Strong execution momentum intact
Operating performance in line with estimates
KEC International (KECI) posted Q1FY20 sales/EBITDA growth of ~14.6%/16.2% yoy respectively led by strong execution from railways (+67% yoy) and T&D (domestic: +28.5% yoy & international: +13% yoy) businesses. Adjusted PAT was up 4% yoy due to higher interest outgo of Rs795mn (up 23% yoy) & depreciation expenses of Rs366mn (up 23% yoy). Net working capital stood at 120days as company continues to focus on reduction in receivables from Saudi. Net debt has increased to Rs22.8bn from Rs17bn in Q4FY19 in line with the guidance for average borrowings of Rs25bn in FY20. Management has retained its guidance of ~15-20% revenue growth with EBTIDA margins of ~10.5% in FY20E. While the interest cost/sales ratio stands at ~3.3% in Q1FY20, management is hopeful of reducing it to ~2.7% by FY20.
Expect strong order inflows in 2HFY20
KECI has a strong order book of Rs225bn (including L1) implying book to bill ratio of 2.2x on a TTM basis, which led to management reiterating its revenue guidance of 15-20% for FY20, led by scalability in the nonT&D business and stable execution in the T&D segment. KECI is moving up the scale through diversified EPC presence by foraying into high-growth verticals such as railways, solar, civil and cables. 2HFY20 should be a much better for ordering in India with both state and TBCB projects boosting current order pipeline. Hence, KECI has retained order inflow guidance of Rs160-170bn for FY20. Given the healthy order backlog, good ordering pipeline and its ability to ramp-up execution, we expect revenue and earnings CAGR of 16% and 22%, respectively, over FY19-FY21E. We broadly retain our sales/margin estimates and reiterate ‘BUY’ rating with TP of Rs364 at 13x FY21E EPS.
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