For 2QFY2019, KEI Industries (KEI) posted good set of results, exceeding our expectations on both, top-line as well as bottom-line fronts. Revenue grew by ~33% yoy (above our estimate), however, the company reported a marginal dip in operating margins. On the bottom-line front, KEI reported growth of ~45% yoy to`41cr on the back of strong top-line growth.
Strong growth in Cable and Stainless Steel Wire segment boosted the overall profit:
The company’s top-line grew by ~33% yoy to `997cr on the back of strong growth in Cables and Stainless Steel Wire segment. Cables segment grew by ~36% yoy during the quarter, whereas Stainless Steel Wire reported a growth of ~21% yoy. However, Turnkey Projects remained flat on yoy basis. Currently, the company has order book of `3,401cr (out of which EPC is around `1,556cr and balance from cables, substation & EHV)
Profitability driven by operating margin improvement and lower interest:
On the operating front, the company’s margins contracted 7bps yoy at 10.1% on the back of higher raw material cost. However, KEI reported ~45% yoy rise in its net profit to `41cr owing to strong volume growth.
Outlook and Valuation:
We expect KEI to report net revenue CAGR of ~17% to ~`4,708cr over FY2018-20E mainly due to (a) higher order book execution in EPC segment; (b) growth in EHV business; (c) higher B2C sales; and (d) higher exports. On the bottom-line front, we expect a CAGR of ~22% to`215cr over the same period on the back of strong volume growth. At the CMP of `349, the stock trades at 12.6x its FY2020E EPS of `27.8, thus, we maintain our Buy rating on KEI Industry with the Target Price of `500.
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