Prabhudas Lilladher's research report on KEC International
KEC International (KEC) reported mixed quarterly performance with revenue growth of 13.3% YoY, while EBITDA margin contracted by 267bps YoY. Margins were impacted due to execution of legacy projects with high commodity cost, losses in SAE Brazil and elevated freight cost. Though margins are likely to improve from Q4FY23, led by execution of newer orders at current commodity prices and completion of legacy orders in SAE Brazil. Net working capital days were elevated at 148 days in Q2FY23, due to higher receivable from railways, higher inventory level and GST receivables. Debt level (including interest bearing acceptance) increased to Rs59.2bn vs Rs43.5bn in Q2FY22, due to higher working capital requirement. Going forward net debt and working capital are expected to improve, owing to better cash collections, GST reversal and expected break even in SAE. Given healthy order book and tender pipeline, management has revised upwards its FY23 revenue growth guidance to 20% (15% earlier). We remain positive on KEC for long term due to its 1) strong OB, 2) healthy execution momentum, 3) strong T&D outlook and 4) strong growth visibility from non-T&D segments like Civil, Railways, Oil & Gas etc. The stock is trading at PE of 41x/14.9x/11x FY23/24/25E. Maintain ‘Accumulate’ rating.
Outlook
We cut our EPS estimates by 50.5%/19.5% for FY23/24, given near term margins & working capital pressures and roll forward to FY25E with revised TP of Rs495 (Rs473 earlier) valuing it at PE of 12.5x on FY25E EPS and maintain ‘Accumulate’ rating on stock.
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