Buy KEC International; target of Rs 59: Unicon Investment

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Buy KEC International; target of Rs 59: Unicon Investment

Unicon Investment is bullish on KEC International and has recommended buy rating on the stock with a target of Rs 59 in its November 17, 2011 research report.

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Unicon Investment is bullish on KEC International and has recommended buy rating on the stock with a target of Rs 59 in its November 17, 2011 research report.

"KEC International underperformed Unicon Estimates reporting a topline growth of ~24% YoY to INR 12,632mn in Q2 FY12. Strong order book and acquisition of SAE helped the company growth. EBITDA dropped by 5.7% YoY to INR 906 mn due to high forex MTM losses. EBITDA margin shrunk 222bps YoY to 7.2%. Net profit declined by 36% to INR 212mn due to high interest cost and tax provisions. Net profit margin dropped 155bps to 1.7% this quarter. Order Book has grown by INR 12bn to INR 84.5bn in Q2 FY12. Domestic majors like Power Grid and SEBs were the key contributors in new order inflow. Consolidated order book and geographic mix also improved due to SAE's acquisition. Overseas orders increased by INR 2bn, post new order from Ethiopia. Power & Telecom cable supply division also bagged an order worth INR 1.8bn in the quarter. SAE holds an order book of INR 8.27bn i.e. ~1.1x Sep10-11 revenues. Based on business segments, the order book is divided into Transmission (69%), Power Systems (23%) and Railways, Telecom & Water (8%). International orders contribute ~57% of the total consolidated order book."

"KEC holds a healthy order book of INR 84.5bn which would cushion its topline growth in the sluggish macroeconomic environment. Order book is expected to pickup in H2 FY12 with new orders expected from Power Grid. Margin from new segments like cable, railways & telecom are expected to improve from FY13. Any policy reforms in power sector would improve the outlook for the company. We recommend BUY with a revised price target of INR 59, showing an upside potential of 32% from current valuation of 5.4x FY13E earnings," says Unicon Investment research report.

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