Target: ₹634
CMP: ₹474.15
KEC International (KECI) reported a mixed set of numbers, with healthy topline growth in T&D (up 40 per cent y-o-y) and non‐T&D segments such as Civil (up 75 per cent y-o-y) and Oil & Gas Pipelines (up 124 per cent) too contributed to the growth. Despite robust gross margins, EBITDA margins remained under pressure owing to higher execution of legacy projects at adverse prices and SAE Brazil performance. Order inflows declined 24 per cent y-o-y due to delay in order finalisation.
As of Q3-FY23, the order-book stands at about ₹28,980 crore (1.8x TTM revenue), providing revenue visibility for the next few quarters. Going forward, the management expects adverse impact of SAE legacy projects and margin to improve sequentially. The management is confident of exceeding previously-guided order inflow outlook of ₹18,000 crore to ₹20,000 crore in FY23 and achieving high single‐digit margins by FY24. Capex guidance for FY24 stood at ₹225 crore.
We believe KECI is well poised to gain from upcoming opportunities in infrastructure segment given: diversified business model; healthy market share in T&D segment; excellent execution track record with strong parentage; and comfortable balance sheet. We roll forward our target multiple to FY25E with a revised target price of ₹634 valuing it at 14x FY25E EPS of ₹45.