Hold KEC International; target Rs 63: Way2Wealth

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Hold KEC International; target Rs 63: Way2Wealth

Way2Wealth has recommended hold rating on KEC International with target price of Rs 63, in its October 28, 2011 research report.

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Way2Wealth has recommended hold rating on KEC International with target price of Rs 63, in its October 28, 2011 research report.

"KEC International, the Consolidated order backlog for Q2FY12 stood at Rs 84.5bn up by 21% yoy & 4% qoq. The domestic segment comprised 42% whereas the International segment comprised 58% of the total order backlog. Order inflow for Q2FY12 stood at Rs.12bn significantly down (lower by 31% yoy) due to the prevalent slowdown and stressed macro economic conditions. Consolidated Net sales grew by 26% due to major contribution from SAE Towers which contributed almost 20% to its topline, but operating margins were badly affected on account of
• Low margin orders executed from North East Asia
• Slowdown or order execution in Tunisian, Algerian & Libyan continents
• Mark to Market losses to the tune of Rs.130mn & forex loss to the tune of Rs 40mn.

Consolidation of SAE towers led to higher staff cost by 85% which now stands at 8.53% of net sales as compared to 5.84% yoy. Consolidated raw material & erection expenses stood at 74% as compared to 79% as SAE towers offers better margins but on a standalone basis, the impact of high steel prices was clearly visible as it increased from 71% to 79% of sales which also included the impact of hedging losses. The average cost of debt now stands at 9.5-10% reflective of increased burden of higher interest cost, consequently interest costs grew by 85%. Depreciation cost has increased by 35% taking into effect the merger with SAE & capex incurred for the cable division at Baroda plant to be operational by FY13. PAT margins have been significantly impacted reducing it by 50% at 1.68% of net sales.

At its CMP of Rs 57, the stock trades at 8.5x FY13E and 7.6x FY14E earnings of Rs 6.7 and Rs 7.5 respectively. We downgrade our rating from BUY to a HOLD with a revised target price of Rs 63 and await further improvement in numbers," says Way2Wealth research report.

Institutional holding more than 40% in Indian cos

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To read the full report click on the attachment