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KEC International - Resilient performance despite headwinds - ICICI Securities

Posted On: 2020-08-12 02:57:37

Led by stable performance of T&D segment despite lockdown-related challenges, KEC reported better than expected revenue and earnings. With Rs50bn of L1 position and strong orderbook, the growth outlook is encouraging. Ordering activity from overseas T&D markets like Middle East, Bangladesh, Africa and Far East are buoyant. Railways and civil segment continue to be the new growth engines. Company was able to control its working capital by focusing on collections. Factoring-in the better than expected execution and margins in Q1FY21, we raise FY21E and FY22E earnings by 11% and 12% respectively. Maintain BUY with a revised target price of Rs342 (previously Rs260).

- Better than expected execution despite lockdown headwinds: Stable performance in the railways segment and recovery in execution during May-Jun'20 by the T&D segment led to better than expected revenues. Most projects are at pre-Covid levels with ~80% of the workforce active. We believe, operations will gradually stabilise to normalcy in 3-4 months.

- Order pipeline healthy, domestic T&D prospects being postponed: Overseas order prospects are healthy. Overall, the company has bid for ~Rs250bn worth of projects while the pipeline comprises another ~Rs250bn-300bn worth of future bids. Green energy corridor orders are to be rebid given the new clause to discourage Chinese companies from participating. Hence, these tenders are expected to be finalised by Dec'20. Overseas orders from MENA, Far East and Bangladesh remain buoyant.

- Railways and civil business continue to be strong growth engines: Given the strong orderbook, the civil segment is expected to witness strong growth in FY21 with healthy order prospects. Electrification-related orders continue to be strong in the railways segment, which supports overall growth.

- Focus on collections led to control on debt: KEC's net debt at Q1FY21-end stood at Rs19bn (Rs1.5bn lower than at Q4FY20-end). Management is focussed on improvement in collections and keeping working capital under control.

- Maintain BUY on strong execution and healthy order prospects: Factoring-in the strong order prospects and better than expected execution and margins in Q1FY21, we raise our FY21E and FY22E earnings by 11% and 12% respectively. Maintain BUY with a revised target price of Rs342 (Rs260 previously).

Shares of KEC INTERNATIONAL LTD. was last trading in BSE at Rs.292.45 as compared to the previous close of Rs. 273.95. The total number of shares traded during the day was 140629 in over 5647 trades.

The stock hit an intraday high of Rs. 295 and intraday low of 275.75. The net turnover during the day was Rs. 40842337.

Source: Equity Bulls

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