PL Stock Report: KEI Industries (KEII IN) - Management Meet Update - Growth momentum to continue

KEI Industries (KEII IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs2,480 | TP: 2,908

Management Meet Update - Growth momentum to continue

We introduce FY26 estimates and upgrade the stock to ‘Buy’ from Hold as we roll forward to Sep’25E, revised TP of Rs2908 @ 33x FY26 EPS (Rs2,319 earlier). We met management of KEI Industries (KEI) to gauge the demand, competitive scenario and capacity constraints. The company has maintained its healthy revenue growth guidance at 16-17% and expects 11%+ margins in the near term, given strong demand outlook in sectors like Infra/Railway/Data Centres etc. We are positive for long term given 1) focus on diversification of product portfolio and de-risking business (retail accounts for ~44% with target to reach 48-50% in FY24) 2) scale-up in distribution network (1,910 dealers, will grow by 7-8% p.a), 3) healthy balance sheet with net cash of Rs 4bn (including acceptances) by Mar-23 and 4) strong order book of Rs35.7bn across domestic & export EPC & cables businesses. We expect Revenue/EBITDA/ PAT CAGR of 16.7%/20.3%/21.3% over FY23-26E. Upgrade to ‘Buy’.

Key takeaways:

§ Addressing capacity constraint: KEI is expected to do capex of Rs 3.5bn in FY24, which includes Rs2.5-3.0bn for greenfield expansion at Gujarat and Rs450mn related to brownfield expansion at Silvasa (already invested Rs500mn in FY23). Gujarat plant to be commissioned within 18 months (between Sept-Dec’24). However, the company expects total capex of Rs10bn in greenfield expansion to be incurred over 3-4 years in Gujarat. In Bhiwadi plant, company is doing capex of around Rs 1bn (to be completed by Q1FY25). These expansions will not only address capacity constraint concerns, but will also help in achieving Revenue CAGR ~17% over next 3-5years.

§ Growth across segment drive revenues: We expect revenue growth of ~24.4% in FY24 given 1) expected improvement in utilization of cable and housing wire to 100% and 85-90% resp. and 2) Silvassa plant commissioning in Oct-23 (expected to touch Rs 5bn revenue over full utilization). The greenfield expansion in Gujarat is expected to start revenue contribution from Q4FY25 and expansion at Bhiwadi plant will start revenue contribution from Q2FY25. KEI maintained its revenue growth guidance at 16-17% in W&C business with more than 20% growth in wire business in FY24. Dealer expansion is underway and 7-8% growth (100-150 dealers) is targeted every year, with focus on increasing revenue per dealer. C&W business expected to grow at ~17% and EHV to reach Rs5.5-6.0bn by FY25. KEI expects its export contribution to increase to 17% in FY24 from 10% in FY23 and ~20% in next two years, with export approval from USA for its product.

§ Strong order book: The company has an order book of Rs 35.67bn, which includes Rs 8.32bn for EPC, Rs 8.09bn for EHV cable, Rs 16.9bn for domestic cables, and Rs 2.36bn for cable export orders.

§ KEI intends to remain debt free in future and cash generations will be used for capacity expansion as well as working capital requirements.

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