RPG Transmission (RPGT) is a prominent player in the power transmission, railway electrification and telecommunication tower segment in the country. The company has vast experience in design, construction and erection of high voltage AC and DC Transmission Lines. The biggest customers of RPGT for transmission line business are Power Grid Corporation of India and MPSEB amongst various Electricity Boards. ABB-Alsthom, Escotel, MTNL, BPL and Bharti telecom are majors among telecom sector customers.

Business Scenario
In Q3FY07, RPGT recorded a top line growth of 56 per cent to Rs. 90.5 crores as compared to Rs. 58. crores in the previous corresponding quarter. If we take the cumulative of nine months into consideration, the results are even more robust. For 9MFY07 the company recorded a growth of 93 per cent to Rs. 270 crores as compared to Rs. 140 crores in the previous corresponding period.
Apart from this, the key aspect of the results is the expansion in margins and the order size book of the company. Firstly, the nature of projects undertaken during the quarter was predominantly of erection work. This led to lesser supplies of materials to its clients. On the other hand, erection work is less capital intensive than the latter. This led to a decline in raw material costs by 10.8 per cent on a YoY basis. The company posted a operating margin of 12 per cent in 3QFY07 as compared to a loss in the previous corresponding quarter.
On the order book front, we believe that the government’s thrust on the power segment is expected to continue. On one hand, the government plans to expand its current national grid capacity of 9,000MW to an estimated 37,000MW.
This is planned to be executed by way of connecting all the five regions of the country. This is due to excess capacity in the north eastern region because of availability of key raw materials. The government plans to evacuate this surplus by connecting all the regions. This will entail huge capital expenditures from the government.
RPTG has a current order book position of Rs. 450 crores. We expect this to expand in the medium to long term future, thereby enhancing the EPS.

At the current market prices of Rs. 214, the scrip is quoting at 44x its historic FY06 EPS of Rs. 4.8. Taking the current growth into consideration and also the visibility of next quarters EPS, we estimate the scrip to be trading at 14x its FY07E EPS. Apart from this, we expect the momentum in growth to continue and the stock is expected to witness an upside due to positive news flow. We at SAANS recommend a strong buy on the counter.

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