KEC International - Disappointing Quarter; Caution Warranted; Result Update Q3FY15 ::Edelweiss, report

Please Share::

�� India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details ��

��

-->

KEC International (KEC) missed ours and Street’s Q3FY15 5% revenue growth estimates due to the 13% decline in T&D (ex-SAE) business. Margin compression of 130bps and higher tax (due to DTA agreement) led to loss of ~INR170mn. While order book and order intake plummeted by 15% and 60%, respectively, management indicated it is L1 in projects worth INR40bn which we believe can arrest some drop in order book given closure of orders in Q4FY15. Management expects at least 10% revenue growth with 8% margins in FY16. We introduce and roll forward our valuations to FY17 with TP of INR94, assigning 10x P/E multiple.

Revenue growth falters; low margin, high tax rate leads to loss

KEC’s reported 7% dip in revenues mainly due to the 13% decline in T&D (ex-SAE) business, which forms ~67% of total business. While SAE towers reported 2% revenue growth, cable business reported ~60% growth for the quarter. Margins plunged 130bps YoY mainly due to exaction of loss-making legacy orders and losses at SAE’s Mexico plant. While the company reported PBT of INR11mn, tax for the quarter stood at INR180mn as it couldn’t generate enough income to set off taxes paid outside India. Accordingly, loss (adjusted for land sale parcel) was INR170mn.

Order book deteriorates; L1 in projects worth INR20bn

Order intake during the quarter fell 60% resulting in 15% dip in order book. KEC expects at least INR30bn fresh orders in Q4FY15 as it is L1 in orders worth INR40bn. Also, management expects healthy traction from PGCIL’s 765KV and SEB’s 400KV orders in near future.

LINK
https://www.edelweiss.in/research/KEC-International--Disappointing-Quarter;-Caution-Warranted;-Result-Update-Q3FY15/28264.html