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In-line performance

KEC reported revenue/EBITDA/PAT at Rs 33/3/1.5bn, marginally behind our estimates. Slower execution in Brazil and NCR impacted the top-line. YTD, order inflow stood at Rs 68.3bn and the company is confident of a good show in 4QFY21, given its strong order pipeline. KEC is seeing good traction in railways and civil segment, even as the domestic T&D ordering has slowed down. Order book stood at Rs 179bn (ex. L1 of Rs 60bn), of which 38% is from international market. Net debt increased to Rs 37.4bn in 3QFY21 from Rs 34.8bn at the end of Sep-20. NWC also increased from 132 to 144 days during the same period. With robust prequalification in domestic/international markets and across sectors, KEC is well-placed for a re-rating. However, sustained higher commodity prices could impact the margins. We maintain BUY on KEC with unchanged target price of Rs 476/sh, 14x Dec-22 EPS.

* Largely in-line performance; slower execution recovery in international T&D: KEC reported revenue at Rs 33bn (+7/+1% YoY/QoQ), marginal miss of 2% on our estimate. While execution in T&D fell by 12% YoY, revenue growth was driven by non-T&D segment, mainly from railways (Rs 8.7bn,+44% YoY) and civil (Rs 2.3bn, ~3x 3QFY20). As per management commentary, execution could have been better, if it were not for COVID- related challenges in Brazil and slower execution in some of the projects in NCR due to farmers’ protests and NGT issues in the region. Moreover, KEC slowed down execution at some of the sites due to rising commodity prices. EBITDA declined 6.4% YoY as margins shrunk by 130bps to 9.1%. (vs estimate of 9.0%). The impact on margins came largely from Brazilian operations. Higher commodity prices could impact margins further. Finance cost remained stable at Rs 0.66bn. Consequently, APAT came flattish YoY at Rs 1.5bn.

* International T&D and Domestic non-T&D fills the order book: KEC has received Rs 68.3bn of orders in FY21 till now, primarily driven by International-T&D. Order book stood at Rs 179bn at the end of Dec-20, ex L1 order of Rs 60bn. KEC is confident of a good show in 4QFY21 with bid pipeline of Rs 600bn (Rs 300bn already bid and additional Rs 300bn lined up). The pace of awarding, however, has been slow since COVID struck. Management expects domestic T&D to pick up with ordering for green corridor, TBCB and by private players. With increased traction, Railways and Civil could become a large part of the portfolio.

* Balance sheet stable despite increase in Debt/NWC days: Consolidated net debt, including the interesting bearing acceptances, stood at Rs 37.4bn (Rs 34.8bn at the end of Sep-20). NWC days also increased to 144 days vs 132 days QoQ as the company increased inventory to guard against rising commodity prices. The medium-term target is to bring NWC down to ~100 days

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