Reasonable performance despite challenges…
KEC’s Q4FY20 revenues came in at | 3671 crore, down 4.4% YoY, marginally better than our estimate of | 3655 crore. During Q4FY20, overall T&D business revenue fell 11% YoY to | 2462 crore, supported by 39% growth in SAE division to | 444 crore. The railways business grew 36% YoY to | 861 crore while civil business segment revenue registered modest growth of 5% YoY to | 172 crore. Cables business fell 38% to | 217 crore YoY. EBITDA margins came in at 10.1%, marginally down 30 bps YoY. During Q4FY20, KEC’s order inflow was at | 1511 crore while the FY20 order book was at | 20503 crore.
Strong backlog, execution ramp-up to help sustain growth…
On the order inflow front, KEC’s FY20 order inflow was at | 11331 crore, down 19.5%. Also, it has already received orders worth | 739 crore for YTD FY21E. We believe with an L1 of | 3500 crore combined with strong order pipeline in railways (conventional railway, new track lines, overhead electrification), Green Energy Corridor (GEC) as well as new opportunities in Saarc, MENA, Africa and Middle East Region should help KEC see reasonable order inflow in FY21E. KEC expects good traction in order inflows from GEC, SEBs, Railways and expects margins to sustain due to commodity price benefit, automation and mechanisation to improve productivity amid labour migration. On the other hand, overall, current order backlog of | 20503 crore may ensure 5.1% revenue CAGR in FY20-22E.
Contained working capital key to operational performance…
Despite 9% YoY revenue growth in FY20, the borrowings position has improved significantly by | 684 crore. KEC’s net debt (excluding acceptances) has declined by | 206 crore, sequentially, to | 2216 crore, as on March 31, 2020. Net working capital days improved by nine days to 119 days on a QoQ basis. As per management, working capital is in a manageable position with no stress yet despite collection loss of about | 300-400 crore that could have further reduced debt. It has increased working capital limits and tied up additional finances as back-up to fund itself, in emergency situation. KEC is also focusing on mechanisation and automation to replace labour and ramp-up the productivity amid labour migration.
Valuation & Outlook
Overall performance has been satisfactory across segments for FY20 barring order inflows, which were impacted by economic slowdown. Efficient working capital management and execution ramp-up despite challenges should comfortably ensure 5.1% revenue CAGR in FY20-22E. We value KEC at 10x FY22E EPS with a revised target price of | 220 and revise our rating from BUY to HOLD. Key risk: execution delay, stress on working capital.
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