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Anand Rathi
KEI Industries (Buy)
CMP: ₹335.95
Target: ₹379
Strong growth in its EPC and cable divisions led to KEI’s robust performance in the quarter. The impact on its gross margin from high copper prices was alleviated by lower other expenses on cost-control measures. The greater focus on order-book execution, wider dealer network and more exports augur well for growth.
Key takeaways: a) Robust start to FY18: Q1 sets tone for rest of year. KEI’s revenue clocked robust, 44 per cent, growth boosted by the EPC and cable divisions. EPC reported a sturdy, 119 per cent, increase in revenue, aided by cables which rose 29 per cent y/y. The gross margin was down 193 bps due to higher copper prices. Lower other expenses, however due to cost-control efforts helped the operating margin expand 13 bps. Management guided to an annual 20 per cent growth in the top-line.
b) Retail, exports doing well: Exports shot up 28 per cent y/y to ₹109 crore (₹85 lakh a year ago). Management expects the robust growth in exports to continue. The company added 99 distributors in Q1 FY18 taking the total to 1,246 by Jun e18. Sales through its distribution channels were ₹230 crore during the quarter, against ₹175 crore (a 31 per cent rise y/y).
Outlook: The robust order book (₹1,600 crore in EPC, ₹120 crore in EHV cables, ₹562 crore in cables, ₹190 crore in substation) offers assurance of growth over the next two years.
Risks: Volatile RMC and a high interest rate.
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