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MOSL: K E C INTL. (Neutral)-Operating performance meaningfully above estimates, led by better-than-estimated margins

​K E C Intl.: Operating performance meaningfully above estimates, led by better-than-estimated margins

(kecl IN, Mkt Cap USD0.9b, CMP INR244, TP INR250, 3% Upside, Neutral)

• Revenue performance ahead of expectation: Consol. revenue registered growth of 11.3% YoY to INR28.5b in 4QFY17, led by pick-up in execution of orders in hand. All business segments (except SAE Towers and Cables) witnessed growth. SAE Tower sales were impacted by INR appreciation v/s USD. T&D contributed 88% of revenue, followed by Cables (11%), Railways (8%), and Solar and Water (2%). Management has issued 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. For full-year FY17, revenues were flat YoY at INR85.8b.
  
• Consol. EBITDA margin expanded 150bp YoY to 10.6% in 4QFY17, led by positive contribution from SAE Towers and non-existence of legacy orders (in Water, Railways and Power Systems). Management stated that incremental orders will earn higher margins of ~8%+. SAE Towers reported operating margin of 12.9% in 4Q. For FY18, management guided for positive PAT contribution from SAE Towers, as product deliveries are expected to pick up. Net profit rose 106% YoY, led by execution of better-margin orders and a reduction in interest cost due to a fall in receivables days from 246 to 231. Target is to reach 180 days.