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KEC International
Performance highlights
Quarterly Highlights (Consolidated)
` cr 3QFY13 Revenue 1,797 EBITDA 103 EBITDA margin (%) 5.8 Adj.PAT 29 Source: Company, Angel Research 3QFY12 1,460 113 7.8 45 % chg (yoy) 23.1 (8.7) (201) (35.5) 2QFY13 1,668 86 5.1 16 % chg (qoq) 7.7 20.5 61 77.9
BUY
CMP Target Price
Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code Capital Goods 1,567 964 1.2 81/48 67,154 2 19,895 6,035 KECL.BO KECI@IN
`61 `75
12 Months
For 3QFY2013, KEC International (KEC) reported a robust top-line performance, posting a 23.1% yoy growth to `1,797cr, beating our expectations. The power system segment grew by 216.1% to `383cr while the South Asian transmission segment grew by 18.7% yoy to `477cr. Among other business segments, telecom and water reported strong revenue numbers at `62cr (`21cr in 3QFY2012) and `36cr (`7cr in 3QFY2012) respectively. However, the international transmission business declined by 14.5% yoy to `395cr. Margin pressure continues: The consolidated EBITDAM for the quarter contracted by 201bp yoy to 5.8%. The relatively new businesses of railway and water are currently operating at low/negative margin which is exerting pressure on the companys operating margin. The company had aggressively bid for some of these low margin projects to get a foothold in these segments; the margins are expected to improve gradually as new orders are being booked at higher margins. Robust order book: KEC reported strong order inflow during the quarter at ~`2,290cr, diversified across all of its operating segments (transmission, power systems, water, cables, and railways) as well as geographies. The strong order accretion led to a robust order backlog of `10,150cr (1.5x trailing 4 quarter revenues). Outlook and valuation: KEC has a geographically diversified business model which insulates itself from slowdown in any particular region. Further, the company has also ventured in new businesses of railway and water, which have fared well with order inflows and revenues picking up at measurable pace. Given the attractive valuations (stock is trading at 7.2x FY2014E EPS), we maintain Buy on the stock with target price of `75. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Adj. PAT % chg EBITDA (%) EPS (`) P/E (x) P/BV (x) RoE (%) RoCE (%) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research
Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 44.5 36.4 2.6 16.5
3m 7.5
1yr 15.7
(3.9) 14.1
FY2011
4,477 14.6 206 7.8 10.7 8.0 7.6 1.7 34.8 24.9 0.6 5.9
FY2012
5,815 29.9 209 1.8 8.1 8.1 7.5 1.4 30.1 20.3 0.4 5.4
FY2013E
6,909 18.8 138 (34.0) 6.2 5.4 11.4 1.3 17.0 17.2 0.4 5.1
FY2014E
7,723 11.8 217 57.2 7.2 8.4 7.2 1.1 22.8 20.0 0.4 4.6
3QFY13 1,773 24 1,797 (21) 995 54.2 387 21.5 124 6.9 208 11.6 1,694 103 5.8 53 15 7 43 2.4 13 31.5 29 1.6 0 29 1.1
3QFY12 1,459 1 1,460 (3) 769 52.5 317 21.7 111 7.6 152 10.4 1,346 113 7.8 37 13 59 122 8.4 36 29.2 86 5.9 41 45 1.8
% chg (yoy) 21.5 23.1 29.3 22.0 11.7 37.0 25.8 (8.7) 42.3 15.5 (65.0) (62.3) (66.1)
2QFY13 1,640 28 1,668 30 943 58.3 297 17.8 126 7.6 187 11.2 1,583 86 5.1 44 14 2 29 1.7 13 43.5 16 1.0 0
9MFY13 4,750 80 4,829 (51) 2,653 53.9 1,005 20.8 365 7.6 565 11.7 4,537
9MFY12 3,724 22 3,746 (55) 1,974 51.2 790 21.1 316 8.4 420 11.2 3,445 301 8.0 111 36 60 214 5.7 72 33.8 141 3.8 40 100 3.9
% chg (yoy) 27.5 28.9 34.4 27.2 15.5 34.7 31.7 (2.8) 24.0 11.4 (41.3) (35.5) (43.9)
(35.5) (35.5)
16 0.6
77.9 77.9
79 3.1
(20.8) (20.8)
Nonetheless, margins continued to remain under pressure the consolidated EBITDAM for the quarter contracted by 201bps yoy to 5.8%. The relatively new businesses of railway and water are currently operating at low/negative margins, which is exerting pressure on the companys operating margin. The company had aggressively bid for some of these low margin projects to get a foothold in these segments; the margins are expected to improve gradually as new orders are being booked at higher margins.
Investment arguments
Growth opportunity on cards: Globally the thumb rule entails that for every rupee invested in generation, an equivalent amount is to be invested in T&D; however, India has spent only 50%, thus creating a huge opportunity for players in the T&D space. PGCIL envisages a T&D capex of ~`1lakh cr for the 12th plan, 55% of which is estimated to be transmission and sub-station capex, thus providing a number of opportunities to KEC, given its strong presence in the domestic T&D market. Outlook and valuation: KEC has a geographically diversified business model which insulates itself from slowdown in any particular region. Further, the company has also ventured in new businesses of railway and water, which have fared well with order inflows and revenues picking up at measurable pace. Given the attractive valuations (stock is trading at 7.2x FY2014E EPS), we maintain Buy on the stock with target price of `75.
