The brokerage’s take on KEC International Ltd

According to Axis Securities “The company has a robust order book position and L1 of over Rs 29,000 Cr with T&D and Non-T&D share at 52:48. Furthermore, a strong bid pipeline of Rs 32,000 Cr for the next 3-4 months is under evaluation. To date, order intake for FY22 stands near Rs 10,000 Cr and the management is confident of securing more orders under its various verticals during the year. The company expects to win another Rs 5,000-6,000 Cr of orders in FY22. Against this backdrop, the current order book gives revenue visibility for the next 2 years.”

The brokerage has claimed that “The company continues to sharply focus on international T&D orders as it foresees notable international opportunities in its various operating regions. KEC is the largest T&D player in South Asia with a 15% market share in India and 20% in SAARC. The current order book and L1 of Rs 12,000 Cr are expected to drive future growth.”

According to the brokerage’s research report “In recent years, the company has judiciously increased its focus on the Civil Construction vertical considering the government’s increasing spending on Urban and Water Infrastructure, Metro, Data Centres, Industrial Plants & Factories. The company expects this vertical to grow by 100% in FY22 and by 40%-50% in the following years given its order book and L1 of Rs 6,000 Cr as of date. In terms of working capital requirement, this vertical scores over others. Although competitive intensity in this space has increased due to large numbers of players, the company is able to stem off competition by bidding for larger projects having a better margin profile. As it develops more scale in this space, the company expects EBITDA margin to improve over the period.”

The brokerage in its research report has claimed that “The company acquired 100% equity in Spur Infrastructure Pvt ltd, an EPC company specializing in cross country Oil & Gas pipelines and city gas distribution networks in line with its strategy to diversify into adjacent areas of growth. This will also give access to marquee clients such as GAIL, IOCL, IGL, etc. The company foresees a large opportunity in this space and is concentrating on both domestic and international O&G pipeline business. The company expects to clock revenue of Rs 400 Cr in FY23 with high single-digit EBITDA Margins. The increase in raw material prices, particularly steel prices, has impacted the company’s margin profile. However, with the softening in commodity prices and new orders at current prices, we expect margins to show improvement in Q4FY22 and normalize in FY23. The working capital debt is expected to remain in the range of Rs 2,500 Cr.”

Buy KEC International Ltd shares at a target price of Rs. 490

The brokerage has stated in its research report that “Given KEC’s proven execution capability along with a healthy order book, we believe the current margin headwind is likely to subside moving forward. With better growth prospects in the International T&D business, growing order book position in the Railway and Civil Business, increasing traction in private Capex and venturing into margin accretive Oil & Gas Business, we expect KEC to emerge as an EPC player to reckon with. We expect its Revenues/EBIDTA/APAT to grow at a CAGR of 14%/18%/27% respectively over FY21-23E. We value KEC International at 14x FY23E EPS to arrive at a target price of Rs490/share, implying an upside of 13% from CMP. We, therefore, change our rating from HOLD to BUY.”

Disclaimer

The stock has been picked from the brokerage report of Axis Securities Limited. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.