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MOSL: K E C INTL. (Neutral)-Operating performance above expectations led by margins beat

​K E C Intl.: Operating performance above expectations led by margins beat

(KECI IN, Mkt Cap USD1.2b, CMP INR299, TP INR295, 1% Downside, Neutral)

• Revenue perf. below estimates: Consol. revenue grew 6% YoY to INR18.6b in 1QFY18. Revenue was partially impacted by GST-led delay in dispatching of substation and cables (INR1b) and also as dispatches from SAE were kept on hold for two projects, which did not receive environmental clearance. All business segments (except SAE Towers, Cables and Water) witnessed growth. SAE Tower sales were impacted by INR appreciation v/s USD. T&D contributed 78% of revenue, followed by Cables (11%), Railways (8%), and Solar and Water (2%). Management maintained its revenue growth guidance of 15% YoY for FY18, which will be supported by pick-up in execution of T&D orders in hand and strong growth in non-T&D segments.
• Consol. EBITDA margin expanded 90bp YoY to 9.5% in 1QFY18, led by domestic T&D business margin improvement, better performance from SAE Towers, and non-existence of legacy orders (in Water, Railways and Power Systems). SAE Towers reported operating margin of 10.6% in 1QFY18. Management maintained its operating margin guidance of 9-9.5% for FY18. Net profit rose 103% YoY, led by execution of better-margin orders and a reduction in interest cost due to a fall in receivables days from 246 to 230. Target is to reach 180 days.