Accumulate KEC International; target of Rs 402: Prabhudas Lilladher

Prabhudas Lilladher recommended accumulate rating on KEC International with a target price of Rs 402 in its research report dated January 29, 2021.

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Prabhudas Lilladher’s research report on KEC International

KEC International (KECI) reported steady execution for the quarter despite global executional challenges. Revenue grew 7% YoY led by robust execution in Civil (3x growth) and Railways (up, 44% YoY) segments. T&D segment reported revenue de-growth of 12% YoY owing to execution delay in some international markets caused by covid-19 pandemic followed by supply chain constraints in steel and cement. KECI primarily secured orders worth Rs68.3bn YTD, largely contributed by core T&D business from international market. OB stands comfortable at ~Rs179bn (including L1 orders worth Rs24bn), strengthening its revenue visibility. Management indicated strong bid pipeline in the international T&D segment across Africa, the Middle East, and SAARC. KECI bid for Rs300bn of orders in the last couple of months, and will bid for another Rs300bn over next few months. However, the management sounded cautious for bidding in markets like Brazil wherein risk of commodity and exchange volatility is high. Key segments such as Railways (Metros), Civil, urban infra, T&D space, water and Solar would be on focus of the company, going ahead. With a backlog of Rs179bn, strong profitable traction in railways, growth in civil business, steady margin profile, strong promoter parentage and focus on the balance sheet we believe the company will emerge stronger from COVID crisis.

Outlook

We expect KEC to deliver 11.3%/15% revenue/PAT CAGR respectively, in FY20-23E. The stock is currently trading at 16.5x/12.7x/10.7x FY21/22E/23E. We roll over to FY23E and maintain ACCUMULATE rating on the stock revised TP of Rs402 (earlier TP of Rs339).

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