Published on 13/09/2019 9:52:37 AM | Source: Prabhudas Lilladher Ltd

Buy KEC International Ltd For Target Rs.352 - Prabhudas Lilladher

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Order inflow to revive from H2FY20

Quick Pointers:

* Non T&D contributed 35% of revenue led by railways growth of 68%.

* H2FY20 looks strong driven by robust domestic and international order pipeline

* Net Debt at the end of 1QFY20 stands at Rs23bn against Rs16 bn in 4QFY19.

KEC International (KEC) reported PAT of Rs0.9 bn (up 4% YoY) which was lower than our estimate (PLe Rs1 bn) despite 4% higher revenues than our estimates. This was due to higher interest and depreciation cost (due to lease accounting policy change on account of IND AS116) and lower other income. Order Inflows were down 59% YoY at Rs111.5 bn, due to postponement of awarding on account of general elections. KEC is L1 in order worth Rs3.5 bn and Order backlog stands at Rs190 bn (up 5% YoY) which gives strong revenue visibility. The management is confident on execution momentum and maintained it guidance for revenue growth of 15-20%, EBITDA margin of 10.5% (flat) and 20% growth in order inflow for FY20. H2FY20 looks strong due to robust pipeline of orders from domestic and international markets. In the domestic market, order inflow is expected to be driven by Green Energy Corridor, States, Railways, Civil etc. In International markets, tender pipeline looks strong from Africa, Singapore, Thailand, Malaysia and Saudi. We believe that a strong order book, steady margin profile and healthy outlook in T&D segment and emerging segments like Railways/Civil will help KEC deliver 19% earnings CAGR over FY19‐21E. The stock is currently trading at 12.6x/10.9x FY20/FY21E. We maintain “BUY” with TP of Rs352 (13x FY21E).


PAT below expectations: Sales for the quarter was up 15% YoY at Rs24bn (PLe: Rs23bn). Sales for T&D segment was up 25% YoY to Rs16bn (SAE Tower sales up 13% YoY to Rs3.1bn). Non T&D business grew 5% mainly led by Railways revenue which was up 67% YoY. However, Civil/Solar witnessed major dip of 45%/79% YoY. EBITDA was up 16% YoY to Rs2.5bn (PLe: Rs2.4bn) and margins were flat YoY at 10.4% due to higher other expenses which included forex loss of Rs40-60 mn. Depreciation and Interest cost increased by 23% YoY to Rs795 mn/Rs366 mn due to lease accounting policy change. Other income was down 75% YoY at Rs27 mn due to one-time prepayment premium of high cost loan included in interest. Hence PAT grew by 4% YoY at Rs0.9 bn (PLe: Rs1 bn).


Ordering to pick-up from 2HFY20 onwards: KEC’s order book at the end of 1QFY20 stands at Rs190 bn (up 5% YoY) and order inflow stood at Rs111.5 bn (- 59% YoY). The fall in order inflow was mainly due to weakness in the T&D segment (-53% YoY) and Civil segment (-58% YoY). KEC is L1 in orders worth Rs225 bn. The domestic T&D market grew 25% and international grew more than 25% , going ahead international market continues to be strong. KEC is expecting total orders worth Rs170bn in FY20 and T&D is expected to contribute around 70% mainly due to the expected pickup in renewable space.


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