PL Stock Report: KEC International (KECI IN) - Q1FY24 Result Update - Healthy outlook; margin revival on cards - HOLD

KEC International (KECI IN) - Amit Anwani - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs658 | TP: Rs645

Q1FY24 Result Update - Healthy outlook; margin revival on cards

Quick Pointers:

§ Tender prospects remains strong at ~Rs1trn+ for FY24 from domestic T&D, Civil and Railways.

§ SAE Brazil reported positive PBT in Q1FY23, owing to refinancing of debt.

KEC International (KEC) reported healthy performance with consolidated revenue growth of 27.9% YoY and EBITDA margins expansion of 68bps YoY to 5.8%. EBITDA margins are likely to further expand from H2FY23 onwards, with completion of low margin legacy orders and healthy SAE brazil performance. Interest cost as % of sales were at higher level at 3.7% due to higher interest rate and sequential increase in net debt (Rs36.7bn Rs28.7bn in Q4FY24). NWC days stands at 126days as on Q1FY24 and targets to bring it down to 110days by FY24. Management maintained its FY24 guidance for revenue of ~Rs200bn with EBITDA margin of ~7% and order inflows of Rs250bn.

We remain positive on KEC for long term given its 1) strong OB, 2) healthy execution momentum, 3) strong T&D outlook and 4) revenue visibility from non-T&D segments like Civil, Railways, Oil & Gas etc. The stock is currently trading at PE of 32.1x/15.3x FY24/25E. We revise our FY24/25E by -2%/-3.3%, factoring in higher interest cost and business mix. We revise our TP to Rs645 (Rs578 earlier), valuing it at PE of 15x FY25E (13x earlier), owing to improved domestic T&D outlook and confidence on improving SAE performance. However due to recent sharp run up in stock price we change our rating to ‘Hold’ from Accumulate.

Civil and T&D drives revenue growth of ~28% YoY: Consolidated sales grew 27.9% YoY to ~Rs42.4bn (PLe ~Rs38.2bn), led by healthy execution in T&D (up ~33% YoY to Rs21.9bn) and Civil businesses (up ~60% YoY to Rs9.6bn). EBITDA grew 45.1% YoY to ~Rs2.4bn (PLe ~Rs2.1bn) while EBITDA margins expanding by 68bps YoY to 5.8% (vs PL estimate of 5.6%), aided by better absorption of fixed overheads. PAT grew 36.4% YoY to Rs423mn (PLe Rs504mn), partly impacted due to higher interest expenses (up 58.7% YoY to Rs1.6bn) owing to higher interest rate. SAE delivered positive PBT during the quarter.

Order book stands strong at Rs301bn: YTD order inflow came in at Rs45bn, up 30% YoY, driven by T&D (up 48% YoY to Rs18.5bn) and Railways (up 84% YoY to Rs7.6bn). SAE Order inflows came in at Rs3.5bn (up 65% YoY) with order book including L1 stands at Rs16bn. Order book stands at ~Rs301bn (1.7x TTM revenue), up ~27% YoY with T&D accounting 44% of the total order book. Additionally, is L1 in orders worth ~Rs50bn. Tender pipeline remains healthy at ~Rs1trn+ from both domestic as well as international market across segments, thereby driving order inflows, going forward.

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