BUY KEC International - Growth levers in place: AnandRathi Institutional Research

KEC International - Growth levers in place; maintaining our Buy with a target price of Rs 164

To discuss the present state of affairs and the way forward, KEC International hosted its annual investor meet. We return from the meet upbeat as the decision to broad-base geographic expansion and service offerings and a keen focus on cashflows would drive profitable growth. Also, prospects of healthy inflows lead to our sanguine view. We retain our Buy rating due to our FY16-18e CAGR of 20%+ earnings and the constantly improving return ratios. Key takeaways from the meet:

Broad-based geographic expansion and service offering: To further de-risk its business model, management intends to diversify into east Asia (Indonesia, Thailand, Malaysia) and the SAARC nations. In MENA, efforts are underway to expand into Jordan, the UAE and Egypt. Besides geographic expansion, management intends to broaden its service offerings to de-risk the business from the vagaries of any one segment.

Sees UDAY as a long-term positive: Management sees implementation of UDAY to bring with it accountability and transparency, which it believes would push state utilities to invest in infrastructure.

Structural changes to rationalise competition:The increase in order-package sizes, shorter execution-timelines and preference for good contractors are among the structural changes the management identifies to counter competition.

Solar and Railways to drive revenue growth: Management expects these two to deliver ~Rs. 7bn-8bn revenue in FY17; up ~130% yoy in overall targeted revenue growth of ~10%.

Valuation: At the CMP, the stock trades at PE of 15.3x FY17e and 12.7x FY18e. We value it at a PE of 15x FY18e to arrive at a target of Rs. 164. Risks. Slowdown in order awards, keener competition. Any sharp rise in commodity prices would not be good for fixed-price contracts (to the extent unhedged).

Shares of KEC INTERNATIONAL LTD. was last trading in BSE at Rs.144.15 as compared to the previous close of Rs. 143.85. The total number of shares traded during the day was 68108 in over 1330 trades.

The stock hit an intraday high of Rs. 145.75 and intraday low of 142.35. The net turnover during the day was Rs. 9819999.

Source : Equity Bulls

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