Recommendations » India

KEC International 3QFY2013 performance highlights and results update

Contributed by Angel Broking

For 3QFY2013, KEC International (KEC) reported a robust top-line performance, posting a 23.1% yoy growth to Rs.1,797cr, beating our expectations. The power system segment grew by 216.1% to Rs.383cr while the South Asian transmission segment grew by 18.7% yoy to Rs.477cr. Among other business segments, telecom and water reported strong revenue numbers at Rs.62cr (Rs.21cr in 3QFY2012) and Rs.36cr (Rs.7cr in 3QFY2012) respectively. However, the international transmission business declined by 14.5% yoy to Rs.395cr.

Margin pressure continues: The consolidated EBITDAM for the quarter contracted by 201bp yoy to 5.8%. The relatively new businesses of railway and water are currently operating at low/negative margin which is exerting pressure on the company’s operating margin. The company had aggressively bid for some of these low margin projects to get a foothold in these segments; the margins are expected to improve gradually as new orders are being booked at higher margins.

Robust order book: KEC reported strong order inflow during the quarter at ~Rs.2,290cr, diversified across all of its operating segments (transmission, power systems, water, cables, and railways) as well as geographies. The strong order accretion led to a robust order backlog of Rs.10,150cr (1.5x trailing 4 quarter revenues).

Outlook and valuation: KEC has a geographically diversified business model which insulates itself from slowdown in any particular region. Further, the company has also ventured in new businesses of railway and water, which have fared well with order inflows and revenues picking up at measurable pace. Given the attractive valuations (stock is trading at 7.2x FY2014E EPS), we maintain Buy on the stock with target price of Rs.75.