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MOSL: K E C INTL. (Neutral)-Core T&D weak-T&D execution/non-T&D growth to drive performance

K E C Intl.: Core T&D weak; T&D execution/non-T&D growth to drive performance

(KECI IN, Mkt Cap USD0.9b, CMP INR237, TP INR260, 10% Upside, Neutral)

 

• revenue below estimate: Consol. revenue grew 10.1% YoY to INR26.4b in 3QFY19, below our estimate of INR28.0b. All business segments, barring T&D, grew strongly. T&D business (excluding SAE) grew by a muted 2% YoY due to a delay in approvals in international projects. Cables business grew 14% YoY, Railways grew 165% YoY, Solar, Civil and Water grew by 4% YoY off a high base, while SAE Tower de-grew by 39% YoY. Management scaled down its FY19 revenue growth guidance to 12-15%, as against 15% earlier, which should be supported by a pick-up in execution of T&D orders in hand and strong growth in non-T&D segments. T&D revenue contribution stood at 66% of total v/s 77% in 3QFY18, while non-T&D contributed 34% v/s 23% in the year-ago period.
• Operating profit up 15% YoY, margin at 10.6%: Operating profit grew 15% YoY to INR2.8b in 3QFY19, in line with our estimate of INR2.8b, supported by the improving margin profile in the non-T&D business. For the standalone business, operating profit grew 23% YoY, with the margin improving 40bp YoY to 11.1%. SAE Towers exhibited a weak performance, with a lower calculated margin of 4.2% v/s 6.8% in 3QFY18 due to operating de-leverage. Net profit stood flat YoY to INR1.1b, impacted by higher interest cost (INR857m v/s INR561m in 3QFY18).