28 July 2015
Update | Sector: Capital Goods
Robust operational performance
Margins bounce back to normalcy
Execution pick-up in Cables segment drives overall revenue growth
Consolidated revenue grew 9% YoY to INR18.8b, led by execution pick-up in the
Cables segment. T&D segment revenue grew 5.5% YoY, led by strong execution
of projects in the Saudi JV. The Cables segment registered 30.6% YoY growth,
led by pick-up in demand. Utilization of KECI's cable facility was a robust 90%.
SAE sales grew just 1.6% YoY to INR1.87b - the management stated that dispatches
have improved at the Brazil facility; however, activity at the Mexico plant remains
The Idea Junction
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
Free float (%)
Robust profitability in Saudi Arabia JV drives margin expansion
Consolidated EBITDA margin expanded 158bp YoY to 7.5%, led by strong
profitability in the Saudi Arabia JV and EBITDA-level breakeven in SAE. The
management reiterated its margin guidance of 7.5-8% for FY16 (up 150-200bp).
Standalone margins also improved - up 80bp YoY at 6.9%, led by reduction in
losses of legacy orders (Railways, Water and Power Systems). SAE booked profit
at EBITDA level, led by up-tick in order dispatches in Brazil; however, the
business environment remains muted in Mexico. SAE is likely to post positive
PBT in FY16, as product deliveries have picked up in Brazil and the demand
environment is expected to improve in Mexico over the next two quarters. T&D
project margins remained stable at 8-9%.
Avg Val (INR M)/Vol ‘000 120/1,077
Financials & Valuation (INR b)
EPS Gr. (%)
2015 2016E 2017E
Current order book provides decent medium-term revenue visibility
The order book stands at INR105b (up 2.1% YoY; BTB of 1.2x). Order intake grew
63% YoY to INR38.2b, led by improvement in finalization of orders. Order pipeline
remains healthy - L1 in orders worth INR35b; has participated in tenders worth
INR100b floated by Power Grid Corporation. In the international market,
improved ordering is expected from the MENA region - KECI has participated in
tenders worth INR45b. Low margin legacy orders, which stand at INR400m, are
coming to closure over the next two quarters.
Valuation and outlook
The stock looks interesting, given that (1) KECI is well-positioned to capitalize
on the increased domestic spending in Power T&D, Railways and Water, (2)
margins should expand, led by stabilization in the new verticals, (3) balance
sheet should improve, with sale of non-core assets to repay debt. The stock
trades at 19.9x FY16E EPS of INR7.6 and 16.1x FY17E EPS of INR9.5.
Our coverage universe is a wide representation of investment opportunities in India. However, there are many
emerging midcap names that are not under our coverage.
is our attempt to feature such stocks based
on fundamental analysis and site visits, without initiating formal coverage on them. Spotlight adopts a descriptive
rating system, which uses terms like Interesting, Cautious and In Transition (see definitions alongside). We do
not assign Buy, Sell or Neutral recommendations to the stocks under Spotlight. Investors should carefully read
Motilal Oswal Research in its entirety, and not draw inferences from the ratings alone. Ratings should not be
used or relied upon as investment advice.
Motilal Oswal values your
support in the Asiamoney
Brokers Poll 2015 for India
Research, Sales and Trading
request your ballot.
Interesting: Currently, the analyst
believes that this is an interesting
stock based on its fundamental
Cautious: Currently, the analyst
does not have adequate
conviction based on fundamental
assessment of the stock
In Transition: Currently, the
analyst thinks that the stock is in
transition from "Cautious" to
(Satyam.Agarwal@MotilalOswal.com); +91 22 3982 5410
(Amit.Shah@MotilalOswal.com); +91 22 3029 5126
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
Bloomberg, Thomson Reuters, Factset and S&P Capital.