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Positive long-term prospects; high valuation

* KEI Industries Ltd is a leading manufacturer of cables and wires. It was established as a partnership firm in 1968 and incorporated as a public limited company in 1992.

*  In Q4FY24, consolidated revenue rose 18.8% YoY to Rs 2,319 crore, driven by 17.9% YoY growth in its cables and wires (C&W) segment.

*  EBITDA grew 24.3% YoY to Rs 260 crore and margin expanded 50bps to 11.2%. Reported profit after tax (PAT) attributable to shareholders grew 22.0% YoY to Rs 168 crore.

*  A healthy order book, higher capex, robust demand in real estate and infrastructure and strong dealer expansion augur well for the company’s future performance.

*  However, margins might be impacted due to changes in the input costs. Hence, we cautiously upgrade our rating for the stock to HOLD with a revised target price of Rs 4,085 based on 41x FY26E adj. earnings per share (EPS).

Robust volume growth in C&W segment drives revenue

In Q4FY24, the company’s revenue grew 18.8% YoY to Rs 2,319 crore, largely led by strong growth in the C&W segment. The segment contributed more than 80.0% to the total revenue and increased 17.9% YoY, driven by rise in volume for cables on production as well as consumption. Revenue via dealers and the distribution market increased 24.9% YoY to Rs 1,056 crore. The total dealer count stood at 1,900. Revenue from the engineering, procurement and construction segment grew 52.6% YoY, while that from stainless-steel wire fell 11.8%. EBITDA grew 24.3% YoY to Rs 260 crore and margin expanded 50bps to 11.2%. This was mainly attributable to lower costs of materials consumed as percentage of sales (70.7% vs. 72.5% in Q4FY23). Reported PAT attributable to shareholders grew 22.0% YoY to Rs 168 crore.

Upcoming capex plans

During the year, the company invested a total capital expenditure (capex) of ~Rs 397 crore, with specific amounts allocated to Chinchpada, Silvassa, Pathredi, Sanand and the plot in Gujarat’s Kheda to further enhance capacity for wires and cables. Moreover, a greenfield and brownfield expansion at Pathredi to increase the capacity for low tension power cables will be operational by the end of June 2024 and enable the company to achieve a growth rate of 16% to 17% in the current and next fiscal. Additionally, the company has planned a significant capex of ~Rs 900-1,000 crore for greenfield expansion in Gujarat to commence commercial production by the first quarter of FY26, with further financial investments in the coming years to maintain a CAGR of 15% to 16% per annum.

Concall highlights

*  Management believes that the company has the potential to scale its domestic as well as export business by increasing its manufacturing capacity (currently ~10- 12%) for wire and cables.

*  The Board of Directors has announced a dividend of Rs 3.5 per equity share for the year ended FY24.

Valuation

The company has a positive outlook in the long run, supported by strong demand in the Indian markets, particularly in solar power projects, power distribution projects and reforms in the government power distribution utility. It also has notable investments in transmission, distribution, thermal power generation and storage power projects across the country. However, an increase in costs of materials might impact the margins in the short term. Therefore, we cautiously upgrade our rating on the stock to HOLD, with a revised target price of Rs 4,085 based on 41x FY26E adj. EPS.

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SEBI Registration Number: INH200000345