MOSL: K E C INTL. (Neutral)-Better than expected performance, led by robust execution

K E C Intl.: Better than expected performance, led by robust execution

(KECI IN, Mkt Cap USD1.5b, CMP INR378, TP INR410, 8% Upside, Neutral)

• Revenue exceeds expectation: Consolidated revenue grew 28.6% YoY to INR36.6b in 4QFY18, ahead of our expectation of INR31.6b. All business segments, excluding Cables, registered strong growth. Cables business was impacted by shifting of operations from the Silvassa facility to the Vadodara facility. T&D business (including SAE) grew 20.6% YoY, while Railways grew 75% YoY and Civil grew 346% YoY. T&D contributed 74% of revenue, followed by Railways (10%), Cables (7%), and Solar, Civil and Water (8%). Management guided for revenue growth of 15% in FY19, which will be supported by a pickup in execution of T&D orders in hand and strong growth in non-T&D segments.
• Operating profit grows 23% YoY; margin at 10.1%: Operating profit grew 23% YoY in 4QFY18, ahead of our expectation of INR3.4b, led by an overall improvement in the standalone as well as SAE business. For the standalone business, operating profit grew 23% YoY; however, operating margin shrank 50bp YoY to 9.8%. SAE Towers reported an operating margin of 13.1% in 4QFY18 v/s 12.9% in 4QFY17. Management expects margin to remain stable in FY19 at around 10%, given lower margins in new business verticals. Net profit grew 34.9% YoY, led by a reduction in interest charges during the quarter (1.8% of sales as compared to 2.2% in 4QFY17).