CD Equirsearch
KEC International (Buy)
Target: ₹404
CMP: ₹336.10
Strong order book would allow KEC International to grow by over 12 per cent next fiscal, largely driven by T&D and railway business (which is focusing on new segments such as regional rapid transit system, ROBs in addition to the conventional Railways). Yet, any unexpected political unrest or changes in countries where KEC is operational (some countries in MENA region experienced political unrest in FY11, resulting in risk to business activity) need assaying.
Execution challenges such as obtaining approvals and clearances from government agencies (as evident in T&D projects in Brazil in FY19 when some delays in environmental approvals delayed executions) cannot be overlooked. Slowdown in infrastructure investment could lead to lower order intake as witnessed in H1-FY20 (reported order inflow down 52.5 per cent in H1-FY20).
Though, pick up in execution of orders is expected from Q2-FY21, we have revised our earnings estimates for FY21 not least due to impact of the pandemic (EPS of ₹24.11 vs earlier estimate of ₹28.06). Weighing odds, we recommend ‘Buy’ on the stock with target price of ₹404 (previous target ₹393) based on 14x FY22 EPS of ₹28.83 over a period of 9-12 months.