Accumulate KEC International; target Rs 68: KRChoksey
KRChoksey is bullish on KEC International and has recommended accumulate rating on the stock with a target price of Rs 68 in its February 04, 2013 research report.
February 12, 2013 / 17:49 IST
KRChoksey is bullish on KEC International and has recommended accumulate rating on the stock with a target price of Rs 68 in its February 04, 2013 research report.
"KEC registered strong sales growth of 23.1% on YoY basis as consolidated sales increased to Rs. 1797 cr, largely in line with our expectation. This was primarily on back growth both in standalone and SAE. However, Consolidated EBIDTAM continued to be subdued at 5.3% as standalone business registered EBIDTAM of 4.8% on account of margin pressure across new verticals and domestic transmission business. Consequently in spite robust execution, KEC registered consolidated PAT of Rs. 29.3 cr and NPM% of 1.6. Current order backlog stands at Rs. 10,150 cr (10.3% YoY), YTD order inflow stands at Rs 5780 cr (31.6% YoY).On consolidated basis net sales increased by 23.1% to Rs. 1,797 cr. Growth was primarily driven by robust sales growth of 217% in power system followed by domestic transmission segment which grew by 19%. SAE also registered healthy sales of Rs. 280 cr in Q3FY13 vs Rs 263 cr in Q3FY12.
Lower margin orders in new business verticals continue to erode EBIDTA margins.Consolidated EBIDTA margins declined to 5.8% as standalone business EBIDTA margins declined sharply to 4.8%. Entry strategy to gain orders in new verticals coupled with competitively priced orders in domestic transmission segment impacted margins. Average margins for transmission segment were at 8.75%. However, management commented current order wins in new verticals have better margins (Approx 5%) and recent order wins from PGCIL are also at healthier EBIDTA margins. Margins in new verticals would improve over next couple of quarters. Management guided OPM% would improve by 100 bps over FY14.Current order backlog stands at Rs. 10,150 cr vs Rs 9,200 cr in Q3FY12 and is ~ 1.5x TTM sales, giving visibility for next 18 months. The company received orders worth Rs 2,290 cr in Q3FY13 vs Rs 2,383 in Q3FY12. For 9MFY13 order inflow stands at Rs 5,780 cr vs Rs 4,392 cr.Valuations & Views: At CMP of Rs. 60, KEC is trading at a P/E of 11.6x its FY13E earnings and 7.6x its FY14E. We believe margins will improve as new orders with relatively higher margins in both transmission and other verticals will be executed in FY14. The company has bagged highest share of transmission tower orders from PGCIL, which has resulted in strong order inflows in 9M. Considering, the same we recommend an ACCUMULATE on the stock with price target of Rs. 68," says KRChoksey research report.Public holding more than 90% in Indian cos Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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