KEC International – ( KEC )

Market  Capital :7548 Cr.  

 

RECOMMEDATION BUY
CMP Rs.293.60
Target Rs.376
Target Period 9-12 Months
Potential Upside 28%
Market Cap

Rs.7548 Cr

 

VALUATION SUMMARY FY18
P/E 16.46
P/B 3.63
EV/EBITDA 9.10
EV/Sales 0.90
ROCE 24.9%

 

 

 

KEC International Limited (KEC), the flagship company of RPG Group is a global infrastructure Engineering, Procurement and Construction (EPC) major. It has presence in Power Transmission & Distribution, Cables, Railway, Civil, Smart Infrastructure and Solar. The company has powered infrastructure development in 100 countries across Africa, Americas, Central Asia, Middle East, South Asia and South East Asia. RPG Group comprises of well-known companies namely CEAT Tyres, Zensar Technologies & RPG Life Sciences Ltd. in the areas of tires, technology and pharmaceuticals.

 

 Company Operates In 5 Major Segments:

  1. T&D (Including SAE)
  2. Railways
  3. Solar
  4. Cables
  5. Civil

T&D- KEC International (KEC) provides integrated solutions in Transmission & Distribution with more than 70 years of experience as an EPC Company and have the capabilities to build overhead transmission lines of voltages up to 1200 kV, air insulated substations up to 1150 kV, gas insulated substations up to 765 kV, hybrid substations up to 220 kV and underground high-tension (HT) and extra high voltage (EHV) cabling works up to 400 kV.

Railways- KEC is an integrated player with over 50 years of expertise in the railway infrastructure EPC sector. Types of contracts executed by them are track laying, doubling & tripling of tracks, building railway stations, tunnels & bridges, signaling & telecommunication works, and railway electrification.

Solar- KEC has made a move to carve out its presence in the sector by providing Solar EPC services for large solar PV projects developed by private players and roof-top PV solutions for Industrial and Commercial consumers.  KEC have grown to be among the few companies with the capabilities to execute large scale projects of over 100 MW, with significant experience in Single Axis Tracker implementation.

Cables- KEC is one of the leading manufacturers of Power Cables and Telecom Cables in India. It has two state-of-the-art manufacturing facilities located in Vadodara (Gujarat) and Mysore (Karnataka). The Company has a capacity to manufacture around 40,000 kilometers per annum of power cables, 3600 kilometers per annum of instrumentation cables, 6 lakh core kilometer per annum of jelly filled (copper) telecom cables, 6 lakh fiber kilometer of optical fiber cables, 4000 MTs of Railway Contact Wire and 2000 MTs of Railway Catenary Wire.

Civil- In Civil Construction, KEC has a focus on Industrial plants, Residential buildings. There are even executing EPC turnkey projects of Residential Townships, Automobile and Auto ancillary factories, Cement plants, Warehouses for some of India’s prestigious clients. With an extensive expertise and capabilities built over the years in the civil construction arena, KEC intends to drive this business by embracing latest & cutting edge technologies for construction.

Geography Wise Order Book ( In %)

SAARC – South Asian Association for Regional Cooperation Countries;

MENA – Middle East & North Africa;

ROA – Rest of Africa;

EAP – East Asia Pacific Countries;

CIS – Commonwealth of Independent States

BUSINESS-WISE ORDER BOOK (In %)

Order Book (YoY)

Financial Year Rs (in crores) Change (In %)
FY18 17,298 36.94%
FY17 12,631 33.67%
FY16 9,449 -0.62%
FY15 9,508 -6.7%
FY14 10,200

 

KEC Order Book at the end of FY18 was Rs.17,298cr. as compared to Rs.12,631cr. in FY17 with an impressive growth of 36.94% YoY. Order book stands at 1.72 times of Sales recorded in FY18 by the company.

Order Inflow Trend

Quarter Ended Rs (in crores)  Change (in %)
FY18 15,098 22.25%
FY17 12,350 41.72%
FY16 8,714 6.21%
FY15 8,204

 

KEC Order Inflow for FY18 was Rs.15,098cr. as comparison to Rs.12,350cr with a healthy growth of  22.25% YoY.

