KEC International Ltd. share price target

While KEC T&D and Railways segment continue to drive revenues, civil segment has de-grown 21% YoY on back of overall weak outlook. Cable segment revenue de-grew 20% YoY on the back of correction in commodity prices given that it operates on a cost plus model. New order inflow has been below expectation resulting in guidance downgrade. Green Energy Corridor and SEB ordering are expected to drive T&D ordering with PGCIL capex and ordering not expected to significantly ramp-up over the medium term. KEC is trying to diversify beyond T&D segment through ramp-up in order inflows from Railways and Metro for both electrification and civil work. With MENA, far-east, Malaysia and Mexico expected to drive international order, an uptick in inflow from these regions remains a key re-rating trigger. Key risks (1) Adverse currency/commodity movement, (2) Further delays in capex recovery, (3) Slowdown in government T&D capex and (4) Further NWC deterioration. We maintain BUY on KEC International Ltd. (KEC) with a revised TP of Rs 390/sh (vs Rs 369/sh earlier) valuing the stock at 14x FY21EPS. Though execution continues to be in-line with expectation, headwinds remain on new order inflows from domestic T&D; segment. PGCIL order awards are expected to remain muted over the medium term and diversification beyond T&D; segments shall drive new order inflow.

KEC reported revenue growth of 16.6% (yoy) last quarter, largely driven by 30.3% (yoy) growth in T&D; business on account of robust execution of international projects and 34.7% % (yoy) growth in railway business. Lower...

KEC International Limited, headquartered in Mumbai, India, is the flagship company of the RPG Group. An Engineering, Procurement, and Construction (EPC) major, KEC has delivered several iconic infrastructure projects in more than 100 countries.

In our interaction with KEC's management, it highlighted that order inflow conversion has picked up in Q3FY20, considering a weak macroeconomic environment. In FY2020 till date, KEC announced order inflows of over Rs. 7046 crore with an L1 position in orders worth ~ Rs. 4,000 crore (majorly in T&D; and civil). The management stated that order inflows for the year are expected to be around Rs. 14,000 crore. KEC's order backlog remains strong at more than Rs. 18,000 crore plus (1.5x TTM revenue). Tendering for regional rapid transit system (RRTS) orders, Railways (OHE and...

Sector: Power Transmission /Mid Cap | Earnings Update 2QFY20 Background: KEC International (KEC), the flagship company of the RPG (Harsh Goenka) group, is a leading EPC player in T&D; (Transmission & distribution) Space. KEC has over six decades of experience with footprint across 100 countries globally and strong execution capabilities. KEC, the global leader in Power Transmission EPC has...

Order inflow remains a key catalyst for re-rating... KEC International Limited (KEC) is a global infrastructure Engineering Procurement and Construction major. It has presence in the verticals of Power T&D; (Transmission & Distribution), Cables, Railways and Water & Renewable. Q2FY20 revenue grew by 17% YoY led by improved execution in T&D; (21%), SAE towers (95%) & Railway (35%) YoY....

Strong Execution with Sharp Decline in Order Inflows: Revenue surges on T&D; business growth.

While KEC T&D and Railways segment performed well, civil segment has de-grown 51% YoY on back of overall weak outlook. Cable segment revenue de-grew 6% YoY on the back of correction in commodity prices. New order inflow has been below expectation in both Domestic/ International T&D & Civil Infra segment. Green Energy Corridor and SEB ordering is awaited during 2HFY20. KEC is trying to diversify T&D through Infra order book ramp up and is L1 in one domestic metro project worth Rs 8.5bn. KEC has won its first commercial/residential building order from Naval Ports in Defence sector. Order Uptick in MENA region remains a key re-rating trigger. Key risks (1) Adverse currency/commodity movement, (2) Delays in capex recovery, (3) Slowdown in government infrastructure spend and (4) Further NWC deterioration. We recommend a BUY on KEC International Ltd. (KEC) with TP of Rs 369/sh (core EPC 14x FY21EPS). KEC has maintained its 15-20% FY20E revenue growth guidance. Headwinds remain on ordering side; we model for Rs 140bn vs. Rs 170bn FY20E order booking guidance. Tailwinds like stuck debtors recovery of Rs 1.5bn, ordering pick up during bid heavy 2HFY20E and improvement in sector liquidity by FY20E end will lead to further re-rating.

On the order inflow front, YTD order inflows during H1 were at | 3766 crore on account of elections and slow pick up in ordering. While the guidance of | 17000 crore order inflow target looks too much to achieve, we expect L1 status of | 5000 crore while gradual improvement in H2FY20E will enable KEC to bag | 12226 crore for FY20E. Key ordering opportunities are expected to come in from Brazil (tender worth $1 billion likely to open from December 2019 onwards), Saudi, Kuwait, South Asia. On the domestic front, railway is expected to further push growth momentum in H2FY20 while...

revenue grew 17% YoY to INR28.1b (in-line) EBITDA grew 16.1% to INR2.9b, with EBITDA margin of 10.5%. PBT grew 21% YoY to INR1.8b (in-line). Tax rate for the quarter stood at 22.9%. As a result, Adj. PAT grew 44.4% to INR1.4b.