KEC International - ...growth by spreading wings - SKP Securities

Incorporated in 1945, KEC international Ltd (KEC) is a diversified EPC services provider offering infrastructure turnkey solutions in the space of T&D, telecom infrastructure, power and telecom cables, railways and water infrastructure. The Company has presence in 46 countries across the globe from Americas, Central Asia, MENA, rest of Africa and South Asia.

Investment Rationale

Strong and diversified order backlog of Rs.94.6 bn - topline expected to grow with the CAGR of 18%:

- KEC's order book is growing at a CAGR of 24.3% for the last five years. Currently, it has order backlog of Rs.94.6 bn (as on Aug 2012).

- KEC has received orders worth Rs.62 bn during FY12 of which 70%, 6%, 10%, 4% and 14% are contributed by power transmission, power system, cables, telecom, railways and water respectively. Further it received orders about Rs.30 bn in FY13 till date.

- With the robust order book and healthy order intake we expect KEC's topline to grow with a healthy CAGR of 18% between FY11-FY14.

Venturing in to 220 -400 kv cable segment:

- KEC is setting up a Greenfield facility, to manufacture HV and EHV cables, in Vadodara Gujarat. The estimated cost of the project is about Rs.1.8 bn. Phase I of the project is already complete.

- KEC will be able to manufacture cables up to 400 kv with the completion of phase II. The Company presently manufactures power cables from 33 kv to 132 kv.

- The plant will have the initial capacity of 4,000 cable kms.

- Expected revenue from the plant at full capacity is about Rs.3.5-4.0 bn.

Spreading wings in new geographies and new business verticals - de-risking of revenue model:

- KEC started its activities in T&D segment from domestic market in 1959.

- Today, the company has spread its wings in regions such as Middle East, Americas, and Africa, South Asia and Central Asia. The current order book of the company includes orders from these regions.

- The company has acquired SAE Towers Holdings LLC, USA in 2010. Today Americas has become second largest market for KEC after India. America's has the share of 14% in the current order book (as on Aug 2012).

- This ensures well diversified revenue streams driven from high growth sectors.

Outlook & Recommendation

- At the current market price of Rs.73, the stock is trading at a P/E of 9.0x and 7.5x on FY13E and FY14E earnings of Rs.8.1 and Rs.9.7 respectively.

- We recommend BUY rating on the stock with a target price of Rs.88/- (20% upside) in 12 months at the P/E of 9x on FY14E earnings.

Source : Equity Bulls

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