Prabhudas Lilladher's research report on KEC International
We revise our FY24/25E EPS estimates by -26%/+6.3% after factoring in 1) short term impact on margins from execution of legacy projects, 2) healthy growth prospects (strong order book of ~Rs305bn and healthy order prospects) and 3) improving profitability (refinancing $50mn SAE debt to reduce interest and improving SAE operations). KEC International (KEC) reported mixed quarterly performance, with strong revenue growth (up 29% YoY), while EBITDA contracted 76bps YoY to 5.1%, impacted from execution of few legacy TBCB projects. EBITDA margin is likely to improve ~100bps in H1FY24 with improvement in SAE performance and execution of new orders. NWC stood at 118 days as on FY23 and targets further reduction by 8-10 days in FY24 with better collection from railways. Management guided revenue growth of 15% for FY24E with 7% margins and order inflows of Rs250bn. We remain positive on KEC for long term given its 1) strong OB, 2) healthy execution momentum, 3) strong T&D outlook and 4) revenue visibility from non-T&D segments like Civil, Railways, Oil & Gas etc. The stock is trading at PE of 24.6x/12x FY24/25E.
Outlook
Maintain ‘Accumulate’ rating with TP of Rs559 (Rs505 earlier) valuing it at PE of 13x FY25E EPS (vs 12.5x earlier).
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