KEC International order book robust, net working capital to improve | The Financial Express

KEC International order book robust, net working capital to improve

However, any further increase in commodity prices and incremental challenges at SAE Towers are among risks. We maintain ‘buy’ rating on the stock, assigning a multiple of 18x on FY24E EPS and arrive at a target price of Rs 566.

KEC International order book robust, net working capital to improve
The current consolidated order book stands at Rs 30,000 crore.

Supported by a strong order backlog, pick-up in execution and softening commodity prices, earnings of KEC International are likely to grow at a CAGR of 47% over FY22-FY24E. However, any further increase in commodity prices and incremental challenges at SAE Towers are among risks. We maintain ‘buy’ rating on the stock, assigning a multiple of 18x on FY24E EPS and arrive at a target price of Rs 566.

There are are important takeaways from our interaction with the senior management – contribution of transmission and distribution (T&D) business is likely to reduce to 20-25% in the long term from 50% in FY22;  profitability of SAE Towers is likely to return from Q1FY24 onwards with Rs 1,000 crore in revenue and 7-8% EBITDA margin in FY24; and net working capital days are likely to improve Q4FY23 onwards.

Also Read: Sensex, Nifty fall for 2nd straight day on weekly F&O expiry; Bank Nifty looks bullish, use buy on dips

The management reiterated a strong order pipeline at Rs 1.1 trillion across the businesses, of which the company has already participated in tenders worth Rs 35,000 crore. FY23-YTD order inflow stands at Rs 6,000 crore with major orders coming from PGCIL. The current consolidated order book stands at Rs 30,000 crore.

T&D contribution may reduce to 20-25% in the long term: Over the past six years (FY16-FY22), revenue contribution of KEC’s non-T&D business increased from 17% in FY16 to 50% in FY22. This was led by a strong revenue growth in the non-T&D business, mainly civil and railways, which grew at 63% and 62% CAGRs respectively, over FY16-FY22.

SAE Towers profitability to improve from Q1FY24: The execution of legacy orders is likely to be completed by October-November 2022. The company said it will focus on execution of tower supply orders and would be selective in taking up EPC orders.

Strong order pipeline: For FY23, the management guided for an order inflow growth of 15%. On the FY23-YTD basis, the company has received Rs 6,000 crore worth of orders across businesses.

Get live Share Market updates and latest India News and business news on Financial Express. Download Financial Express App for latest business news.