MOSL: K E C INTL. (Buy)- Commodity prices dent margin; strong order inflow outlook
K E C INTL.: Commodity prices dent margin; strong order inflow outlook
(KECI IN, Mkt Cap USD1.4b, CMP INR419, TP INR500, 19% Upside, Buy)
- KEC International (KECI)’s 1QFY22 revenue grew 15% YoY to INR25.4b and was 10% ahead of our expectation. Margins disappointed on account of commodity price inflation and weaker execution in the SAE business in Brazil. Thus, adj. PAT declined 35% YoY and was 36% below our expectations. Working capital deterioration was a negative development, while the key positive was strong order inflows of INR44b during the quarter.
- KECI is steadily diversifying the business to avoid concentration risk from the Power T&D business, with the Railways and Civil segments driving growth. Ex-T&D revenue share stood at 47% in 1QFY22 and is on course to surpass 50% by FY22-end. The company’s performance over the past few years has been commendable, given that not many have been able to sustain growth with a topline of over INR100b in the EPC space in India.
- The company has all the ingredients in place for growth over the next 3–5 years. A strong promoter parentage and focus on the balance sheet should help KECI emerge stronger v/s peers post the COVID-19 crisis. Maintain Buy, with TP of INR500/share (16x FY23E EPS). Key risks include rising commodity prices and delays in new awarding.
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.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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