KEC International: Non-T&D boost with execution ramp-up; maintaining a Buy with target of Rs 414 says Anand Rathi

KEC International’s non-T&D business witnessed strong revenue growth with railways/civil/cables up 44%/207%/23% yoy. However, T&D performance was muted with revenue down 12% yoy (vs 5% expected growth). SAE revenue was down 38% yoy to Rs 2.7 bn on pandemic-related restrictions and delays, which also cut margins that came in at 9.1% (expected 9.5%).

KEC International management indicated an execution ramp up in Q4. Anand Rathi remains positive on KEC International with robust revenue assurance (Rs 240 bn OB + L1), strong bid pipeline and focus on reducing interest costs that give us the confidence of strong future execution and earnings. Anand Rathi maintains a Buy with a revised target price of Rs 414 (13x FY23e).
Better execution in non-T&D:

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The 7% y/y revenue growth (in line with expectations) was driven by better-than-expected non-T&D execution (railways, civil). The share of non T&D revenue rose to 45% in Q3 FY21 (vs. 32% a year ago) and is expected to rise to 50% by end-FY22. Backed by the healthy order book and sharper focus on non-T&D business, management expects growth to continue over the next two years, with railways expected to grow 20-25% and civil 50%.

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KEC International Strong bid pipeline:

FY21 orders won (OI) YTD were Rs 68.3 bn, most in T&D, led by higher international intake (OI share: 48%). The Rs 179 bn order book and an L1 position of Rs 60 bn. Overall the company has a bid pipeline of Rs 600 bn (Rs 300 bn already quoted, the rest announced). In domestic T&D, green-energy corridor tenders would support near-term inflows, while non-T&D inflows would be driven by the greater focus on metro-rail and civil works.

KEC International Outlook:

The stock trades at 17x/13x/11x FY21e/22e/23e. Anand Rathi tweaks their estimates in line with 9M FY21 performance and pick-up in execution going ahead. Anand Rathi expects 12%/24% revenue/PAT CAGRs over FY21-23. Anand Rathi maintains Buy rating, with a revised target price of Rs 414 (earlier Rs 398).

KEC International Risks:

Slowdown in orders and in pace of execution