Accumulate KEC International; target of Rs 339: Prabhudas Lilladher

Prabhudas Lilladher's research report on KEC International

KEC International (KECI) reported stellar execution resulting to beat in our and street estimates primarily led by growth in Civil (3x growth) and Railways (up 44% YoY) segments. Despite onset of monsoon and pandemic, T&D segment reported flat revenues for 2Q. Order inflows continue to be healthy with KECI securing orders worth Rs43.6bn YTD primarily from T&D space (comprising 79% of total inflows). Order book stands comfortable at ~Rs230bn (including L1 orders worth Rs35bn), strengthening its revenue visibility. Management expects the awarding pipeline to be healthy has its bid pipeline remains strong at ~Rs550bn across domestic and international markets. Management is witnessing good traction from Middle East, Africa, Bangladesh and SAARC regions in international markets. In domestic markets order tendering began from 2Q, however some delay was witnessed in conversion and the momentum is expected to pick up 3Q onwards. Key segments such as Railways (Metros), Civil, urban infra, T&D space, water and Solar would be on focus of the company going ahead. Given the robust order bid pipeline (~Rs550bn), strong order book, steady margin profile and healthy outlook in T&D as well as emerging segments (like Railways/Civil) we believe KEC can deliver ~13% earnings CAGR over FY20‐ 22E.

Outlook

On the back of strong 1HFY21 performance we have increased our earnings estimates by 4%/1.6%/5.4% for FY21E/FY22E/FY23E.The stock is currently trading at 13.4x/13.2x FY21/FY22E. However, on account of sharp run in stock price we are downgrading the stock to ACCUMULATE from BUY revised TP of Rs339 (earlier TP of Rs333).

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