Buy KEC International; target of Rs 322: HDFC Securities

Buy KEC International; target of Rs 322: HDFC Securities

The key points to take from KEC’s FY20 AR are as follows:

    •  a geographically highly diverse order book and a strong pipeline; International T&D (SAARC / MENA, former SAE) and Civil & Railways continue to grow in FY21E; 
    •   Moderate profitability in FY20;
    • Rising borrowing cost (current interest rate <7%) reduced (FY20 finance cost 2.8%; -20 bps YoY); ~ 55% of debt is in forex;
    • A steady increase in WC intensity has led to a reduction in CFO / EBITDA over the past two years, but the NWC has remained stable. Our channel inspections for capital goods indicate that diversified companies are seeing a rapid recovery in execution because, although the international activity is largely unaffected, the labor situation is improving locally.

Outlook:

We have increased FY21/22E revenue/PAT by 8/10.3% and 22.9/17.2% respectively. We roll forward 12x P/E based valuation to Jun-22E and maintain BUY with an increased target price of RS.322.

The key risks to our call:

  • adverse currency/commodity movement
  •  further delay in CAPEX recovery
  • the slowdown in government T&D spend
  • labor shortage

Disclaimer: The perspectives and investment tips are given in this section are the expert’s own and not that of the website or its management. We encourage clients to check with certified experts before taking any position in the stocks/shares mentioned.

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