KEC International Limited - Execution pickup - 1QFY14 Results Review - Antique

The company reported marginal adjusted profit of INR36m in 1QFY13 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 seven due to cost-of- in new businesses. The company continues to have comfort of strong order book with growth 6.3% YoY to INR100.5bn during the quarter. The management highlighted benefit of new orders are at healthy margins. However, in medium term financials will continue to impact as company is executing legacy projects worth ~INR3.5bn which are coming to completions. We maintain HOLD.

Valuation and outlook

At CMP of INR25, the stock is trading at 10.7xFY14e and 6.9xFY15e and P/BV of 0.6xFY14e. We have revised our margin estimates for FY14 from 5.6% to 5.2% considering weak outlook in profitability of new vertical while expect 30bps improvement in FY15 to 5.5%. We have cut earnings from INR5.1 to INR2.3 in FY14e and from INR8.6 to INR3.6 in FY15. We have revised our target price to INR29 (8xFYFY15) from INR51 (10xFY14) and maintain HOLD.

Source : Equity Bulls

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