KEC INTERNATIONAL Share Price Target in 2017 : Brokers' View

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About KEC International:

KEC International Limited (BSE: 532714) is India's second largest manufacturer of power transmission towers and one of the largest Power Transmission Engineering, Procurement & Construction (EPC) companies in the world. It is headquartered in Mumbai, India and is part of the $ 160 trillion (US $ 2.4 trillion) RPG Group, engaged in laying of power transmission lines on EPC globally. It also provides telecom infrastructure services, tower testing, satellite and GPRS surveys, and hotline stringing services. It has operations in Algeria, Afghanistan, Egypt, Ethiopia, Ghana, Kazakhstan, Kenya, Mali, Mozambique, Namibia, Nigeria, Saudi Arabia, South Africa, Tajikistan and the United Arab Emirates.
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Areas of Activity:

KEC International is currently in the following main areas of activity:

• Power Transmission & Distribution
• Railway Infrastructure
• Water Management
• Cables Manufacturing
• Solar

Quick View;

• MARKET CAP (RS CR) : 3,684.08
• EPS (TTM) : 8.28
• P/Ex : 17.31
• INDUSTRY P/E : 17.17
• BOOK VALUE (RS): 58.81
• DIV (%): 50.00%
• PRICE/BOOK: 2.44
• DIV YIELD: (%): 0.70%
• FACE VALUE (RS): 2.00 *source: moneycontrol retrieved on 08/12/2016 at 20.17 Hrs

IIFL View on KEC International

STRONG ORDER TO GENERATE STRONG REVENUE GROWTH

KEC recorded an influx of orders of Rs.6,768cr in H1FY17 largely supported by Transmission & Distribution, SAE Towers, USA (SAE) and the railway segment. The total order currently stands at Rs.11,625 cr. It also has a strong L1 command in pipeline of  Rs.3,800cr. Domestic orders are expected to be strong in the future largely due to competitive offers from the State Electricity Board (SEB) and pricing (TBCB).

The recovery in Mexico and Brazil is in addition to the increase in international revenues. We estimate that the order will grow to 22% CAGR leading to CAGR similar income of 22% CAGR over FY16-18E. The railway sector is expected to experience phenomenal growth, driven by the government and its high investment. The company's order inflow in the railway segment is currently at Rs.1200Cr. EAS continues to operate at full capacity. Its activity in Mexico is also improving due to the closure of some competing facilities.

PROGRESSIVE MARGINS

IIFL expects EBITDA margins to improve over the next few quarters as a result of a significant improvement in the mix of sales between segments. Railway margins should be in line with the T & D segment backed by the benefits of scale and cost control. Product changes contribute to improved margins in the cable industry. It now focuses on improving the sales mix by focusing more on business segments like EHV & cables. IIFL estimates 8.4% of EBITDA margins in FY17E, due to the execution of high margin orders.

RESUMPTION OF LEVERAGE

KEC reported a significant improvement in the number of working days receivable (246 in financial year 16 to 229 in the first half of fiscal year 17). IIFL believes it will still be reduced to 180 days in FY17E. Improved collection of the Saudi project allowed the company to reduce its debt by Rs.320 Cr in the first half of the Fy 17. The decline in working capital demand and the increase in the credit rating resulted in a decrease in financing costs of 80 basis points year-on-year to 2.4% IIFL further believes that the decline in interest cost would result in 27% profit for TCCA in fiscal years 16-18E.

OUTLOOK AND EVALUATION

Rugged order entry from domestic and international markets with its rapid execution gives high revenue visibility. In addition, IIFL anticipates an EBITDA margin expansion from 8% in FY16 to 8.4% in FY17E & 18E due to a better mix of products and better pricing. IIFL believes that the stock price is traded at an inexpensive valuation at P/E of 11.7x FY18E earnings. At a target multiple of 14X, IIFL concludes and recommend Buy with the target price of Rs.167.

Other Brokers’ View on KEC INTERNATIONAL

• Buy KEC International; target of Rs 163: Geojit BNP Paribas  Nov 21, 2016
• Buy KEC International; target of Rs 162: ICICI Direct Nov 17, 2016
• Buy KEC Intl; target of Rs 164: Anand Rathi  Jun 30, 2016