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KEC INTERNATIONAL
OUTPERFORMER (RS79, MCAP: RS20BN / US$445M)
• KEC International reiterated that order inflow is likely to continue across its key markets.
• PGCIL order inflow has been slow, but the company expects a sharp pick-up over the next six months considering
that huge generation capacities are being built.
• Order inflows in the international markets remain robust led by both replacement demand and build-up of fresh
infrastructure.
• Unrest in some markets like Algeria, Yemen and Egypt is unlikely to impact KEC as it has a diversified geographical presence.
• KEC expects the US market to provide the next leg of growth on the international front. Accordingly, the acquisition
of SAE towers is likely to be extremely value accretive. SAE has a current order backlog of US$160m, as against
US$126m at the time of the acquisition.
• Apart from transmission orders, the management is also focusing on diversifying into other EPC areas like railways,
telecom, substations, etc., which would provide new avenues of growth. Accordingly, the company is eyeing entry
into water-based EPC projects.
• KEC would evaluate and bid for BOT transmission projects in a JV structure if incremental projects are on
BOT basis.
• Order backlog as of end-December 2010 was Rs80bn across segments. The order backlog provides visibility on
revenues over the next 18 months.
• The management believes that while competition remains intense, irrational bidding to win projects is unlikely to
sustain, thereby providing KEC an opportunity to win margins.
• KEC continues to maintain its margin guidance of 10% despite a rise in input costs as it has booked raw material
inventories at historical prices for fixed-price contracts. Further, diversification in terms of geographies and segments
would drive margins variably over the quarters based on acquisition.
• Attractively valued; maintain Outperformer: KEC has maintained traction in order booking over the past few
quarters. We expect this to pick up further, led by diversification into business verticals like cables, telecom and
railways as also into geographies (particularly America, where activity is picking up strongly). We believe strong
activity across verticals will drive growth in KEC’s order backlog of Rs80bn (1.9x FY11E revenues) and ensure
consolidated earnings of 15% CAGR over FY10-12E. The stock currently trades at 10x FY11E earnings and 8.5x FY12E
earnings. Given a strong pipeline of orders, earnings growth visibility over the next two years, and strong return
ratios, we believe valuations are attractive. We maintain our Outperformer rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
KEC INTERNATIONAL
OUTPERFORMER (RS79, MCAP: RS20BN / US$445M)
• KEC International reiterated that order inflow is likely to continue across its key markets.
• PGCIL order inflow has been slow, but the company expects a sharp pick-up over the next six months considering
that huge generation capacities are being built.
• Order inflows in the international markets remain robust led by both replacement demand and build-up of fresh
infrastructure.
• Unrest in some markets like Algeria, Yemen and Egypt is unlikely to impact KEC as it has a diversified geographical presence.
• KEC expects the US market to provide the next leg of growth on the international front. Accordingly, the acquisition
of SAE towers is likely to be extremely value accretive. SAE has a current order backlog of US$160m, as against
US$126m at the time of the acquisition.
• Apart from transmission orders, the management is also focusing on diversifying into other EPC areas like railways,
telecom, substations, etc., which would provide new avenues of growth. Accordingly, the company is eyeing entry
into water-based EPC projects.
• KEC would evaluate and bid for BOT transmission projects in a JV structure if incremental projects are on
BOT basis.
• Order backlog as of end-December 2010 was Rs80bn across segments. The order backlog provides visibility on
revenues over the next 18 months.
• The management believes that while competition remains intense, irrational bidding to win projects is unlikely to
sustain, thereby providing KEC an opportunity to win margins.
• KEC continues to maintain its margin guidance of 10% despite a rise in input costs as it has booked raw material
inventories at historical prices for fixed-price contracts. Further, diversification in terms of geographies and segments
would drive margins variably over the quarters based on acquisition.
• Attractively valued; maintain Outperformer: KEC has maintained traction in order booking over the past few
quarters. We expect this to pick up further, led by diversification into business verticals like cables, telecom and
railways as also into geographies (particularly America, where activity is picking up strongly). We believe strong
activity across verticals will drive growth in KEC’s order backlog of Rs80bn (1.9x FY11E revenues) and ensure
consolidated earnings of 15% CAGR over FY10-12E. The stock currently trades at 10x FY11E earnings and 8.5x FY12E
earnings. Given a strong pipeline of orders, earnings growth visibility over the next two years, and strong return
ratios, we believe valuations are attractive. We maintain our Outperformer rating on the stock.
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