Has a Buy Rating since 30-11-2009 with a Target of 675.00
Comments
Buy KEC International KEC International
Buy
Price: Rs564 Target Price (Sep 10): Rs675
Brighter quarters ahead
We met with the management of KEC International. Key takeaways:
* Strong order pipeline both domestic and international: KEC continues
to record healthy order inflows and has received Rs7.2 bn worth of orders
since October’09, out of which Rs5.1 bn are overseas orders. It expects
strong order inflows in the coming quarters too as visibility in the
international markets is improving. Domestically, PGCIL is expected to order
out large number of projects (~Rs90-100 bn) in next 4 months 2H10 vs.
Rs30 bn in 1H10, similar to last years’ trend (Rs102 bn in 2H09 vs. Rs36 bn
in 1H09).
* US market seen as next leg for growth: KEC management expects US
market to provide next leg for growth and is on a lookout for possible
acquisition or a JV with a local partner, to enhance its presence. The
National Renewable Energy Laboratory recently published a report
concluding that inadequate transmission capacity is the primary cause of all
wind energy curtailment, followed by US Govt. announcing US$3.4 bn
grants to upgrade the country's aging electric grid. Matched by 1:1 funding
by private sector, total investments may cross US$7 bn for grid expansion
in the US.
* Introduce FY12; include RPG Cables: We increase earnings by 8.3% and
7.5% for FY10E and FY11E respectively, as ~Rs1.6 bn accumulated losses
at RPGC will be offset against taxable PBT. We cut our operating margins
estimate to 10.6% (from 10.8%) for FY10E and 10.2% (from 10.7%) for
FY11E primarily due to low margin (4-6%) RPGC business merger. We also
introduce FY12E with an EPS of Rs60 (+15.4% YoY) on the diluted capital of
Rs514 mn. While the merger is expected to be ROCE dilutive, tax benefits in
next 2 years will increase returns.
* Upgrade to Buy with Sep’10 target price of Rs675: While operational
performance has been tad below expectations so far, we see better visibility
in the order inflows both domestically and internationally in next 2 quarters.
KEC does not have any exposure to Dubai, but the Middle East region
accounts for Rs9.0 bn (~17%of total OB) and we don’t see any reason for
concern from Dubai’s debt crisis. We continue to value KEC at 12x (inline
with sector), but roll forward to Sep’11 adjusted EPS of Rs56 to get a target
price of Rs675 (Rs580). Upgrade to Buy on incremental 20% upside and
robust order visibility.
Has a Buy Rating since 26-06-2009 with a Target of 477.00
Comments
Angel Broking Angel Broking has recommended a buy rating on KEC International with a price target of Rs 477.
KEC derives close to 63% of its revenue from its overseas operations and is expected to clock
good growth in this space as well.
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