28 July 2015
Update | Sector: Capital Goods
KEC International
Robust operational performance
Margins bounce back to normalcy
BSE Sensex
27,459
S&P CNX
8,337
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
muted.
spotlight
The Idea Junction
Stock Info
Bloomberg
CMP (INR)
Equity Shares (m)
M.Cap. (INR b)/(USD b)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
Free float (%)
KECI IN
152
257.1
39.8/0.6
161/72
19/75/15
49.6
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)
Y/E March
Net Sales
EBITDA
Adj PAT
EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
2015 2016E 2017E
84.7
5.1
0.5
2.1
93.0
6.9
2.0
7.6
99.6
7.6
2.4
9.5
24.0
64.7
14.6
17.5
16.1
2.3
-37.6 270.0
51.7
4.0
13.0
73.8
1.9
57.5
13.3
16.0
19.9
2.6
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.
Spotlight
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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
team. We
request your ballot.
Interesting: Currently, the analyst
believes that this is an interesting
stock based on its fundamental
strength
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
"Interesting"
Satyam Agarwal
(Satyam.Agarwal@MotilalOswal.com); +91 22 3982 5410
Amit Shah
(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
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.

Spotlight
update | KEC International
Quarterly performance (Consolidated)
Y/E March
Sales
Cha nge (%)
EBITDA
Cha nge (%)
As of % Sa l es
Depreci a ti on
Interes t
Other Income
Extra -ordi na ry Items
PBT
Ta x
Effecti ve Ta x Ra te (%)
Reported PAT
Cha nge (%)
Adj PAT
Cha nge (%)
Order Book
Order Inta ke
BTB - TTM ba s i s (x)
1Q
17,207
-1.5
1,017
15.5
5.9
210
660
15
0
163
49
30.3
114
(228.5)
114
21.9
102,000
18,920
1.3
FY15
2Q
3Q
21,727
20,533
22.2
-6.7
1,208
1,046
8.0
(26.3)
5.6
5.1
222
226
910
809
11
3
0
(1,347)
87.3
1,360
-116
696
(132.3)
51.2
203
665
(8.2)
247.0
203
-413
-8.2
-303.5
103,250
93,220
11,000
14,120
1.1
1.1
4Q
25,211
15.9
1,847
22.0
7.3
223
710
87
0
1,000
371
37.1
629
83.0
629
-252.4
95,080
38,190
1.3
1Q
18,780
9.1
1,407
38.3
6.0
226
710
32
0
504
200
39.7
304
167.5
304
167.5
105,370
29,070
1.2
FY16
2QE
3QE
22,311
24,170
2.7
17.7
1,539
1,861
27.4
78.0
7.5
6.9
219
219
669
725
24
26
0
0
675.3
943
243
340
36.0
36.0
432
604
113.1
(9.2)
432
604
113.1
39.7
105,469
104,699
22,410
23,400
1.2
1.2
FY15
4QE
26,959
6.9
1,491
(19.3)
7.7
212
752
29
0
556
200
36.0
356
(43.5)
356
-41.1
103,605
26,609
1.2
(INR Million)
FY16E
92,963
9.8
6,898
0.0
7.4
875
2,856
100
0
3,267
1307
40.0
1960
0.0
1960
270.0
103,606
101,488
1.2
84,678
7.2
5,118
0.0
6.0
881
3,089
116
(1,351)
1,264
1001
79.2
1610
0.0
260
-37.6
95,080
82,230
1.1
E: MOSL Estimates
Exhibit 1: Consolidated Segmental Revenues (INR m): robust execution in T&D segment helped post strong revenue growth
Revenues
1QFY14
2QFY14
3QFY13
4QFY14
1QFY15
2QFY15
16,920
1,840
18,760
2,370
290
300
21,720
3QFY15
15,310
2,140
17,450
2,540
220
320
20,530
4QFY15
19,760
2,220
21,980
2,170
580
380
25,110
1QFY16
Transmission-Rest
12,950
13,520
17,210
16,370
12,840
Transmission SAE
2,240
1,840
2,090
2,370
1,840
Total Transmission
15,190
15,360
19,300
18,740
14,680
Cables
1,540
1,720
2,100
2,070
1,980
Railway
190
550
390
560
230
Water
550
140
230
390
320
Total
17,470
17,770
22,020
21,760
17,210
* Transmission include South Asia, International and Power systems
13,550
1,866
15,416
2,589
454
318
18,777
Source: MOSL, Company
YoY gr.
(%)
5.5
1.4
5
30.8
97.4
-0.6
QoQ gr.
(%)
-31.4
-15.9
-29.9
19.3
-21.7
-16.3
Exhibit 2: Consolidated order book: Geographical
composition
South East
Asia, 1%
Africa and
Central Asia
, 15%
Middle
East, 17%
Americas-
KEC, 9%
Exhibit 3: Consolidated order book: Segmental composition
Railways ,
7%
Cables , 6%
Water, 3%
South Asia
including
india , 58%
Transmissio
n , 84%
Source: MOSL, Company
Source: MOSL, Company
28 July 2015
2

