Up 253% in a year, SBI Securities names multiple-growth stock KPI Green Energy as a ‘rising star’ for 2024

Following a stellar performance over the past year, brokerage house SBI Securities has picked renewable energy growth stock KPI Green Energy as one of its ‘Rising Stars’ for 2024. The stock has seen a remarkable run, rising almost 253 per cent over the past year and over 108 per cent year-to-date (YTD) in 2024.

At current price, the stock is trading at 47.2x/29.5x FY25E/FY26E earnings. SBI Securities maintains a ‘Buy’ rating on the stock with an elevated target price ₹1,246, an increase of almost 25 percent.

The stock rose 10 percent in August alone, following a nearly 3 percent gain in July. That followed a small decline of about 1 percent in June. Previously, KPI Green Energy posted a modest 0.7 percent gain in May, a significant 19 percent increase in April after a 12.5 percent drop in March, and impressive gains of more than 43 percent in February and 24 percent in January.

Green Energy KPI recently reached a record high ₹1116, although the current rate is ₹1011. Shares are up 196 percent from 52-week low ₹255.46, reached on September 12, 2023

Green Energy’s exceptional KPI performance has made the company a standout pick for investors, with SBI Securities seeing significant growth potential in 2024. The stock’s impressive earnings and recent highs underscore its strong position in the renewable energy sector, making it a key player to watch this year.

Investment justification

KPI Green Energy showed remarkable growth in the last quarter, with significant year-over-year (YoY) growth in key financial metrics. The company reported sales growth of 83.8 percent, reaching ₹348.0 crore, which translates to a 90.8 per cent increase in EBITDA (earnings before interest, tax, depreciation and amortisation). ₹132.1 crore and a significant increase in Net Profit (PAT) by 98.8 per cent. ₹66.1 crore. This impressive growth is primarily driven by successful execution of Captive Power Plant (CPP) and Independent Power Producer (IPP) orders, with installed capacity of 15 MW and 13 MW, respectively, during the quarter, the brokerage said.

Further, IPP power production grew by 29 per cent year-on-year to a total of 6.2 crore units. The company expects to produce around 32 crore units of power from the IPP segment in FY25. It further said the company’s EBITDA margin for the quarter improved significantly, rising by 590 basis points quarter-on-quarter (QoQ) and 140 basis points year-on-year to 38 per cent on the back of lower raw material costs and favourable revenue mix.

Order Book and Strategic Vision

As of August 7, 2024, KPI Green Energy has a solid order book of 2,327 MW, divided into 1,260 MW in IPP and 1,067 MW in CPP, informed SBI Sec. In the first five months of FY2025, the company has bagged new orders worth 1,117 MW, including 916 MW in IPP and 201 MW in CPP. The CPP orders are expected to be fulfilled in the next 12-15 months, while the IPP new orders are expected to be fully fulfilled by FY2027, the broker noted.

At full capacity, the IPP segment could generate additional ₹700-800 crore in annual revenue, taking into account long-term power purchase agreements (PPAs). Of the IPP capacity, around 140 MW is wind power and the rest is solar power. The management has set an ambitious target of achieving a cumulative capacity of 10,000 MW by 2030, compared to 445 MW implemented so far, he added.

Financing and capital raising

To support its expansion plans, KPI Green Energy raises funds ₹1000 crore through Qualified Institutional Placement (QIP). The floor price of QIP is fixed at ₹983, at the assumed issue price ₹934 per share, including a maximum discount of 5 percent. This capital raise, which involves a dilution of around 8.9 percent in equity, will help maintain the company’s debt-to-equity (D/E) ratio at around 1x, the brokerage said. These funds are required to fund the capital expenditure required for the IPP projects, estimated at ₹3,500-4,000 crore in the next 2-3 years, based on the current order book, the brokerage forecasts.

Overall, Green Energy’s strong quarterly KPI results underscore its successful execution and growth in the CPP and IPP segments. With a solid order book and ambitious plans to expand its generation capacity 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 maintain the capital structure to ensure continued progress in green energy initiatives.

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