KEC International Research Report By Nirmal Bang

Driven by better margin T&D orders, stabilisation of SAE Towers & cable business and completion of legacy projects in railway & water segments, KEC is poised to register a healthy expansion in its operating margin profile. While the management retained its operating margin guidance of 8.0% for FY16, we have factored in lower margin recovery of 7.2%/8.1% for FY16E/FY17E, respectively. This is expected to result in a 190bps operating margin expansion over FY14-FY17E, leading to a 46% adjusted earnings CAGR versus a 26% CAGR decline reported over FY11-FY14. A healthy rise in return ratios (RoE expected to rise from 5.7% in FY14 to 16.9% in FY17E) and reasonable valuation along with a high scalability potential owing to a strong T&D capex outlay likely over the next three to five years in India led us to retain Buy rating on KEC. We have also retained our target price of Rs124 on the stock based on 12xFY17E earnings (median P/E of past seven years is 13.6x).

Download KEC International Management Meet Update-27 March 2015