Express Idea: KEC International Ltd – BUY

KEC managed to report revenue CAGR of 20.9% over FY11‐14 on the back of its diversification exercise. However, margins for the company remained under pressure. We believe that margins for KEC have formed a trough and would expand going ahead due to execution f legacy orders by Q2 FY15 and higher share of transmission orders of total order book. We expect debtor days to decline over the next two years leading to a decline in interest costs. Earnings CAGR of 71% over FY14‐16E is being supported by faster execution, margin expansion and lower finance costs. KEC stock price has corrected by ~25% over the last 2‐months and valuations appear attractive at 9.6x FY16 earnings, given the strong growth in earnings over FY14‐16E.

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