Buy KEI Industries; target of Rs 5,000: Motilal Oswal

Motilal Oswal's research report on KEI Industries

KEI Industries (KEII)’s 4QFY24 performance was in line with our estimates. Revenue grew 19% YoY to INR23.2b (vs. est. INR22.6b), fueled by 18%/53% YoY growth in the cables & wires/EPC segments, while stainless steel wires’ revenue declined 11% YoY. EBITDA grew 21% YoY to INR2.4b (vs. est. INR2.5b). Profit increased 22% YoY to INR1.7b (vs. est. INR1.8b) in 4QFY24. Management indicated that the demand outlook remains strong both in the domestic and export markets. Volume grew more than 22% YoY in FY24. KEII anticipates revenue growth to be 17% YoY. It will maintain 11% margin in FY25, and expects margin to expand 1.0-1.5pp over the next few years, led by the increase in retail sales and wire prices.

Outlook

KEII’s EBITDA/Adj. PAT registered a CAGR of ~18%/38% over FY15-24, despite margin pressures (due to RM cost volatility) in the cables & wires segment during FY22/23. Going forward, we estimate EBITDA and EPS to post a CAGR of 27% and 25% over FY24-26E, respectively. KEII’s cumulative OCF is projected to be at INR13.3b over FY25-26E vs. a cumulative capex of INR15.1b over this period. We estimate an FCF outflow of INR1.8b given the company’s aggressive expansion plan. We anticipate that the company will maintain its premium valuations. We value it at 50x FY26E EPS to arrive at our TP of INR 5,000. Reiterate BUY.