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Company Background
KEC International (KEC) is a flagship company of the RPG Group. The company is a global player in the T&D space, present across 45 countries (~51% of revenue contributed by international operations). The company acquired US-based SAE Tower Holdings LLC (SAE) in FY2011. KEC has also forayed into new business verticals such as cable, telecom, railway and water resource management - though currently these businesses are at a nascent stage.
FY2009 FY2010 FY2011 FY2012 FY2013E FY2014E 3,430 21.7 3,128 1,976 575 142 435 302 (15.7) 8.8 23 279 (16.3) 8.1 100 2 1.1 181 (31.9) 0 181 62 34.2 119 0 0 0 119 119 (32.4) 3.5 4.8 4.8 (32.4) 3,907 13.9 3,501 2,013 958 169 362 406 34.6 10.4 27 379 36.0 9.7 86 2 0.6 294 62.9 0 294 104 35.2 191 0 0 0 191 191 60.3 4.9 7.7 7.7 60.3 4,477 14.6 4,000 2,255 981 275 489 477 17.4 10.7 41 436 15.0 9.7 126 7 2.2 317 7.6 0 317 111 35.1 206 0 0 0 206 206 7.8 4.6 8.0 8.0 3.5 5,815 29.9 5,343 3,150 1,167 427 599 471 (1.1) 8.1 48 423 (2.9) 7.3 161 62 19.0 324 2.4 0 324 115 35.5 209 0 0 0 209 209 1.8 3.6 8.1 8.1 1.8 6,909 18.8 6,478 3,745 1,492 497 743 431 (8.5) 6.2 56 376 (11.3) 5.4 166 3 1.4 212 (34.5) 0 212 74 35.0 138 0 0 0 138 138 (34.0) 2.0 5.4 5.4 (34.0) 7,723 11.8 7,167 4,163 1,637 548 819 556 28.9 7.2 63 493 31.2 6.4 175 4 1.2 322 51.4 0 322 105 32.5 217 0 0 0 217 217 57.2 2.8 8.4 8.4 57.2
Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with
Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with
FY2009 181 23 81 (2) (62) 221 (147) 2 (144) (10.4) 30 (29) 9 (9) 76 68 144
FY2010 294 27 (323) (2) (104) (107) (201) 2 (199) 0.0 165 (36) 106 129 (71) 144 73
FY2011 317 41 (265) (7) (111) (25) (199) -7 (261) 2.1 645 (36) (243) 611 82 73 154
FY2012 FY2013E FY2014E 324 48 215 (62) (115) 410 (141) -62 (83) -193 (36) (50) (229) 49 154 203 212 56 26 (3) (74) 217 (123) 3 (47) 160 (36) 124 293 203 496 322 63 (257) (4) (105) 19 (250) 4 (246) 120 (36) 84 (143) 496 353
Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with
Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets OB/Sales Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value DuPont Analysis (%) EBIT margin Tax retention ratio (%) Asset turnover (x) RoIC (Pre-tax) RoIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) RoCE (Pre-tax) Angel RoIC (Pre-tax) RoE Turnover ratios (x) Asset Turnover (Gross Block) (X) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to Equity Net debt to EBITDA Interest Coverage
previous year numbers
FY2009 FY2010 FY2011 12.6 10.6 3.0 1.6 0.6 6.6 2.1 1.5 4.8 4.8 5.8 1.0 20.1 8.1 65.8 4.0 32.7 21.5 10.8 2.0 42.4 31.3 34.1 46.7 6.0 23 175 181 58 1.6 1.6 2.8 7.9 6.9 2.0 2.0 0.6 5.5 1.6 1.4 7.7 7.7 8.8 1.2 29.8 9.7 64.8 3.5 33.8 21.9 8.0 1.4 41.3 32.3 35.2 44.4 5.3 22 179 186 62 1.3 1.8 4.4 7.6 6.4 1.7 2.0 0.6 5.8 1.3 1.7 8.0 8.0 9.6 1.2 35.4 9.7 64.9 2.7 26.5 17.2 7.4 1.6 33.2 24.9 27.0 34.8 5.6 24 169 156 78 1.9 2.5 3.5
FY2012 FY2013E FY2014E 7.5 6.1 1.4 2.0 0.4 5.4 1.2 1.5 8.1 8.1 10.0 1.2 42.1 7.3 64.5 3.1 22.7 14.7 7.8 1.6 25.5 20.3 23.6 30.1 7.6 24 147 132 62 1.3 2.0 2.6 11.4 8.1 1.3 2.0 0.4 5.7 1.1 1.3 5.4 5.4 7.5 1.2 46.1 5.4 65.0 3.8 20.6 13.4 8.2 1.1 19.4 17.2 21.5 17.0 7.9 27 157 137 46 1.0 2.1 2.3 7.2 5.6 1.1 2.0 0.4 4.9 1.0 1.2 8.4 8.4 10.9 1.2 53.1 6.4 67.5 3.7 23.9 16.1 8.1 1.1 24.8 20.0 24.3 22.8 7.0 28 174 141 46 1.1 2.1 2.8
Note: Some of the figures from FY2011 onwards are reclassified; hence not comparable with
10
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Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered
KEC International No No No No
Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.
Ratings (Returns):
11