GEOJIT BNP PARIBAS Research
Q4FY16 RESULT UPDATE
RETAIL EQUITY RESEARCH
KEC International Limited
BUY
Capital Goods
BSE CODE:532714
NSE CODE: KEC
Bloomberg CODE: KECI:IN
SENSEX:25,772
CMPRs128 TARGET Rs152 RETURN 18%
11th May, 2016
Healthy margins will tune the profitability…
KEC International Limited (KEC) is a global infrastructure Engineering
Procurement and Construction (EPC) major. It has presence in the verticals
of Power Transmission & Distribution, Cables, Railways and Water &
Renewable.
• Q4FY16, PAT grew by 27% YoY to Rs80cr, was in-line with our estimates.
• Revenue growth was muted at 1.5% YoY led by headwinds in commodity
price & delay in conversion on large L1 position into firm orders.
• EBITDA margins improved by 138bps YoY to 8.7% in Q4FY16 led by
222bps drop in operational cost due to lower commodity prices.
• The visibility of future revenue growth is buoyant led by steady order
book & the conversion of strong L1 orders of Rs4,000cr.
• EBITDA margin recovery is on track as faster execution and benign
commodity will improve margins to 8.8% in FY18E a CAGR of 16% for
FY16-18E.
• We factor revenue & earnings CAGR of 10% and 36% over FY16-18E.
• At the CMP of Rs128 we have a buy rating on the stock valuing at 11x PE
on FY18E EPS of Rs13.8 with a price target of Rs152.
Margins powered by faster execution...
Q4FY16 EBITDA margin hit a 19 quarter high of 8.7%, leveraged by the faster
execution and drop in operational cost. The operational cost as a percentage of
sales has come down by 222bps to 73.8% YoY. We expect the EBITDA margins
will improve further to 8.5% & 8.8% YoY in FY17E & FY18E respectively due to
the benefit from high margin order book and completion of legacy orders.
Order intake delayed, outlook remains healthy…
Q4FY16 order intake declined by -8.6% YoY owing to delay in conversion of large
L1 orders of Rs4,000+cr, however, for the full year order intake went up by 6%
YoY to Rs8,714cr. The recent conversion of L1 orders of Rs1,140cr in the month of
April’16 is providing the scope for further growth in the order-book. Additionally,
the key verticals like railway & solar is witnessing traction. Management allude
the turnaround in SAE tower business and the continued order inflow from SEBs
(State Electricity Board) & Power grid could be the key drivers for the growth. We
expect KEC is likely to receive an order inflow of Rs10,108cr & Rs12,130cr
respectively in FY17E and FY18E, which will drive the order book by 18% CAGR
over FY16-18E.
Company Data
Market Cap (cr)
Rs3,317
Enterprise Value (cr)
Rs5,641
Outstanding Shares (cr)
25.7
Free Float
49.15%
Dividend Yield
0.7%
52 week high
Rs165
52 week low
Rs94
6m average volume (cr)
0.05
Beta
2.44
Face value
Rs2
Shareholding %
Promoters
Q2 FY16
50.54
FII’s
MFs/Insti
Public
Others
Q3 FY16
50.54
Q4 FY16
50.85
6.71
5.87
6.8
25.99
25.9
26.4
17.6
16.8
16.0
-
-
-
Total
100%
100%
100%
Price Performance
3mth
6mth
1 Year
20%
-8%
29%
Absolute Return
Absolute Sensex
8%
0
-6%
Relative Return*
10%
-7%
37%
*over or under performance to benchmark index
KEC International
200
Sensex Rebased
100
0
Mar-15
Aug-15
FY16
FY17E
85.2
92.0
103
Growth (%)
0.6
7.6
12.7
PAT to grow @ 36% CAGR over FY16-18E...
EBITDA
6.8
7.8
9.1
The contraction in other income by 87% and increase in tax expenses by 40%
restricted the PAT growth in Q4 at 27% YoY to Rs79cr. However, the benefit from
operational efficiencies and high margin orders played the key roles for this
growth. In FY16, adj. PAT grew by 172%, the reduction in interest expenses by
10% has also benefited the growth. We expect, PAT to grow by 36% CAGR over
FY16-18E, led by faster execution of high margin orders, falling interest cost and
reduction in tax expenses.
