment could generate an additional ₹700-800 crore in annual revenue, given the long-term Power Purchase Agreements (PPAs). Of the IPP capacity, approximately 140 MW is wind power, with the remainder being solar. The management has set an ambitious target to achieve a cumulative 10,000 MW of power generation by 2030, compared to the 445 MW executed to date, it further added.
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Funding and capital raise
To support its expansion plans, KPI Green Energy is raising ₹1,000 crore through a Qualified Institutional Placement (QIP). The floor price for the QIP is set at ₹983, with an assumed issue price of ₹934 per share, factoring in a maximum discount of 5 percent. This capital raise, which involves an equity dilution of approximately 8.9 percent, will help maintain the company’s debt-to-equity (D/E) ratio at around 1x, stated the brokerage. The funds are essential for financing the capital expenditure required for IPP projects, estimated at ₹3,500-4,000 crore over the next 2-3 years based on the current order backlog, predicted the brokerage.
Overall, KPI Green Energy's strong quarterly performance underscores its effective execution and growth in both CPP and IPP segments. With a solid order book and ambitious plans to scale up power generation to 10,000 MW by 2030, the company is well-positioned for future growth. The ongoing QIP is a strategic move to support this expansion and sustain its capital structure, ensuring continued progress in its green energy initiatives.
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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decision.
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First Published:
19 Aug 2024, 12:06 PM IST
HomeMarketsStock MarketsUp 253% in a year, SBI Securities has identified multibagger stock KPI Green Energy as a ’rising star’ for 2024
