Accumulate KEI Industries Ltd For Target Rs. 3,485 - Elara Capital
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Strong EHV growth, EPC surge continues
Cables – Steady volume growth of 13% in Q3
KEI Industries’ (KEII IN) Q3 revenue rose 16% YoY to INR 20.6bn, in-line with our estimates. Cables & wires (C&W) revenue grew 14% YoY to INR 18.7bn (revenue for cables & wires up 17% YoY for Polycab and 11% for Havells), led by strong growth in EHV, up 81% YoY. Exports doubled YoY to INR 1.9bn in Q3, led by healthy power transmission & distribution and solar demand. Despite strong demand, KEII’s C&W growth was lower than Polycab’s, due to capacity constraints in the cables division (90%+ utilization in cables). Volume growth in C&W stood at 13% in Q3 (Polycab’s volume grew ~20%). Industry grew 12-13% in Q3, as per management. EPC revenue spiked by 69% YoY to INR 3.8bn. Revenue for stainless steel (SS) wires fell 17% YoY to INR 465mn. KEII retained its revenue growth target at 16-17% for FY24, led by industrial demand and distribution expansion.
Cables – Q3 revenue up 14%, led by EHV and house wires
In Q3, EHV cables sales (9% of Q3 sales) surged 81% YoY to INR 1.9bn, in line with the recovery trend since Q2. EHV guidance was retained at INR 5.5-6.0bn, up 50-60% over FY23. Sales for house wires (28%) grew 23% to INR 5.7bn, and for LT cable (37%) 7% YoY to INR 7.6bn. HT cables (18%) was the only segment to see slight growth of 1% YoY to INR 3.6bn.
Valuation: Reiterate Accumulate with higher TP of INR 3,485
We lower FY24E/25E EPS 5%/4% due to delay in new capacity in Gujarat, impacting EHV revenue growth till FY25E. We raise our TP by 17% to INR 3,485 on 35x (earlier 28x) FY25E P/E, at 10% premium to our three-year average one-year forward P/E. We roll forward to December 2025E based on a sustainable earnings CAGR of 26% in FY23-26E – Reiterate Accumulate.
We remain positive on KEII, the second-largest firm in the cables & wire industry, as it is better poised than peers to leverage India’s infrastructure investment. This with growing retail franchisee, lean WC cycle and capacity spike should meet demand. Expect an earnings CAGR of 26% in FY23-26E versus 23% in FY20-23, with an average ROE of 22% in FY24E-26E.
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SEBI Registration number is INH000000933
