Prabhudas Lilladher has given a buy recommendation on KEC International with a target price of Rs 352.
Shares of KEC International traded at Rs 286.45 apiece around 1:30 pm on 9 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.
March quarter highlights:
- Sales for the quarter was up 5 per cent year-on-year (YoY) at Rs 3,800 crore. However, sales for T&D segment was down 1.3 per cent YoY to Rs 2,400 crore.
- Non T&D business continued with their growth trajectory with railways/civil and water revenue up 76 per cent and 29 per cent YoY, respectively. However, solar segment witnessed a major dip of 83 per cent YoY.
- Ebitda was up 8 per cent YoY to Rs 400 crore and margins were up 30bps YoY at 10.4 per cent due to better cost control measures and forex gain of about Rs 25 crore. Interest cost increased by 38 per cent YoY to Rs 84.5 crore, down 1.4 per cent QoQ. PAT was flat at Rs 190 crore. For FY19, sales were up 9.4 per cent YoY and Ebitda margin improved by 50bps YoY to 10.5 per cent. PAT was up 6 per cent YoY at Rs 490 crore.
- Net borrowing at the end of FY19 stood at Rs 1,420 crore against Rs 3,000 crore at the end H1FY19. The repayment has happened due to various initiatives, such as the sale of BOT asset, Saudi collections, changes in vendor terms and advances from large international projects. The NWC days also normalized to FY18 levels at 103 days.
- KEC’s order book at the end of FY19 stood at Rs 20,300 crore, up 17 per cent YoY and order inflow stood at Rs 14,100 crore, down 7 per cent YoY. The fall in order inflow was mainly due to weakness in the domestic T&D segment (down 8 per cent YoY) and SAE (down 16 per cent YoY).
Investment rationale:
"KEC International reported a flat YoY net profit of Rs 190 crore which was lower than our estimate," said the brokerage.
Although the numbers took a hit from weak execution in T&D segment and solar segment, the company has guided for sales growth of 15-20 per cent, Ebitda margin of 10.5 per cent and 20 per cent growth in order inflow for FY20.
The company highlighted that the margins will remain flat in FY20. Domestic T&D market is expected to witness strong ordering next year due to weak ordering in FY19. The company has indicated Rs 25,000 crore of order pipeline in Domestic T&D space, mainly driven by renewables.
The brokerage is positive on the prospects of the company's railway and civil business growth.
"The company's railway and civil business outlook continues to be robust," said the brokerage. In International
markets, tender pipeline in MENA/SAARC has improved over the last few quarters.
"We have marginally tweaked our estimates for FY20/21 to factor in lower FY19 revenue growth and revised guidance on the margin and interest/sales ratio, while maintaining the broad numbers. We believe that a strong order book, steady margin profile and healthy outlook in T&D and emerging segments like railways and civil will help KEC deliver 19 per cent earnings CAGR over FY19-21E," the brokerage said.