Stock analysis: KEI Industries surges 142% in the past year; Still a buy?

Krishna Electrical Industries began as a partnership firm in 1968, with the primary commercial operation of manufacturing house wiring rubber cables, and has since developed into a global powerhouse that provides complete wire and cable solutions. Customers in over 45 countries can place their orders through a broad network of 5000+ channel partners.

KEI has a 7% market share in India's organised Wires & Cables industry. They have a 12 percent market share in the institutional segment.

It is one of the few companies in India that produces speciality cables such as braided cables, fire survival cables, and zero halogen cables. ACC, Chambal Fertilizers, Birla Copper, Larsen & Toubro, Suzlon Energy, Tata Power, INOX Multiplex, Intel Computers, ONGC, Wipro Software, ITC, Ranbaxy, and many others are among the company's clients.

The company's shares are traded on the Bombay Stock Exchange (BSE), the National Stock Exchange (NSE). The GDR and FCCB of the company are traded on the Luxembourg Stock Exchange.

Industry Overview

The wire and cable business accounts for about 40% of the total electrical industry in India. It is increasing at a CAGR of 15%, mainly to the country’s expanding electricity and infrastructure industries.

The Indian wires and cables industry grew at a CAGR of almost 13% in value terms over the last five fiscal years, reaching Rs. 646 billion in FY 2018-19, according to the research. By FY-2023-24, the sector is expected to increase at a CAGR of around 11%, reaching Rs. 1,000-1,100 billion. From 2009 to 2019, India became a net exporter of cables and wires, thanks to double-digit yearly growth of 12%.

In 2020, the rapid spread of COVID-19 had a significant impact on industrial operations in important industries including,  aerospace, IT and telecom, electrical equipment, and construction in India.

The market is likely to be driven by factors such as increased renewable power generation in India, expansion and revamping of T&D infrastructure in India, and increased investments in metro railroads.

Over the last few years, the Indian government has made major investments in infrastructure development programmes. For example, in its 2019 annual budget, the country earmarked additional cash for the expansion of the railway sector. In addition, the Ministry of Power (India) is investing heavily to electrify all villages in the country by 2021.

Furthermore, the rising demand for reliable power supply, as well as the growing emphasis on renewable energy, are likely to present many potential prospects for market vendors during the forecast period.

Product portfolio

HT Cables– KEI manufactures HT XLPE cables up to 33KV at the Bhiwadi plant. KEI offers a variety of designs to suit different installations viz. Aerial Bunched Cables, Watertight construction, Stainless steel armouring, for Offshore and Ship installations etc.

LT Cables–The Company manufactures LT power cables with PVC or XLPE insulation of voltage grade up to 3.3 KV.

Instrumentation cables– Under this, the company manufactures wide range of cables used by industries namely power generation and distribution, chemical and fertilizer industries and various other types of engineering industries.

Company also manufactures Rubber wires, house wires, single/multicore flexible wires, winding wires and stainless-steel wires.

Financial Performance

KEI Industries reported a 33% rise in net profit to ₹101.2 crore on a 35.6% increase in net sales to ₹1,564 crore in Q3 FY22 over Q3 FY21. Profit before tax rose 33.8% to ₹135.80 crore in Q3 FY22 from ₹101.46 crore posted in Q3 FY21.

EBITDA stood at ₹159 crore in Q3 FY22, rising 23% from ₹129 crore posted in Q3 FY21. The company's net debt declined to ₹84 crore as of 31 December 2021 from ₹152 crore as of 31 March 2020.

KEI said it has a pending order book of ₹2,994 crore as of 31 December 2021.

Stock Performance

In the last 1 year, the stock of KEI Industries has surged nearly 142 per cent, as compared to a 22 per cent rise in the Sensex. Moreover, in the past six months, it has rallied 23 per cent as against a 2.18 per cent rise in the benchmark index.

Further, over the past five years, the market price of KEI Industries has zoomed 532 per cent, as compared to a 105 per cent surge in the Sensex.

Future Plans

KEI industries are planning to set up a dealer network in the United Kingdom for general-purpose projects and for the Oil and Gas sector. It also plans to venture into the Business of EHV Power Cables by way of having either a JV or Technical Collaboration with a cable company. The company also has an interest in venturing into the EPC Business with a nuclear team of professionals with prior experience in EPC Projects.

The macroeconomic environment remains favourable for the cable and wire industry. The increased CAPEX allocation in the recent budget is positive for the industry. Similarly, KEI Industries sees a strong revival in real estate across major cities.

Note: The above information is provided solely for educational purposes. Investing in financial markets involves risk; therefore, before making investment decisions, please consult your financial advisor.