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India Equity Research Reports, IPO and Stock News
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KEC International’s (KEC) Q3FY11 earnings (consolidated) were largely in
line with our estimates, with PAT growing 38.1% (to INR 580 mn), led by
strong traction in SEA Towers (SEA) that reported record EBITDA margin of
19.8%, expanding KEC’s blended EBITDA margin by 176bps Y-o-Y to 11.6%.
While consolidated revenue growth was aided by SAE numbers for the
quarter, standalone revenues remained muted at a 7% YoY decline.
Order intake and revenue visibility improves
KEC reported healthy new order growth of 24% and 31% for Q3FY11 and
9mFY11, Y-o-Y, driven by domestic and export markets, respectively. While 55%
of the new orders were from the international market, the remaining 45% came
from the domestic market (largely, PGCIL). Order book for KEC currently stands
at INR 80 bn (up 32.2% Y-o-Y; up 20.3% Y-o-Y, adjusted for SAE), to be
executed over the next two years. International orders accounted for INR 43.2
bn, while domestic orders made up the balance INR 36.8 bn of the order
backlog. Transmission accounted for 63% of the order book, at 50.4 bn. Orders
from SAE stands at INR 7.2 bn, while substation and power system stood at INR
15.2 bn, and railways at INR 4.0 bn; cables account for the balance.
New business ventures could be exciting
Largely a T&D EPC company, KEC has 5% of its current orders coming from
Indian Railways, which it expects to double by next year. Further, the company
recently acquired Jay Railway Signaling to pre-qualify for railway EPC jobs. The
management is looking forward to tap the electrical balance of plant (E-BoP)
market and recently bagged the first E-BoP contract.
Outlook and valuations: Robust growth outlook; maintain ‘BUY’
With its global presence, especially post the SAE acquisition, we see KEC better
equipped to tap global markets. We expect SAE to majorly contribute to the
bottom-line over the coming years – positive for KEC’s overall earnings growth.
The company expects to improve its utilisation levels for SAE from 70% currently
to 100% over the next few years, with strong EBTIDA margin improving
profitability over the next few years. We maintain ‘BUY/Sector Outperformer’
on KEC and prefer it as our top pick in the T&D EPC space. Stock is currently
trading at P/E of 9.7x and 7.5x for FY11E and FY12E, respectively.
Company Description
KEC was incorporated in 1945 as Kamani Engineering Corporation by the RPG Group. It
is in the business of designing and manufacturing power transmission towers and
telecom infrastructure. Nearly 70% of KEC’s revenues came from the international
market in FY09. The company’s order backlog at the end of FY10 was ~INR 55 bn, with
~79% contributed by transmission projects, and the balance by distribution, railway and
telecom projects.
Investment Theme
We believe KEC has a robust order backlog and with higher order flows from Power Grid
Corporation (PGCIL) expected, it has balanced order mix between international and
domestic orders. We believe KEC is likely to significantly benefit from increased order
flows from PGCIL. Further, KEC being present in over 20 countries in the international
geographies, is expected to keep international orders flowing in.
Key Risks
Forex fluctuation could potentially impact margins for the company. Further the PAT
margins are sensitive to interest rates and any increase the same is likely to negatively
impact the company.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
KEC International’s (KEC) Q3FY11 earnings (consolidated) were largely in
line with our estimates, with PAT growing 38.1% (to INR 580 mn), led by
strong traction in SEA Towers (SEA) that reported record EBITDA margin of
19.8%, expanding KEC’s blended EBITDA margin by 176bps Y-o-Y to 11.6%.
While consolidated revenue growth was aided by SAE numbers for the
quarter, standalone revenues remained muted at a 7% YoY decline.
Order intake and revenue visibility improves
KEC reported healthy new order growth of 24% and 31% for Q3FY11 and
9mFY11, Y-o-Y, driven by domestic and export markets, respectively. While 55%
of the new orders were from the international market, the remaining 45% came
from the domestic market (largely, PGCIL). Order book for KEC currently stands
at INR 80 bn (up 32.2% Y-o-Y; up 20.3% Y-o-Y, adjusted for SAE), to be
executed over the next two years. International orders accounted for INR 43.2
bn, while domestic orders made up the balance INR 36.8 bn of the order
backlog. Transmission accounted for 63% of the order book, at 50.4 bn. Orders
from SAE stands at INR 7.2 bn, while substation and power system stood at INR
15.2 bn, and railways at INR 4.0 bn; cables account for the balance.
New business ventures could be exciting
Largely a T&D EPC company, KEC has 5% of its current orders coming from
Indian Railways, which it expects to double by next year. Further, the company
recently acquired Jay Railway Signaling to pre-qualify for railway EPC jobs. The
management is looking forward to tap the electrical balance of plant (E-BoP)
market and recently bagged the first E-BoP contract.
Outlook and valuations: Robust growth outlook; maintain ‘BUY’
With its global presence, especially post the SAE acquisition, we see KEC better
equipped to tap global markets. We expect SAE to majorly contribute to the
bottom-line over the coming years – positive for KEC’s overall earnings growth.
The company expects to improve its utilisation levels for SAE from 70% currently
to 100% over the next few years, with strong EBTIDA margin improving
profitability over the next few years. We maintain ‘BUY/Sector Outperformer’
on KEC and prefer it as our top pick in the T&D EPC space. Stock is currently
trading at P/E of 9.7x and 7.5x for FY11E and FY12E, respectively.
Company Description
KEC was incorporated in 1945 as Kamani Engineering Corporation by the RPG Group. It
is in the business of designing and manufacturing power transmission towers and
telecom infrastructure. Nearly 70% of KEC’s revenues came from the international
market in FY09. The company’s order backlog at the end of FY10 was ~INR 55 bn, with
~79% contributed by transmission projects, and the balance by distribution, railway and
telecom projects.
Investment Theme
We believe KEC has a robust order backlog and with higher order flows from Power Grid
Corporation (PGCIL) expected, it has balanced order mix between international and
domestic orders. We believe KEC is likely to significantly benefit from increased order
flows from PGCIL. Further, KEC being present in over 20 countries in the international
geographies, is expected to keep international orders flowing in.
Key Risks
Forex fluctuation could potentially impact margins for the company. Further the PAT
margins are sensitive to interest rates and any increase the same is likely to negatively
impact the company.
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