The stock of KEC International rose about 3% in morning trade on BSE on September 15, a day after the parent group's investor meet.
KEC International is the flagship company of the RPG Group and the RPG Annual Investor Conference 2022 was held on September 14 in Mumbai.
KEC is an engineering, procurement, and construction (EPC) major, that primarily deals in power transmission and distribution, railways, civil, urban Infrastructure, solar, smart infrastructure, oil & gas pipelines, and cables, as per the company's website.
This stock has disappointed investors year to date (YTD), falling over 9% till September 14 against a nearly 4% gain in the benchmark Sensex.
Some brokerage firms say the stock can jump as much as 30%.
Brokerages upbeat
Brokerage firms have retained faith in KEC International's stock after interacting with the company's management on September 14. They see most challenges ebbing for the company and a bright possibility of decent growth.
After meeting with senior management of KEC International at the RPG Annual Investor Conference 2022, brokerage firm ICICI Securities maintained a buy call on the stock with a target price of ₹566, implying a 30% upside in the stock's September 14 closing of ₹435.30 on BSE.
As per the brokerage firm, the company's transmission and distribution (T&D) business contribution are likely to reduce to 20-25% in the long term from 50% in FY22 while the profitability of SAE Towers is likely to return from Q1FY24 onward with ₹1,000 crore in revenue and 7-8% EBITDA margin in FY24.
ICICI said the company's net working capital (NWC) days are likely to improve from Q4FY23 onward driven by easing of inventory requirements with stabilisation of commodity prices, completion of legacy EPC orders at SAE Towers and a greater focus on execution of tower-supply orders, release of tax credit (input) and of payments by the Railways on ad hoc basis related to materials supplied along with milestone-basis earlier.
"Domestic T&D ordering has picked momentum and this is likely to continue. Management reiterated a strong order pipeline at ₹1.1 lakh crore across the businesses, of which the company has already participated in tenders worth ₹35,000 crore. FY23-YTD order inflow stands at ₹6,000 crore with major orders coming from PGCIL. The current consolidated order book (including L1) stands at ₹30,000 crore (2 times TTM sales)," said ICICI Securities.
Due to solid order backlog, pickup in execution and easing commodity prices, the brokerage firm expects KECI’s earnings to grow at a CAGR of 47% over FY22-FY24E.
"We maintain our buy rating on the stock, assigning a multiple of 18 times on FY24E earnings per share (EPS) and arrive at a target price of ₹566. Any further increase in commodity prices and any incremental challenges at SAE Towers are the key risks," said the brokerage firm.
Brokerage firm Emkay Global Financial Services also has maintained a buy call on the stock while raising the target price to ₹540 from ₹495.
The brokerage firm believes that FY24 would be a clean year as SAE Tower’s (SAE) losses would cease to exist and margin impact due to high commodity prices would recover earlier.
"SAE Towers, reporting losses for the past two years due to delays and high commodity costs, will likely complete the last leg of its EPC projects by Oct-Nov 2022. For FY24, management expects nearly 8% growth in SAE’s margin," Emkay observed.
The brokerage firm highlighted that the company's civil section has been the driving force in the near term and will be adding to growth as Railways did a few years back. Diversification (Non-T&D FY22 revenue stood at 50% vs. 17% in FY16) has helped the company maintain healthy sales growth over the years, Emkay said.
"We roll forward our valuation to Sept’23 with a revised target price of ₹540 (earlier ₹495). We introduce FY25 EPS at ₹40, largely in line with consensus estimates with nearly 10% margin," said Emkay.
Brokerage firm Prabhudas Lilladher has an 'accumulate' call on KEC International with a target price of ₹473.
"We remain positive on KEC in the long run given its (1) strong order book, (2) healthy execution momentum, (3) strong domestic and international T&D outlook and (4) strong growth visibility from non-T&D segments like civil, railways, oil & gas, etc.," said the brokerage firm.
"Given the healthy tender pipeline and reviving margin profile we expect KEC to report revenue CAGR of about 15% and PAT CAGR of nearly 59% (amidst low base) from FY22 to FY24E. The stock is trading at a PE of 20.3 times and 11.9 times FY23E and FY24E, respectively. We maintain accumulate rating on the stock with a target price of ₹473, valuing it at PE of 13 times FY24E," said Prabhudas Lilladher.
According to a MintGenie poll, an average of 20 analysts have a ‘buy’ call on the stock.
Disclaimer: The views and recommendations given in this article are those of the broking firms. These do not represent the views of MintGenie.