Spotlight
update | KEC International
Exhibit 4: Consolidated net working capital (days) improves
sequentially led by reduction in receivables cycle
98
Net working Capital days
92
84 80 80 89 84
104 111 105
99
110
Exhibit 5: Geographical order intake: international
contributed 51% of intake in 4QFY15
International
45%
Domestic
46%
70%
54%
53%
58%
77%
53%
49%
49%
55%
30%
46%
48%
42%
23%
47%
54%
51%
51%
Source: MOSL, Company
Source: MOSL, Company
Exhibit 6: Muted standalone revenues led by high base
effect and sluggish execution up in transmission segment
Standalone Revenues (INR m)
YoY growth (%)
Exhibit 7: Margin improves sequentially as low margin
legacy orders in new segment nears completion
Standalone EBIDTA (INR m)
Margin (%)
Source: MOSL, Company
Source: MOSL, Company
Exhibit 8: Strong Pick up in revenues led by Saudi Arabia JV
with Al-Sharif
Subsidiary Revenue (INR m)
YoY growth (%)
Exhibit 9: Operating margins improves led by execution of
better margin orders in Saudi Arabia JV
Subsidiary EBIDTA (INR m)
Margin (%)
Source: MOSL, Company
Source: MOSL, Company
28 July 2015
3

Spotlight
update | KEC International
Exhibit 10:
Key project wins in 1QFY16
Order Description
Pipeline laying project
220 KV S/C supply, delivery, installatin and commissioning of 110kms
Supply of tranmission towers to Poland
765 KV D/C Chittorgarh-Ajmer transmission line (Part I and II) of 150 kms
Region
India
Botwasana
Poland
India
INR B
0.4
1.2
1.5
4.4
Source: Company, MOSL
Key Con-call takeaways
NWC increases to 110 days in 1QFY16, vs 99 days QoQ led by incease in
receivables days during the quarter.
Management guided that Interest cost going ahead will be in the range of 3% of
led by restructuring of high cost debt and partial repayment of debt. Gross debt
on the books stands at INR24b
Legacy orders worth INR400m will be completed within next 2 quarters.
T&D capex has witnessed robust traction from SEBs like Tamil Nadu
Maharashtra, Karnataka and West Bengal. KEC expects ordering from SEB’s to
the tune of INR200b on per annum basis going ahead. SEB order book stands at
~INR14b
KEC expects strong traction on T&D segment led by demand from BOOT project
developers.
Substation order book stands at INR15b led by surge in orders from GIS
substation segment.
Robust business traction is witnessed from Middle East
KEC has bid for projects worth INR100b and is L1 in projects of more than
INR35b.
Activity to pick up in Mexico in next 2 quarters and has started witnessing pick
up in Brazil. Brazil Factory booked till 2QFY17.
28 July 2015
4

