MOSL: K E C INTL. (Neutral)-Weak T&D takes a toll on overall performance

K E C Intl.: Weak T&D takes a toll on overall performance

(KECI IN, Mkt Cap USD1.2b, CMP INR328, TP INR360, 10% Upside, Neutral)

• Revenue marginally below estimate: revenue grew 13.4% YoY to INR21.0b in 1QFY19, marginally below our estimate of INR22.2b. All business segments, barring T&D, grew strongly. T&D business (excluding SAE) de-grew by 25% YoY, as execution of projects in hand was delayed due to (a) state elections and (b) major part of order inflow in the segment happened in 2HFY18 where execution is yet to pick up meaningfully. Cables business grew by 18% YoY, Railways grew by 98% YoY, Solar, Civil and Water grew by 675% YoY off a low base, and SAE Tower grew by 79% YoY. Management maintained its revenue growth guidance of 15% for FY19, which will be supported by a pickup in execution of T&D orders in hand and strong growth in non-T&D segments. T&D revenue stood at 53% of total v/s 70% in 1QFY18, while non-T&D contributed 47% v/s 30% in 1QFY18.
• Operating profit up 23% YoY, margin at 10.3%: Operating profit grew 23% YoY to INR2.1b in 1QFY19, marginally below our estimate of INR2.2b, impacted by below-expected execution. For the standalone business, operating profit grew 13% YoY, with the margin improving 40bp YoY to 9.8%. SAE Towers reported operating margin of 13.8% (v/s 10.6% in 1QFY18), driven by better operating leverage. Net profit grew 37.9% YoY, led by higher other income (INR175m v/s INR98m in 1QFY18).