Revenue (YoY)

Financial Year Rs. (in crores) Change (In %)
FY18 10,096 15.31%
FY17 8,755 0.51%
FY16 8,710 2.85%
FY15 8,468 7.16%
FY14 7,902

 

KEC posted a growth of 15.31% in YoY revenue of Rs.10,096cr. in FY18 in comparison to Rs.8,755cr. in FY17.

Revenue Mix:

                                                                                                                                                                                 Rs. (in crores)

Business Verticals Q1 FY19 Q1 FY18 YoY Change (In % ) Q4 FY18 QoQ Change (In %)

 

T&D(exc. SAE) 1,007 1,334 -24.5 2,468 -59.2
T&D(SAE) 270 151 78.8 307 -12.1
Cables 259 220 17.7 278 -6.8
Railways 313 158 98.1 359 -12.8
Civil 119 15 693.3 126 -5.6
Solar 160 21 661.9 189 -15.3

 

KEC T&D Revenue (excluding SAE) for the company have fallen by 24.5% to Rs.1,007cr in Q1 FY19  over Rs.1,334cr posted in Q1 FY18. SAE have posted revenue of Rs.270cr in Q1 FY19 up from Rs.151cr posted in Q1 FY18 with a growth of 78.8%. Cables business revenue is seen at Rs.259cr in Quarter 1 of FY19 as compared to Rs.220cr in Q1 FY18, growth of 17.7%. Railways have posted record revenue of Rs.313cr in Q1 FY19 as compared to Rs.158cr in Q1FY18, with an impressive growth of 98.1% YoY. Due to low base, Civil business posted revenue of Rs.119cr as compared to Rs.15cr in Q1FY18, growth by 693.3% YoY. Solar business recorded a revenue of Rs.160cr in Q1FY18 as compared to Rs.21cr in Q1FY18, growth by 661.9%.

 

Revenue Mix (In %)

 

 

Business Verticals 1Q FY18 4Q FY18 Q1 FY19 FY17 FY18
T&D 70.2 66.2 47.3 68.7 66.4
SAE Towers 8.0 8.2 12.7 11.4 10.0
Cable 11.6 7.5 12.2 12.0 9.9
Railway 8.3 9.6 14.7 5.1 8.3
Civil 0.8 3.4 5.6 1.0 2.6
Solar 1.1 5.1 7.5 1.8 2.8

 

KEC T&D (excluding SAE) constitutes 47.3% of net sales in Q1FY19 down from 70.2% constituted in Q1FY18. Company’s T&D net sales showed de-growth in Q1FY19 due to some one-off reasons. However despite of this overall net sales of company grew showing less dependency from its T&D Business. Cable grew to 12.2% in overall net sales mix in Q1FY19 as compared to 11.6% in Q1FY18. Railway now constitutes 14.7% of overall net sales in Q1FY19  as compared with 8.3% in Q1FY18. Civil business now constitutes 5.6% of overall net sales as compared to 0.8% in Q1FY18. Solar now have a share of 7.5% in overall net sales in Q1 FY19 as compared to  1.1% in Q1 FY18.

EBIDTA (YoY)

Financial Year Rs in Cr. % Change
FY18 1,006 22.98%
FY17 818 18.03%
FY16 693 35.35%
FY15 512 3.85%
FY14 493

 

KEC EBITDA grew to Rs.1,006cr. in FY18 in comparison to Rs.818cr. in 2017 recording a growth of 22.98%. EBIDTA growth is much higher than revenue growth showing better operational efficiencies.

PAT (YoY)

Financial Year Rs in Cr. % Change
FY18 460 50.81%
FY17 305 106.08%
FY16 148 114.49%
FY15 69 -12.65%
FY14 79

 

For FY18, KEC  reported a PAT of Rs.460cr. as compared to Rs.305cr in FY17, recording a growth of 50.81%.