Margin (%)
8.0
8.5
8.8
Valuations
We believe the healthy orders & improvement in SAE business will leverage the
margins and earnings growth. We improve our FY17E and FY18E EBITDA margin
estimates by 40bps & 20bps respectively. We factor 10% & 36% CAGR on sales &
adj. PAT over FY16-18E and value KEC at 11x P/E on FY18E earnings and
recommend a buy with a target price of Rs152.
May-14
Oct-14
Y.E Mar (Rsbn)
Sales
PAT Adj
Growth (%)
Adj.EPS
Jan-16
FY18E
1.9
2.6
3.5
172.3
36.2
35.8
7.4
10.1
13.8
172.3
36.2
35.8
P/E
17.3
12.7
9.4
P/B
2.2
1.9
1.6
EV/EBITDA
8.3
7.4
6.5
13.5
16.0
18.5
1.5
1.5
1.3
Growth (%)
RoE (%)
D/E
Antu Eapen Thomas
Analyst
Quarterly Financials (Consolidated)
Profit & Loss Account
(Rs cr)
Q4FY16
Q4FY15
2,559
2,521
1.5
2,059
24
223
185
21
161
39
Sales
EBITDA
Depreciation
EBIT
Interest
Other Income
Exceptional Items
YoY Growth %
Q3FY16
QoQ Growth %
22
22
-3
22
-2
201
162
24
139
45
71
71
-0.7
67
5
1
9
-87
2
-52
-
-
-
-
-
PBT
132
100
32
73
79
Tax
52
38
40
36
43
Reported PAT
80
63
27
37
115
Adjustment
-
-
-
-
-
80
63
27
37
115
25.7
25.7
25.7
25.7
3.1
2.45
1.5
115
Adj PAT
No. of shares (mn)
EPS (Rs)
Old estimates
Year / Rs cr
Revenue
EBITDA
27
New estimates
FY17E
9,601
FY18E
11,031
778
949
Margins (%)
8.1
8.6
PAT
255
344
EPS
9.9
13.4
Change %
FY17E
9,164
779
FY18E
10,331
909
FY17E
-5
FY18E
-6
8.5
8.8
0.2
-4
261
354
40bps
20bps
10.1
13.8
2
3
2
3
Consolidated Financials
Profit & Loss Account
Y.E March (Rscr)
Sales
% change
EBITDA
% change
Depreciation
EBIT
Interest
Other Income
PBT
% change
Tax
Tax Rate (%)
Reported PAT
Adj*
Adj PAT
% change
No. of shares (mn)
Adj EPS (Rs)
% change
DPS (Rs)
CEPS (Rs)
FY14
7,902
13.2
493
29.3
71
423
263
14
155
6
88
57
67
(18)
85
30.3
25.7
3.3
30.3
0.7
6
FY15
8,468
7.2
512
3.8
88
424
309
11
261
68
100
38
161
91
70
(17.2)
25.7
2.7
(17.2)
0.7
6
Balance Sheet
FY16
8,516
0.6
679
33
88
592
277
10
325
24
133
41%
192
0
192
172.3
25.7
7.4
172.3
0.7
11
FY17E
FY18E
9,164
7.6
779
15
103
676
295
15
395
22
134
34%
261
0
261
36.2
25.7
10.1
36.2
0.8
14
10,331
12.7
909
17
114
795
300
18
513
30
159
31%
354
0
354
35.8
25.7
13.8
35.8
0.9
18
Net inc. + Depn.
Non-cash adj.
Changes in W.C
C.F.O
Capital exp.
Change in inv.
