ICICI Direct recommended hold rating on KEC International with a target price of Rs 265 in its research report dated January 30, 2019.
ICICI Direct's research report on KEC International
KEC reported Q3FY19 results that were below our estimates. KEC continued its strong performance in railways and civil business while T&D business growth remained sluggish Revenues were at Rs 2646.6 crore up 10% on a YoY basis, below our estimate of Rs 2715.9 crore. T&D business grew marginally by 2.0% to Rs 1563 crore while railways & civil segments reported revenues at Rs 551 crore, up 164.6%, and Rs 110 crore, up 27% YoY (amid low base), respectively.
Cable business grew 13.7% to Rs 310 crore During Q3FY19, KEC’s order inflow was at Rs 3011 crore while YTD inflow was at Rs 11530 crore, which mainly came from T&D (68%) and railways (18%) with L1 position in Rs 1810 crore orders EBITDA margins came in at 10.6% (better than our estimate of 10.3%), which was an improvement of 40 bps YoY. Interest cost increased 41.3% YoY to Rs 85.7 crore PAT was at Rs 112.3 crore (below our estimate of Rs 126.7 crore) with marginal growth of 0.4% on a YoY basis.
Outlook
However, in light of upcoming general elections and expected moderation in order inflows across the sector, we value KEC at 11.5x P/E on FY20E EPS to arrive at a fair value of Rs 265 and change our rating from BUY to HOLD. Key risk includes: slow pick-up in execution of T&D backlog and rise in interest costs, which would impact profitability.
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