Buy KEI Industries; target of Rs 381: YES Securities

YES Securities' research report on KEI Industries

KEI managed to report steady numbers led by strong growth in its exports, EHV and B2B business. Even with 10 days of lost sales (Rs1.25bn), revenues remained flat on a yoy basis. Sales through dealer network was weak during the quarter at -20.7% yoy as substantial sales happen in the second half of March. EPC revenues (Ex cables) also declined 25% yoy due to tight liquidity conditions and lost execution in second half of March. Margins were under pressure (-134bps yoy) due to lower contribution of sales through dealers (high margin business) and loss of sales during lockdown. Interest expense declined 34.6% yoy and 16.1% yoy due to repayment of debt from QIP proceeds. Order inflow during the quarter was weak resulting into a decline of 27.4% qoq to Rs32.6bn. KEI is currently operating at 50% utilization levels. It is witnessing good demand for housing wires from non-metro areas and from export market. Receivables have normalized over the last two months as the company has managed to collect Rs4.7bn.

Outlook

We believe the company would be less impacted compared to its peer’s due to its product portfolio and high revenue share of non-metro regions. We cut FY21E/22E estimates by 41.7%/32.9% factoring in the delay in capex plans and slower recovery in housing wires. Valuations at 9.1x FY22E P/E are quite attractive. We maintain our Buy rating on the stock with a revised TP of Rs381 (12x FY22E P/E).

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