Other invest.CF
C.F - investing
Issue of equity
Issue/repay debt
Dividends paid
Other finance.CF
C.F - Financing
Chg. in cash
Closing cash
Cash
Accounts Receivable
Inventories
Other Cur. Assets
Investments
Gross Fixed Assets
Net Fixed Assets
CWIP
Intangible Assets
Def. Tax (Net)
Other Assets
Total Assets
Current Liabilities
Provisions
Debt Funds
Other Liabilities
Equity Capital
Reserves & surplus
Shareholder’s Fund
Total Liabilities
BVPS (Rs)
FY14
144
3,939
505
1,234
1,122
827
18
5,25
(51)
1,98
7,338
4,202
125
1,809
10
51
1,140
119
7,338
46
FY15
206
3,853
476
1,411
1,065
731
16
528
(53)
5,05
7,674
4,168
122
2,045
10
51
1,278
133
7,674
52
FY16
111
4,495
430
1,637
1,252
840
20
418
-42
162
8,071
4,111
114
2,325
10
51
1,460
151
8,071
59
FY17E
FY18E
253
4,218
476
1,537
1,377
878
20
678
-40
530
8,550
4,228
121
2,440
10
51
1,701
175
8,550
68
395
4,727
548
1,727
1,527
931
20
669
-37
550
9,529
4,752
127
2,555
10
51
2,033
208
9,529
81
Ratios
Cash flow
Y.E March (Rscr)
Y.E March (Rscr)
FY14
2,23
1,64
(396)
(9)
(162)
26
(136)
(43)
175
1,32
(14)
1,44
FY15
3,49
116
(321)
153
117
0
8
125
106
(17)
(305)
(216)
62
206
FY16E
FY17E
FY18E
412
134
(886)
(340)
83
0
83
0
622
-19
499
159
455
1113
(426)
0
0
(426)
0
-253
-21
628
138
(239)
526
(158)
0
0
(158)
0
95
-22
326
68
111
(545)
142
253
(227)
142
395
Y.E March (Rscr)
Profitab. & Return
EBITDA margin (%)
EBIT margin (%)
Net profit mgn.(%)
ROE (%)
ROCE (%)
W.C & Liquidity
Receivables (days)
Inventory (days)
Payables (days)
Current ratio (x)
Quick ratio (x)
Turnover &Levg.
Gross asset T.O (x)
Total asset T.O (x)
Int. covge. ratio (x)
Adj. debt/equity (x)
Valuation ratios
EV/Sales (x)
EV/EBITDA (x)
P/E (x)
P/BV (x)
FY14
FY15
FY16
FY17E
FY18E
6.2
5.4
1.1
7.3
4.2
6.0
5.0
0.8
5.6
6.8
8.0
6.9
2.2
13.5
7.5
8.5
7.4
2.8
16.0
9.0
8.8
7.7
3.4
18.5
9.8
238.9
30.9
196.8
1.3
0.9
226.9
26.9
188.1
1.4
0.9
262.8
25.2
172.5
1.6
1.1
229.2
26.0
155.3
1.5
1.0
228.0
26.5
162.9
1.5
1.0
7.3
1.2
1.6
1.5
6.7
1.1
1.4
1.5
7.4
1.1
2.1
1.5
7.0
1.1
2.3
1.5
7.1
1.1
2.7
1.3
0.6
10.4
39.0
2.8
0.6
10.5
47.2
2.5
0.7
8.3
17.3
2.2
0.6
7.4
12.7
1.9
0.6
6.5
9.4
1.6
Recommendation Summary (last 3 years)
Dates
200
29thSept,2014*
7th Feb, 2015
11th May, 2015
16th Feb, 2016
11th May, 2016
150
100
Rating
Target
Accumulate
124
Buy
109
Buy
118
Buy
134
Buy
152
50
0
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
Source: Bloomberg, Geojit BNP Paribas Research
*Initiating Coverage
Investment Rating Criteria
Large Cap Stocks;
Buy
Hold
Reduce
Mid Cap and Small Cap;
Buy
Upside is 15% or more.
Accumulate*
Upside between 10% - 15%.
Hold
Absolute returns between 0% - 10%.
Reduce/Sell
Absolute returns less than 0%.
To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and
‘Reduce’ as Sell.
The recommendations are based on 12 month horizon, unless otherwise specified. The investment ratings are on absolute positive/negative return basis. It is
possible that due to volatile price fluctuation in the near to medium term, there could be a temporary mismatch to rating.
* For reasons of valuations/return/lack of clarity/event we may revisit rating at appropriate time. Please note that the stock always carries the risk of being
upgraded to BUY or downgraded to a HOLD, REDUCE or SELL.
-
Upside is 10% or more.
Upside or downside is less than 10%.
Downside is 10% or more.
General Disclosures and Disclaimers
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I, Antu Eapen Thomas, author of this Report, hereby certify that all the views expressed in this research report reflect my personal views about any or all of
the subject issuer or securities. This report has been prepared by the Research Team of Geojit BNP Paribas Financial Services Limited, hereinafter referred to
as GBNPP.
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