Spotlight
update | KEC International
Financials and valuations
Income Statement
Y/E March
Total Revenues
Change (%)
Raw Materials
Staff Cost
Other Expenses
EBITDA
% of Total Revenues
Other Income
Depreciation
Interest
Exceptional Items
PBT
Tax
Rate (%)
Adjusted PAT
Extra-ordinary Income (net)
Reported PAT
Change (%)
Adj. Consolidated PAT
Change (%)
2010
39,072
14.0
29,709
1,689
3,616
4,059
10.4
10
270
865
-
2,934
1,037
35.3
1,897
-
1,897
62.4
1,897
62.4
2011
44,765
14.6
32,358
2,748
4,892
4,768
10.7
69
408
1,176
85
3,168
1,111
35.1
2,057
84.9
2,142
12.9
2,142
12.9
2012
58,147
29.9
43,173
4,274
5,987
4,713
8.1
616
479
1,597
10
3,243
1,150
35.5
2,093
9.8
2,103
(1.8)
2,103
(1.8)
2013
69,795
20.0
53,301
4,829
7,852
3,814
5.5
160
561
1,944
1
1,468
818
55.7
650
1.4
652
(69.0)
652
(69.0)
2014
79,018
13.2
59,594
5,661
8,831
4,933
6.2
138
705
2,632
182
1,551
883
57.0
668
668
2.5
849
30.3
2015
84,678
7.2
64,527
5,865
9,168
5,118
6.0
116
881
3,089
(1,351)
2,615
1,001
38.3
781
1,614
141.7
781
(8.1)
(INR Million)
2016E
2017E
92,963
99,638
9.8
7.2
69,235
73,161
6,745
7,756
10,085
11,094
6,898
7,627
7.4
7.7
100
100
875
968
2,856
2,962
-
-
3,267
3,797
1,307
1,367
40.0
36.0
1,960
2,430
1,960
21.4
1,960
151.0
2,430
24.0
2,430
24.0
Balance Sheet
Y/E March
Share Capital
Reserves
Net Worth
Minority Intetest
Loans
Deferred Tax Liability
Capital Employed
Gross Fixed Assets
Less: Depreciation
Net Fixed Assets
Capital WIP
Investments
Goodwill
Curr. Assets
Inventory
Debtors
Cash & Bank Balance
Loans & Advances
Other Current Assets
Current Liab. & Prov.
Creditors
Other Liabilities
Net Current Assets
Application of Funds
2010
514
7,357
7,871
-
7,867
461
16,199
8,357
1,570
6,787
383
30
-
26,775
2,498
19,624
698
3,956
-
17,775
16,254
1,522
8,999
16,200
2011
514
8,952
9,466
-
14,322
497
24,284
10,382
2,366
8,016
393
-
2,812
35,873
3,359
26,177
1,614
4,723
-
22,809
17,848
4,962
13,063
24,284
2012
514
10,564
11,078
-
12,392
513
23,983
10,949
2,852
8,097
1,122
-
3,209
43,081
4,401
29,448
2,111
5,101
2,020
31,526
21,835
9,691
11,555
23,983
2013
514
10,958
11,472
-
16,690
621
28,783
13,300
3,519
9,781
301
-
3,424
48,840
3,960
34,305
1,641
6,618
2,317
33,564
24,671
8,893
15,276
28,783
2014
514
11,402
11,916
-
21,296
514
33,725
14,026
4,283
9,742
180
-
3,778
60,197
5,052
43,726
1,521
7,106
2,791
40,171
32,131
8,041
20,025
33,725
2015
514
12,784
13,298
-
20,451
527
34,277
13,557
4,747
8,811
-
-
3,943
64,518
4,764
38,529
2,063
9,507
9,655
42,995
33,248
9,747
21,523
34,277
2016E
514
14,269
14,783
-
23,560
527
38,871
14,393
5,622
8,771
200
-
3,778
70,044
6,113
51,441
1,793
7,641
3,056
43,923
35,657
8,266
26,122
38,871
2017E
514
16,112
16,626
-
22,010
527
39,163
15,393
6,590
8,803
200
-
3,778
75,323
6,279
50,911
6,668
8,189
3,276
48,941
38,217
10,724
26,382
39,163
28 July 2015
5

