KEC International Limited - Margin disappointment - ANTIQUE

The company reported loss of INR138m in 4QFY13 as projects from new business impacted profitability with cost run in already low margin orders. The company's profitability has been significantly impacted over last six quarters due to cost-of- in new businesses. The company continues to have comfort of strong order book with growth 10% YoY to INR94.7bn during the quarter. The management highlighted benefit of new orders are at healthy margins and cost restructuring going ahead. However, in medium term financials will continue to impact as company is realizing cost as projects are coming to completions.

Valuation and outlook

At CMP of INR48, the stock is trading at 9.7xFY14 and 5.7xFY15 and P/BV of 1.1xFY13.We have revised our margin estimates for FY14 from 7.1% to 5.6% considering weak outlook in profitability of new vertical while expect marginal improvement in FY15. We have revised our target price to INR51 (10xFY14) and rating to HOLD.

Source : Equity Bulls

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