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KEC ------------------------------------------------------------------------------- Maintain OUTPERFORM
3Q beats estimates; Orderbook growth at 44% YoY
● KEC reported strong 3Q numbers with PAT growth at over 25%
YoY versus an expectation of flat growth. Margin expansion at
SAE towers was the key driver.
● With an orderbook at Rs80 bn, +44% YoY, management expects
revenue growth to accelerate from Q4 and remain strong in FY12.
Order pipeline also appears healthy as per management and
exposure to troubled geographies such as Egypt, Tunisia is also
not significant enough to dent financials.
● Over 65-70% of contracts have variable costs and management
was of the view that it should be able to maintain margins. Current
debt stands at Rs15.5 bn (Rs14 bn net debt) with average interest
cost of 8%. Working capital metrics are expected to improve next
year as per management.
● Management is intent on diversifying away from pure T&D tower
ordering and hopes to build an orderbook even in BOP (electrical
segment. Post the strong quarter, we revise up our earnings
estimates by 6-1%(FY11-13) and revise target price to Rs128
(previous Rs122). We maintain our OUTPERFORM rating.
3Q above estimates
Consol PAT growth of 25% in 3Q was above estimates , largely led by
margin expansion due to better-than-expected performance of SAE
towers. Margins at SAE towers expanded to 20% (from prior 14%
during acquisition).
Revenue growth for standalone business declined YoY and
management highlighted this to issues about timing of revenue
booking and the fact that large numbers of orders were booked in end
3Q, for which execution commences with a lag of 3-4 months.
Management expects a recovery in Q4 revenue booking and better
revenue growth next year given over 44% growth in the orderbook.
SAE tower contributed to Rs1.7 bn of topline, with 20% EBITDA
margins and a PAT of Rs210 mn. RPG cables had revenues of Rs1.2
bn , 2% EBITDA margin and breakeven at PAT level
KEC has only Rs320 mn of orderbook exposed to Egypt and Rs3 bn
to Tunisia. Management highlighted that while there will be execution
issues in Egypt, limited exposure should not impact financials much.
Strong order pipeline
Orderbook at end of 3Q was Rs80 bn, +44% YoY. Of the backlog,
Middle East contributed 15%, Central Asia/ Africa 20%, America 18%
and South Asia 46%. In terms of segments, transmission comprises
63% of orders, SAE towers 9%, power systems and substation 19%,
cable 2% and railway 5%. Management highlighted that it continues to
receive enquiries from India as well as various international locations.
New growth areas
Management highlighted while KEC continues to bid for 400KV and
below substation EPC orders in India, it currently is not qualified to bid
for 765KV orders. (which it would get post completion of the HV order
in Kazakhstan). BOP (electrical package), water treatment are other
new growth areas for KEC. The current orderbook for railways is at
Rs4.5 bn, and management expects to double order inflows next year.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
KEC ------------------------------------------------------------------------------- Maintain OUTPERFORM
3Q beats estimates; Orderbook growth at 44% YoY
● KEC reported strong 3Q numbers with PAT growth at over 25%
YoY versus an expectation of flat growth. Margin expansion at
SAE towers was the key driver.
● With an orderbook at Rs80 bn, +44% YoY, management expects
revenue growth to accelerate from Q4 and remain strong in FY12.
Order pipeline also appears healthy as per management and
exposure to troubled geographies such as Egypt, Tunisia is also
not significant enough to dent financials.
● Over 65-70% of contracts have variable costs and management
was of the view that it should be able to maintain margins. Current
debt stands at Rs15.5 bn (Rs14 bn net debt) with average interest
cost of 8%. Working capital metrics are expected to improve next
year as per management.
● Management is intent on diversifying away from pure T&D tower
ordering and hopes to build an orderbook even in BOP (electrical
segment. Post the strong quarter, we revise up our earnings
estimates by 6-1%(FY11-13) and revise target price to Rs128
(previous Rs122). We maintain our OUTPERFORM rating.
3Q above estimates
Consol PAT growth of 25% in 3Q was above estimates , largely led by
margin expansion due to better-than-expected performance of SAE
towers. Margins at SAE towers expanded to 20% (from prior 14%
during acquisition).
Revenue growth for standalone business declined YoY and
management highlighted this to issues about timing of revenue
booking and the fact that large numbers of orders were booked in end
3Q, for which execution commences with a lag of 3-4 months.
Management expects a recovery in Q4 revenue booking and better
revenue growth next year given over 44% growth in the orderbook.
SAE tower contributed to Rs1.7 bn of topline, with 20% EBITDA
margins and a PAT of Rs210 mn. RPG cables had revenues of Rs1.2
bn , 2% EBITDA margin and breakeven at PAT level
KEC has only Rs320 mn of orderbook exposed to Egypt and Rs3 bn
to Tunisia. Management highlighted that while there will be execution
issues in Egypt, limited exposure should not impact financials much.
Strong order pipeline
Orderbook at end of 3Q was Rs80 bn, +44% YoY. Of the backlog,
Middle East contributed 15%, Central Asia/ Africa 20%, America 18%
and South Asia 46%. In terms of segments, transmission comprises
63% of orders, SAE towers 9%, power systems and substation 19%,
cable 2% and railway 5%. Management highlighted that it continues to
receive enquiries from India as well as various international locations.
New growth areas
Management highlighted while KEC continues to bid for 400KV and
below substation EPC orders in India, it currently is not qualified to bid
for 765KV orders. (which it would get post completion of the HV order
in Kazakhstan). BOP (electrical package), water treatment are other
new growth areas for KEC. The current orderbook for railways is at
Rs4.5 bn, and management expects to double order inflows next year.
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