Emkay Global Financial Recommends Buying Kalpataru, Targets Price of Rs 420

Kalpataru (KL) Research Report

Overview

Kalpataru (KL) is a well-established integrated real estate developer with a strong presence in the Mumbai Metropolitan Region (MMR) and Pune. The company aims to accelerate cash flow and reduce its debt burden by focusing on faster project monetization.

Pre-Sales Growth

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KL has achieved a compound annual growth rate (CAGR) of approximately 30% in pre-sales over the period of FY22-25, reaching Rs45 billion. We expect the company to sustain this growth rate, with a pre-sales CAGR of 16% in the next three years, reaching Rs71 billion by FY25-28E.

Collections and Cash Flow

The expected growth in pre-sales, combined with the company's timely progress in construction activities, is anticipated to drive a CAGR of 16% in collections over FY25-28E. This, in turn, is expected to lead to a net operating cash flow (NOCF) of Rs32 billion over FY26-28E.

Deleveraging and Valuation

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The projected NOCF is expected to enable the gradual deleveraging of KL's balance sheet over the medium term. We value the company's residential business at 8.5x embedded EV/EBITDA and its commercial business at 8% cap rate.

Recommendation

We initiate coverage on Kalpataru with a BUY recommendation, with a stock price target of Rs420 based on a sum-of-the-parts (SOTP) valuation.