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KEC International’s Q3FY11 result was below expectation at standalone level
led by decline in the revenue. In the quarter, the standalone net revenue
declined by 7.3% yoy at Rs 8.69 bn resulting 8.7% decline in EBITDA at Rs
845.2 mn and 16.4% yoy decline in standalone PAT. The consolidated order
book stood firm at Rs 80 bn led by Rs 23 bn of new order inflows across the
segment. The order book included ~ Rs 7 bn orders from US subsidiary, SAE
Towers. The management does not see any major impact of turmoil in
African nations like Egypt on its performance as its order book is diversified
across 32 nations and Egypt contributes only Rs 300 mn to its order book.
Q3 FY11 Results highlights
Q3FY11 revenue below our expectation: The company reported 7.3% yoy
decline in net revenue primarily led by 1) revenue booking timeline for
some orders was scheduled for early Q4FY11 and 2) strong order
booking took place in recent time and did not contribute to the Q3FY11
revenue. The decline in standalone net revenue took place despite Rs 1.2
bn revenue from cable business. On consolidated basis the revenue grew
at 12.8% yoy to Rs 10.7 bn led by Rs 1.5 bn revenue contribution from
SAE towers which was not included in last year (Q3FY10).
EBITDA margin remained in strong: The consolidated EBITDA margin
grew by 137 bps to 11.6% led by 20% EBITDA margin in SAE Towers.
However in the longer run the margins of the US subsidiary would stay
at 13‐14%. On standalone level, the EBITDA margin declined marginally
by 15 bps to 9.7% which was inline. The standalone EBITDA and PAT
declined by 8.7% and 16.4% respectively led by fall in the revenue.
However the consolidated EBITDA and PAT grew by 27.9% and 25.1%
respectively. The company has maintained 10% EBITDA margin
guidance in the longer run.
Order book grew to Rs 80 bn inflows across segment: The Company has
consolidated current order book of Rs 80 bn with Rs 23 bn of new order
inflows during the quarter. The order book includes ~ Rs 7 bn of order
from SAE Towers with Rs 2.8 bn of new orders bagged in the quarter.
The order inflows include Rs 8.76 bn of transmission line orders and Rs
9.8 bn of substation orders. It has marked entry in 1150 KV range of
substation. Besides, it has also ventured in BOP segment by bagging
order from NMDC.
Consolidated net debt stood at Rs 14 bn: In Q2FY11 KEC acquired SAE Towers
Holdings for USD 95 mn. The funding for the same has raised the consolidated
net debt to Rs 14 bn. As a result the interest cost grew by 28% on yoy. However
the net working capital remained manageable at 112 days led by 1) lower
working capital cycle in supply orders in towers and cables and 2) lower
composition of distribution orders which are working capital intensive.
Valuation
We expect that the revenue booking by KEC would ramp up in the Q4FY11E
and FY12E led by strong order buildup. On the basis of FY11E and FY12E EPS
of Rs 7.3 and Rs 8.9, the stock is currently trading at P/E of 13.4x and 11.1x
respectively. We maintain our target price (Rs 115) and upgrade our
recommendation to BUY (Vs Accumulate) on the stock after factoring in recent
correction. At our target price the stock discounts FY11E and FY12E earnings
by 15.7x and 13x respectively.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
KEC International’s Q3FY11 result was below expectation at standalone level
led by decline in the revenue. In the quarter, the standalone net revenue
declined by 7.3% yoy at Rs 8.69 bn resulting 8.7% decline in EBITDA at Rs
845.2 mn and 16.4% yoy decline in standalone PAT. The consolidated order
book stood firm at Rs 80 bn led by Rs 23 bn of new order inflows across the
segment. The order book included ~ Rs 7 bn orders from US subsidiary, SAE
Towers. The management does not see any major impact of turmoil in
African nations like Egypt on its performance as its order book is diversified
across 32 nations and Egypt contributes only Rs 300 mn to its order book.
Q3 FY11 Results highlights
Q3FY11 revenue below our expectation: The company reported 7.3% yoy
decline in net revenue primarily led by 1) revenue booking timeline for
some orders was scheduled for early Q4FY11 and 2) strong order
booking took place in recent time and did not contribute to the Q3FY11
revenue. The decline in standalone net revenue took place despite Rs 1.2
bn revenue from cable business. On consolidated basis the revenue grew
at 12.8% yoy to Rs 10.7 bn led by Rs 1.5 bn revenue contribution from
SAE towers which was not included in last year (Q3FY10).
EBITDA margin remained in strong: The consolidated EBITDA margin
grew by 137 bps to 11.6% led by 20% EBITDA margin in SAE Towers.
However in the longer run the margins of the US subsidiary would stay
at 13‐14%. On standalone level, the EBITDA margin declined marginally
by 15 bps to 9.7% which was inline. The standalone EBITDA and PAT
declined by 8.7% and 16.4% respectively led by fall in the revenue.
However the consolidated EBITDA and PAT grew by 27.9% and 25.1%
respectively. The company has maintained 10% EBITDA margin
guidance in the longer run.
Order book grew to Rs 80 bn inflows across segment: The Company has
consolidated current order book of Rs 80 bn with Rs 23 bn of new order
inflows during the quarter. The order book includes ~ Rs 7 bn of order
from SAE Towers with Rs 2.8 bn of new orders bagged in the quarter.
The order inflows include Rs 8.76 bn of transmission line orders and Rs
9.8 bn of substation orders. It has marked entry in 1150 KV range of
substation. Besides, it has also ventured in BOP segment by bagging
order from NMDC.
Consolidated net debt stood at Rs 14 bn: In Q2FY11 KEC acquired SAE Towers
Holdings for USD 95 mn. The funding for the same has raised the consolidated
net debt to Rs 14 bn. As a result the interest cost grew by 28% on yoy. However
the net working capital remained manageable at 112 days led by 1) lower
working capital cycle in supply orders in towers and cables and 2) lower
composition of distribution orders which are working capital intensive.
Valuation
We expect that the revenue booking by KEC would ramp up in the Q4FY11E
and FY12E led by strong order buildup. On the basis of FY11E and FY12E EPS
of Rs 7.3 and Rs 8.9, the stock is currently trading at P/E of 13.4x and 11.1x
respectively. We maintain our target price (Rs 115) and upgrade our
recommendation to BUY (Vs Accumulate) on the stock after factoring in recent
correction. At our target price the stock discounts FY11E and FY12E earnings
by 15.7x and 13x respectively.
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