INSUBCONTINENT EXCLUSIVE:
Elara Capital has a buy call on KEC International with a target price of Rs 440.
The current market price of KEC International is Rs
247.20.
Time period given by the brokerage is one year when KEC International price can reach the defined target
Investment rationale by the brokerage-
Lower FY19 guidance to 12-15 per cent sales growth, single digit in inflows: KEC International (KECI
IN) management lowered revenue growth guidance to 12-15 per cent from 15 per cent in FY19 (9MFY19 up: 11 per cent)
It guided for 15-20 per cent revenue growth in FY20 on the back of strong TD order book, execution in railways and civil businesses
It also reduced inflow growth guidance into the single digit from 10-15 per cent in FY19 (9MFY19 up 2 per cent), due to General Elections,
focus on high margin orders on a large orderbook base and sluggish private ordering.
Non-TD business continues to drive revenue in Q3:
Consolidated revenue increased 10 per cent YoY to Rs 27bn, in line with our estimates in Q3FY19
Segment-wise, railways revenue (15 per cent of FY19E revenue) jumped 2.6x YoY (9M: up 2.6x; raised guidance to 2x YoY from 1.8x) and civil
business (4 per cent) was up 26 per cent (9M: up 1.4x; double YoY in FY19)
Cables (10 per cent) was up 14 per cent on exports and EHV cables
After two quarters of consecutive decline, TD (ex SAE; 60 per cent) revenue was up mere 2 per cent, owing to a delay in payments by private
TBCB firms (Essel Infra and Adani Power; private TBCB orderbook at Rs 5.0bn) and a delay in approval of an international project in Africa
However, weak execution in SAE (9 per cent) resulted in a 39 per cent decline in revenue.
Higher interest cost leads to flat net profit: A
110bp fall in the RM-sales ratio to 48 per cent and forex gains of Rs 200mn (9M at Rs 550mn) led to EBITDA growth of 15 per cent to Rs 2.8bn
Margin expanded 40bp to an eight-quarter high of 10.6 per cent
Interest cost rose 53 per cent as net debt increased 17 per cent YoY
It targets interest-sales ratio to be 2.7 per cent in FY19 (9MFY19 at 3.2 per cent), a challenging ask, in our view, and lt;2.5 per cent in
Thus, net profit was flat YoY to Rs 1.1bn, in line with our estimate.
Valuation: We raise our earnings by 1 per cent each in FY19E and FY20E
on higher EBITDA margin, partly offset by higher interest cost
We reiterate Buy with a new TP at Rs 440 from Rs 425 as we roll forward by a quarter to 18x December 2020E P/E, at a 10 per cent premium to
Given strong orderbook in TD and continued execution in nonTD, we expect an earnings CAGR of 12 per cent over FY18-21E (vs 81 per cent in
FY15-18) and an average ROE of 20 per cent ROCE of 15 per cent over FY19-21E.
