KEC International Ltd - Initiating Coverage ::Unicon

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KEC International Ltd (KEC), a flagship company of the RPG group is a global infrastructure EPC player with expertise in the area of power transmission & distribution. With 251000 MT of installed capacity, it is the second largest tower manufacturing company in the world. The company operates in Central Asia, Africa, Middle East and the Americas. KEC also operates in Railways, Cables and Water segment.

Investment Rationale:

Large consolidated order book will drive the topline growth 

KEC's strong consolidated order book of INR 78 bn (1.7x its FY11 sales) reported at the end of FY11 will drive the company's topline growth at a CAGR of ~17% over FY11-13E. The diversification of the order book in terms of geography and business segments brings down the dependency on a particular region or a business segment.

Huge investments in the T&D sector in India and International market to benefit KEC

With 100000 MW of generation capacity target for the 12 five year plan, transmission capex in India for the 12 plan is set to grow by 71% over the 11 five year plan to INR 2400 bn. Markets like Middle East, Africa and the Americas are also set to witness significant investment in their T&D infrastructure over the period of next five years. KEC with leadership position in India and significant presence in the overseas market will benefit from these opportunities in future.

Recent acquisitions and foray into new infrastructure segments will aid the company's growth

The acquisition of SAE Towers in USA gives KEC a strong footing in the Americas as it will be able capture significant market share due to the leadership position of SAE Towers. Jay Signaling Pvt Ltd will help KEC to become a fully integrated player in terms of railway infrastructure, whereby it will leverage its capabilities to bid for bigger projects (dedicated freight corridor) in Railways.

Outlook & Valuation

The stock currently trades at 8.5x and 7.6x its FY12E and FY13E earnings. Given the strong order book, expected order inflows from across the geography and from different business segments, the growth prospects look strong. We initiate coverage on KEC International Ltd with a Buy rating and a target price of INR104, which is 10x its FY13E earnings.

Thanks & Regards

Unicon Wealth Research