Spotlight
update | KEC International
Financials and valuations
Ratios
Y/E March
Basic (INR)
Adj EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
EV/EBITDA
EV/Sales
Price/Book Value
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios
Debtors (Days)
Inventory (Days)
Creditors. (Days)
Asset Turnover (x)
Leverage Ratio
Debt/Equity (x)
2010
7.4
8.4
30.6
1.2
18.9
2011
8.3
9.6
36.8
1.2
16.7
2012
8.2
10.0
43.1
1.2
17.0
2013
2.5
4.7
44.6
0.5
23.0
2014
3.3
5.3
46.3
0.6
24.1
2015
3.0
6.5
51.7
0.9
29.6
2016E
7.6
11.0
57.5
1.6
24.2
2017E
9.5
13.2
64.7
1.9
24.2
25.4
8.4
0.5
1.8
0.8
48.1
8.9
0.5
1.9
0.5
19.3
8.6
0.6
2.6
1.8
15.6
7.0
0.5
2.3
2.3
24.1
24.1
22.6
18.6
19.0
20.7
5.7
12.1
7.1
13.1
4.0
13.0
13.3
16.0
14.6
17.5
183
23
152
2.4
213
27
146
1.8
185
28
137
2.4
179
21
129
2.4
202
23
148
2.3
192
21
143
2.5
202
24
140
2.4
187
23
140
2.5
1.0
1.5
1.1
1.5
1.8
1.7
1.6
1.3
Cash Flow Statement
Y/E March
PBT before EO Items
Add : Depreciation
Interest
Less : Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
EO Income
CF from Oper. Incl. EO Items
(Inc)/Dec in FA
Free Cash Flow
Investment in liquid assets
CF from Investments
(Inc)/Dec in Debt
Less : Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
28 July 2015
2010
2,934
270
865
1,037
(3,230)
(198)
85
(198)
(1,907)
(2,105)
(0)
(1,907)
1,812
865
359
1,393
(713)
1,411
698
2011
3,253
408
1,176
1,111
(3,148)
578
10
493
(4,847)
(4,354)
30
(4,817)
6,490
1,176
359
5,239
915
698
1,613
2012
3,253
479
1,597
1,150
2,006
6,185
10
6,176
(1,693)
4,482
0
(1,693)
(1,914)
1,597
359
(3,986)
497
1,614
2,110
2013
1,470
561
1,944
818
(4,192)
(1,035)
1
(1,037)
(1,745)
(2,782)
0
(1,745)
4,406
1,944
151
2,312
(470)
2,111
1,641
2014
1,733
705
2,632
883
(4,869)
(682)
182
(863)
(957)
(1,821)
0
(957)
4,498
2,632
180
1,700
(120)
1,641
1,520
2015
1,260
881
3,089
1,001
(3,061)
1,168
(1,351)
2,519
483
3,002
-
483
859
3,089
180
(2,395)
607
1,521
2,128
2016E
3,267
875
2,856
1,307
(3,244)
2,447
-
2,447
(871)
1,577
-
(871)
1,419
2,856
474
(1,911)
(335)
2,128
1,794
2017E
3,797
968
2,962
1,367
4,615
10,975
-
10,975
(1,000)
9,975
-
(1,000)
(1,550)
2,962
588
(5,100)
4,875
1,793
6,668
6

Spotlight
update | KEC International
Corporate profile: KEC International
Company description
KEC International (KECI) is an RPG group company,
which specializes in undertaking EPC contracts
across segments like Power Transmission &
Distribution, Telecom and Water. KECI has over five
decades of experience in designing, manufacturing,
testing, supply and erection of transmission lines up
to 1,200kV on turnkey basis.
Exhibit 11: Sensex rebased
Exhibit 12: Shareholding pattern (%)
Jun-15
Promoter
DII
FII
Others
50.4
25.5
4.7
19.4
Mar-15
50.1
26.2
4.7
19.0
Jun-14
50.0
30.2
4.9
15.0
Exhibit 13: Top holders
Holder Name
HDFC Trustee Company Ltd
Reliance Capital Trustee Company Ltd
UTI
LIC of India
FIL Investments (Mauritius) Ltd
% Holding
9.0
4.8
3.5
3.2
2.6
Note: FII Includes depository receipts
Exhibit 14: Top management
Name
H V Goenka
Vimal Kejriwal
Designation
Chairman
Managing Director & CEO
Exhibit 15: Directors
Name
H V Goenka
Vimal Kejriwal
S M Trehan
S S Thakur
D G Piramal
Name
A T Vaswani
S M Kulkarni
G L Mirchandani
Nirupama Rao
Vinayak Chatterjee
*Independent
Exhibit 16: Auditors
Name
Deloitte Haskins & Sells
Kirit Mehta & Co
Type
Statutory
Cost Auditor
Exhibit 17: MOSL forecast v/s consensus
EPS (INR)
FY16
FY17
MOSL forecast
7.6
9.5
Consensus
forecast
-
-
Variation (%)
-
-
28 July 2015
7

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