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KEC International
KEC International’s (KEC) 2QFY2012 results exceeded ours and street’s
expectations on the top-line front, but the company disappointed vastly on the
bottom-line front. The company’s consolidated revenue grew strongly by
26.2% yoy to `1,263cr (`1,001cr), which was 7.0% higher than our estimate
of `1,171cr. However, EBITDA margin negatively surprised by posting a
~290bp yoy decline to 7.2%, against our estimate of 10.2%.
KEC’s margin mainly drifted due to increased operating costs in South Asia
region. In addition, political unrest in Africa (leading to slow execution) and
execution of low-margin orders in Northeast Asia exerted pressure on the
operating front. New businesses of cable and telecom also remained low on
profitability. Under cost heads, employee costs were unusually high during the
quarter, increasing by ~270bp yoy to 8.5% as a proportion of sales.
Further, interest cost grew by whooping 84.6% yoy to `37.6cr. (`20.4cr), while
tax rate came in unpredictably high at 45.6%. A combination of operational
weakness and abnormally high below-EBITDA costs overshadowed the strong
top-line performance. PAT declined by 50.3% yoy to `21.9cr, 55% below our
estimate of `48.7cr.
KEC’s 2QFY2012 results are an aberration from its stable performance in the
past several quarters. Management commentary indicated various bottlenecks
on the South Asian business, mainly India where the transmission EPC space is
undergoing a structural change amid increased competition and delayed
payment cycles from SEBs. Gauging the current scenario, management guided
margin of ~9% (vs. previous estimate of 10-11%) as well as elongated
working capital cycles going ahead.
In our view, the potential of the company remains intact given its diverse
business model. Nonetheless, imminent margin pressure as well as heavy
interest burden is likely to impact the company’s profitability going ahead.
We will revise our estimates based on management’s commentary and release
a detailed note shortly. We maintain our Buy recommendation on the stock;
our target price is under review.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
KEC International
KEC International’s (KEC) 2QFY2012 results exceeded ours and street’s
expectations on the top-line front, but the company disappointed vastly on the
bottom-line front. The company’s consolidated revenue grew strongly by
26.2% yoy to `1,263cr (`1,001cr), which was 7.0% higher than our estimate
of `1,171cr. However, EBITDA margin negatively surprised by posting a
~290bp yoy decline to 7.2%, against our estimate of 10.2%.
KEC’s margin mainly drifted due to increased operating costs in South Asia
region. In addition, political unrest in Africa (leading to slow execution) and
execution of low-margin orders in Northeast Asia exerted pressure on the
operating front. New businesses of cable and telecom also remained low on
profitability. Under cost heads, employee costs were unusually high during the
quarter, increasing by ~270bp yoy to 8.5% as a proportion of sales.
Further, interest cost grew by whooping 84.6% yoy to `37.6cr. (`20.4cr), while
tax rate came in unpredictably high at 45.6%. A combination of operational
weakness and abnormally high below-EBITDA costs overshadowed the strong
top-line performance. PAT declined by 50.3% yoy to `21.9cr, 55% below our
estimate of `48.7cr.
KEC’s 2QFY2012 results are an aberration from its stable performance in the
past several quarters. Management commentary indicated various bottlenecks
on the South Asian business, mainly India where the transmission EPC space is
undergoing a structural change amid increased competition and delayed
payment cycles from SEBs. Gauging the current scenario, management guided
margin of ~9% (vs. previous estimate of 10-11%) as well as elongated
working capital cycles going ahead.
In our view, the potential of the company remains intact given its diverse
business model. Nonetheless, imminent margin pressure as well as heavy
interest burden is likely to impact the company’s profitability going ahead.
We will revise our estimates based on management’s commentary and release
a detailed note shortly. We maintain our Buy recommendation on the stock;
our target price is under review.
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