Q2FY19 result highlights
Conference call highlights: (1) T&D performance to improve going forward as execution sees an uptick, while intake pipeline is strong across both domestic mkt and intl mkts (MENA, Africa, Brazil) (2) Interest cost as % of sales to increase from 2.5%, but be less than 3% largely on higher interest rates, working capital issues to subside into 2H (3) Railway revenues to double in FY19 to Rs16bn on strong backlog, margins to improve on scale up (converge with T&D by FY19 end) (4) FY19 guidance: 15% revenue growth & 10% OPM; order intake to increase by 10-15% yoy (5) Capex for FY19E Rs1.4-1.5bn
Impact on financials: FY19/20 EPS cut by 2% each to Rs20.3/23.7
Valuation and view
KEC is seeing strong traction in order wins and is driving strong revenue visibility (1.7x FY19E revenues). Moreover, positive operating leverage and focus on profitable order wins is driving margin expansion. However, higher interest rates are likely to drive increase in interest costs. Accordingly, we expect 15% earnings CAGR over FY18-20E. We believe valuations at 13x FY20E earnings are attractive in view of sustained earnings momentum and superior return ratios. Outperformer.
KEC International is engaged in the design, manufacture, construction and erection of power transmission lines and related towers in India and other countries. In addition, Co. is engaged in the manufacture and sale and/or resale of petrochemicals including methyl ethyl ketone and isopropyl alcohol. Co. also provides investments and financial services.
IDFC Securities Ltd., a subsidiary of the Infrastructure Development Finance Company (IDFC) wherein the Government of India holds a 20% interest, is India's leading equities broker catering to most of the prominent financial institutions, both foreign and domestic investing in Indian equities. A research team of experienced and dedicated experts ensures the flow of critically investigated stock ideas and portfolio strategies for our clients. Our coverage spans across various growth sectors such as agriculture, automobiles, Consumer Goods, Technology, Healthcare, Infrastructure, Media, Power, Real Estate, Telecom, Capital Goods, Logistics, Cement amongst other sectors. Our clients value us for our strong research-led investment ideas, superior client servicing track record and exceptional execution skills.
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