Add KEC International Ltd For Target Rs597 - Yes Securities Ltd
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Our view
KEC International (KECI) reported a mixed set of numbers, with healthy topline growth in T&D (up 43% YoY) and non-T&D segments such as Civil (up 71% YoY) and Oil & Gas Pipelines (up 39%) too contributed to the growth. Despite robust gross margins, EBITDA margins remained under pressure owing to execution of legacy domestic TBCB projects while SAE Brazil managed to break even at EBITDA level. Order inflows grew by 121% YoY on a low base. As on 4QFY23 order book stands at a record ~Rs305.5bn (1.8x TTM revenue), providing revenue visibility for next few quarters. Going forward, management expects adverse impact of SAE legacy projects and margin to improve sequentially. For FY24, management guided for 15% topline growth and order inflows at ~Rs250bn while margins are expected to be in the range of ~7%.
We believe KECI is well poised to gain from upcoming opportunities in infrastructure segment given 1) diversified business model, 2) healthy market share in T&D segment, 3) excellent execution track record with strong parentage and 4) comfortable balance sheet. The stock is currently trading at 22.5x/12.1x FY24E/FY25E earnings. With therecent run-up in the stock price and factoring in gradual margin recovery, we downgrade the stock to ADD with a revised TP of Rs597 valuing the company at 14x FY25E EPS.
Result Highlights
* Consol sales came in at ~Rs55.2bn (up 29% YoY) (YSL estimate ~Rs42.8bn) on account of better execution in T&D segment (up 43% YoY) while Civil grew 70% YoY. Other non-T&D segments such as Cables and Railways declined 2% and 7%
YoY respectively
* EBITDA grew by 13% YoY to Rs2.8bn (YSL estimate ~Rs2.6bn) with EBITDA margins contracting by ~80bps YoY to 5.1% mainly due to higher sub-contracting expenses
* PBT de-grew by 27% YoY to Rs859mn on the back of higher interest cost (up 69% YoY)
* PAT came in at Rs722mn (down 36% YoY) due to a higher effective tax rate (15.9% vs 4.9% in 4QFY22) and weak operational performance
* Order inflows grew by 121% YoY at Rs68.2bn
* Order book continues to remain comfortable at Rs305.5bn (excluding L1 orders worth Rs35bn+)
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