Target: ₹433

CMP: ₹550.65

We attended the KEC International (KEC) Annual Investor Conference for FY23 held on 16 June 2023 in Mumbai.

We noted the following key takeaways from the call: KEC has guided for an order inflow (OI) of ₹25,000 crore for FY24, of which FYTD24 OI stands at ₹25,900 crore (about 10.3 per cent of FY24 guidance); with completion of largely all legacy (loss-making EPC) projects by H1FY24, the SAE projects are expected to achieve a positive PBT margin from H2FY24;

It guided for FY24 revenue of ₹20,000 crore+ with EBITDA margins of 6/8 per cent in H1/H2FY24. This shall result in an FY24 EBITDA margin of about 7 per cent. KEC guided FY24 debt to be at similar levels i.e. ₹5,000 crore, as of Mar’23. Further, the FY24 interest cost will be 2.5-2.6 per cent of FY24 revenue. The management has guided that it would bring NWC days down to 110 by FY24-end.

Given rich valuation, a debt-heavy balance sheet, elevated working capital and weak profitability, we maintain our Reduce rating on the stock, while increasing the target price to ₹433/share (13x Mar-24E EPS). Substantial debt reduction and margin recovery are key for rerating.