MOSL: K E C Intl. (Neutral)-Operating performance exceeds expectations led by margins beat

K E C Intl.: Operating performance exceeds expectations led by margins beat

(KECI IN, Mkt Cap USD1.3b, CMP INR348, TP INR385, 11% Upside, Neutral)

• Revenue performance marginally exceeds expectations: revenue grew 26% YoY to INR24.0b in 3QFY18. All business segments, excluding cables, registered strong growth. Cables business during the quarter was impacted by a higher GST rate of 28%. T&D business (including SAE) registered 23.4% growth YoY, while Railways grew by 99% YoY and Civil by 321% YoY. T&D contributed 77% of revenue, followed by Cables (11%), Railways (9%) and Solar, Civil and Water (5%). Management guided for revenue growth of 15-20% in FY19, which will be supported by a pick-up in execution of T&D orders in hand and strong growth in non-T&D segments.
• EBITDA margin expanded 70bp YoY to 10.2% in 3QFY18, led by an overall improvement in the standalone as well as SAE business. SAE Towers reported an operating margin of 6.8% in 3QFY18 v/s 4.5% in 3QFY17. Standalone margin stood at a multi-year high (highest since FY10) of 10.7% (+50bp YoY). Management also guided for a 50bp margin improvement for FY19, led by better operating leverage in non-T&D business (mainly in the Railways and Civil business). Net profit rose 78.5% YoY, led by a reduction in depreciation, higher other income, and a lower tax rate (33.7% v/s 37.8% in 3QFY17).