EPS (YoY)

Financial Year Rs (In Crore) Change (In %)
FY18 17.91 51.01%
FY17 11.86 114.07%
FY16 5.54 105.94%
FY15 2.69 -12.09
FY14 3.06

 

                                                                                                                                                                                   Rs (In Crore)

Quarter Ended Q1 FY19 Q1 FY18 YoY Change(In %) Q4 FY18 QoQ Change(In %)
Net Sales 2,104.7 1856.8 13.4 3664.2 (42.6)
Raw Material 1526.7 1260.9 21.1 2790.8 (45.3)
% Of Sales 72.5 67.9   76.2
Employee Cost 203.4 191.3 6.3 220.8 (7.9)
% Of Sales 9.7 10.3   6 6.0
Other Expenses 158.4 228.2 (44) 282.7 (78.47)
% Of Sales 7.5 14.1   7.7
Total Expenses 1888.5 1718.8 9.9 3294.3 (42.7)
EBITDA 216.2 176.3 22.6 369.9 (41.5)
EBITDA Margin(%) 10.3 9.3   10.1
Other Income 17.5 9.8 78.5 12.6 39.7
Interest 69.1 63.1 9.5 65.6 5.3
Depreciation 29.8 27.2 9.7 27.5 8.5
PBT 134.8 95.8 40.7 289.4 (53.4)
Tax 48 32.9 46.0 93.0 (48.5)
Tax Rate (%) 35.6 34.3   32.2

 

KEC Q1-FY19 Earnings Concall Highlights :

  • EBITDA has grown by 23% with margins increasing to 10.3% from 9.3% in the corresponding quarter. PBT and PAT have grown by 41% and 38% respectively over last year Q1 with PBT and PAT margins increasing to 6.4% and 4.1% vis-à-vis 5.1% and 3.3% respectively. Order inflows of Rs.2,748cr are largely contributed by the international transmission and railway business.
  • Current order book now stands at Rs. 18,191cr a 34% Year-on-Year growth and KEC’s L1 of Rs.3175cr includes around Rs.1000cr from PGCIL.
  • This quarter non-T&D businesses have primarily driven the revenue growth. Railways revenue nearly doubled to Rs. 300cr plus and now contribute 15% of the Q1 revenue. Railways have also contributed almost 34% of the order inflows. The company have received four new orders totaling to Rs.928cr from railways.
  • Shortage of labor due to elections in some states of India like Karnataka, West Bengal, etc., and the early onset of monsoon in some regions added to the revenue impact. However, KEC management expects the T&D revenues to be back on track in the coming quarters.
  • On the order front, T&D had contributed almost 50% to the order inflow during Q1.The company have secured around Rs.900cr of orders from international T&D business. KEC has received its first ever EPC order in Americas in KEC’s books. Another important win was a large order from Dubai where KEC had no presence for the last two decades enabling them to diversify their MENA portfolio further.
  • SAE has grown by 78% over the last quarter with Rs. 270cr of revenue despite a nationwide truck strike in Brazil in May. The company expects a strong revenue growth going forward with onset of revenues from the last three EPC orders during the last later part of the fiscal. Solar business has executed around 300 megawatts of projects to date.
  • The domestic growth for solar business continues to remain muted in terms of order inflows during Q1. With reduction in module prices, KEC is expected to give a good traction in the international market especially Middle East. However, the domestic market continue to be depressed due to uncertain GST and is now further complicate the imposition of safeguard duty of 25% this week.
  • Cable business has grown around 18% Year-on-Year majorly on account of considerable increase in the exports and HD cable vis-à-vis the corresponding quarter. Coming to working capital KEC has witnessed structural changes in the borrowings and working capital due to restrictions on the rollover facilities and buyer’s credit. Credit squeeze suffered by vendors due to change in banking policies and price volatility as well as the availability of copper and steel. This has led to the reduction in acceptance in tables,increase in supplier advances and build up of some buffer stock consequently resulting in increase in borrowings, reduction in trade creditors’ acceptances and a slight increase in inventory.
  • However, KEC management is able to maintain that in spite of all these they have been able to actually slightly reduce interest cost to sales to 3.28% from 3.3% in the corresponding quarter in spite of tightening global liquidity and rising interest rates in rupee as well as in dollar terms.
  • Going forward the management is confident of maintaining company’s interest cost at the same levels as last year for the full year. Considering the momentum of order book built up we believe that the KEC will achieve our targeted growth metrics.

 

Source: Company Data, Wellgrow Securities

 

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