Mr. Parikshit D Kandpal, Institutional Research Analyst, HDFC Securities.
We maintain BUY on KEC International Ltd. (KEC) with a revised TP of Rs 334/sh (vs Rs 322/sh earlier, roll forward to Sep-22E) valuing the stock at 12x Sep-22E EPS. 1QFY21 financial performance was a positive surprise on execution and profitability, aided by cost-cutting measures. The bid pipeline is strong at Rs 500-600bn, including Rs 250-300bn of bids which are yet to be opened. Labour availability has improved significantly from 50% (early lockdown) to 80% now, and all the manufacturing facilities are operational. KEC is seeing good traction in Railways, International T&D and Civil segment ordering. Balance sheet net debt-equity is stable at 1.1x. With robust prequalification in domestic/international markets and across sectors, KEC is well-placed for a re-rating.
Better-than-expected financial performance: Revenue: Rs 22bn (-8.5/39.9% YoY/QoQ, 4.7% beat). De-growth due to COVID disruption. While Railways (Rs 5.2bn, 0% YoY) & Metro (Rs 1bn, 58% YoY) projects execution was strong albeit on a lower base, the largest segment of T&D with 64% share (Rs 14.5bn, -9% YoY) saw de-growth along expected lines. Cables revenue also came in lower at Rs 1.6bn (-40% YoY). EBITDA: Rs 1.95bn (-22.5/-47.4% YoY/QoQ, 2.3% beat). Margins were down 159/127bps YoY/QoQ at 8.8% (vs est. of 9%) owing to negative oplev. Consequently, RPAT/APAT came in at Rs 708mn ( -20%/-63%) YoY/QoQ, 12% beat).
Order inflow stable, tender pipeline strong, postponement leading to slower conversion: FYTD21 order inflow stood at Rs 19.3bn, primarily driven by international T&D. A robust order book of Rs 197bn + L1 pipeline of Rs 48bn. KEC is seeing a robust bid pipeline with Rs 250-300bn of bids submitted yet to be opened and Rs 250-300bn of bid submission due over the next two months.
Labour availability has improved, normalcy to return from 3QFY21: While labour availability was a key challenge (15k labours at site vs 30k) during early stages of lockdown, KEC has since than ramped up and has labour levels of 80% now. All manufacturing facilities are operational, and execution has ramped up across all sites. Most international sites' execution is at pre-COVID levels, barring SAE, which has been impacted due to COVID-19 spikes in cases. KEC also booked some idling costs in 1QFY21 on account of same.
Balance sheet stable, marginal deterioration in NWC due to lower creditors: Net debt is stable at Rs 33bn, at similar levels QoQ (1.1x net D/E). NWC deteriorated to 139 days vs 119 days QoQ, mostly on account of lower utilisation of acceptances/creditors. The quarter also witnessed a continuation of the trend of reduction in interest cost on account of higher low cost foreign debt (60%) in the borrowing mix as a result of robust execution in the international markets.
Shares of KEC INTERNATIONAL LTD. was last trading in BSE at Rs.294.8 as compared to the previous close of Rs. 292.45. The total number of shares traded during the day was 22215 in over 933 trades.
The stock hit an intraday high of Rs. 298.05 and intraday low of 292.5. The net turnover during the day was Rs. 6553887.