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 INR316, TP INR350, 11% Upside, Neutral)

• Revenue performance below estimates: Consol. revenue grew 3% YoY to INR21.3b in 2QFY18. We note that revenue growth would be been much better at 5% YoY if not for the GST-led impact. All business segments, excluding T&D, witnessed growth. T&D business including SAE Tower sales declined 4.5% growth YoY. T&D contributed 80% of revenue, followed by Cables (11%), Railways (6%), and Solar, Civil and Water (4%). Management broadly maintained its revenue growth guidance of 10-15% YoY for FY18, which will be supported by a pick-up in execution of T&D orders in hand and strong growth in the non-T&D segments.
  
• Consol. EBITDA margin expanded 120bp YoY to 10.1% in 2QFY18, led by an improved performance from the standalone business. SAE Towers reported an operating margin of 7.4% in 2QFY18 v/s 14.5% in 2QFY17. Management raised its FY18 operating margin guidance to 10% from 9-9.5% earlier. Net profit rose 37.4% YoY, led by execution of better-margin orders and a reduction in interest cost.