Buy KEC International; target of Rs 390: HDFC Securities

February 14
20:25 2020

HDFC Securities’ research report on KEC International

In-line performance: KEC reported broadly in-line numbers with a marginal miss in Rev/EBITDA/APAT of 2.7%/3.5%/5.7%. The T&D business reported a 21.5% YoY growth in revenues during 3QFY20. With 9MFY20 reporting 15% YoY growth in revenue, KEC has maintained its FY20 revenue growth guidance at 15%. Revision in order inflow guidance: KEC had earlier targeted Rs 170bn of new orders during FY20E. Of this KEC has secured new orders worth Rs 98.2bn (9MFY20) and has L1 position of more than Rs 25bn primarily in the T&D segment. However, with domestic T&D ordering yet to gather pace coupled with muted private sector capex cycle and pick-up in railway ordering expected towards the end of 4QFY20E, KEC is now targeting new order inflows of Rs 140bn during FY20E, in line with our estimated inflows. Debt stable QoQ, deleveraging required: KEC debt remains in line with Rs 25bn average FY20 guidance at Rs 24.2bn. With acceptances consolidated debt is Rs 33.4bn. The quarter also witnessed reduction in interest cost on account of reduction in interest bearing acceptances as well as higher foreign debt in the borrowing mix as a result of robust execution in the international markets.


We maintain BUY on KEC International Ltd. (KEC) with a revised TP of Rs 390/sh (vs Rs 369/sh earlier) valuing the stock at 14x FY21EPS. Though execution continues to be in-line with expectation, headwinds remain on new order inflows from domestic T&D segment. PGCIL order awards are expected to remain muted over the medium term and diversification beyond T&D segments shall drive new order inflow.

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