The key takeaways from KEC’s FY20 AR are as follows: (1) a geographically well-diversified order book and robust pipeline; International T&D (SAARC/MENA, ex-SAE) and Civil & Railways would continue to drive growth in FY21E; (2) moderate profitability, dipped in FY20; (3) incremental borrowing cost (current interest rate <7%) has come down (FY20 finance cost at 2.8%; -20 bps YoY); ~55% debt is in forex; (4) sustained increase in WC intensity has led to lower CFO/EBITDA over past two years, but NWC is stable. Our channel checks for capital goods suggest that well-diversified companies are witnessing accelerated recovery in execution as international operations remain mostly unaffected while the labour situation is improving locally.
OutlookWe have increased FY21/22E revenue/PAT by 8/10.3% and 22.9/17.2% respectively. We roll forward 12x P/E based valuation to Jun-22E and maintain BUY with an increased target price of Rs 322/sh. The key risks to our call: (1) adverse currency/commodity movement, (2) further delay in capex recovery, (3) slowdown in government T&D spend, and (4) labour shortage.
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