Prabhudas Lilladher Research Report – KEC International
KEC International (KEC) reported Net Profit of Rs1.45bn, up 90% YoY, led by higher margin and lower interest cost. Margin improved 150bps YoY to 10.6%, led by improved profitability in new businesses. Order inflow for the year was up 42% YoY to Rs123bn and they were L1 for Rs33bn worth bids. Domestic markets have seen an improved traction in orders from SEBs, while outlook on international market continues to improve with KEC having strengthened footprints across the existing and new geographies and have successfully re‐entered eight new countries last year. KEC has guided for a sales growth of 15% and margin of 9.5% for FY18.Focus on deleveraging is also showing in results with reduced debt and interest cost. We have increased our earnings estimates for FY18/19 by ~20% to factor in better growth/margins and lower interest cost. We believe that a strong order book,
improving margin profile and healthy outlook in T&D and emerging segments like Railways/Solar will help KEC deliver 25% earnings CAGR over FY16‐19E. We maintain BUY with revised TP of 271 (Previous Rs225).
Margins continue to improve: KEC reported sales at Rs28.1bn (PLe: Rs29.5bn),up 11% YoY. Sales were impacted by delay in execution in international and solar business. Sales for T&D segment was up 5.5%% YoY to Rs23bn and sales for SAE tower was down 2.5% YoY to Rs2.6bn (currency impact). EBITDA was up 29% YoY to Rs3bn, while EBITDA margins improved by 150bps YoY to 10.6% (PLe: 9.2%), mainly improved profitability in new business. PAT was up 91% to Rs1.45bn due to lower interest cost (down 10% YoY) and better margins.
Strong order book: YTD order book stood at Rs126bn (up 27% YoY) and order inflow in the year stood at Rs123bn (up 42% YoY). KEC is already L1 in orders worth Rs33bn. In domestic markets, traction in orders from SEB continues to be strong (TN/Orissa/Up/WB/AP/Telangana etc). Outlook on international market also continues to improve and KEC have strengthened footprints across the existing and new geographies and have successfully re‐entered eight new countries last year. KEC has guided for a sales growth of 15% and margin of 9.5% for FY18. KEC believes Solar/Railways/Sub‐station/Civil segments could be important growth drivers for the company, going ahead.
Other conference call highlights: 1) Expecting some disruption in H1 due to GST, will focus on international execution to minimise the impact 2) expect railway sales to be ~Rs7.5bn in FY18 (Rs 4.5bn in FY17) 3) reduced debt by 11bn in FY17 4) Civil vertical which commenced operations last year has secured three tenders close to Rs4.2bn 5) targeting to bring down receivables to 180 days from 200 days.
Outlook and Valuation: The stock is trading at 15.7x FY19E earnings. We have upgraded our earnings estimates by ~20% for FY18/19 to factor in better growth/ margins and lower interest cost. We believe that a strong order book and improving margin profile will help KEC deliver 25% earnings CAGR over FY16‐19E.
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