KEC International Q2 Review - Robust Execution But An Elevated Debt Level Poses Concerns: Axis Securities

Axis Securities Report

KEC International Ltd. reported a mixed set of numbers in Q2 FY24 with revenues at Rs 4,499 crore (up 11% YoY), Ebitda of Rs 274 crore, up 54% YoY (below expectation), and profit after tax of Rs 56 crore, up 1% YoY (below expectations).

PAT was impacted owing to higher finance charges during the quarter. KEC International's Ebitda stood at 6.1% in Q2 FY24 versus 4.4% in Q2 FY23. Interest costs were higher by 39% on a YoY basis on account of an increase in debt levels and higher interest costs.

The order book break up is as follows: 48% from transmission and distribution, 33% from civil, 13% from railways, 2% from solar, 2% from oil and gas, and 2% from cables. The non-T&D and T&D share in the order intake currently stands at 52:48, indicating a decreasing dependency on the T&D segment.

Outlook:

KEC International has a well-diversified and robust order book plus an level one position which gives healthy revenue visibility for the next two years. Moreover, favourable government thrust on building infrastructure as seen in Budget 2023-24 and the revival of private capex are boosting the overall sentiments, which will auger well for the company moving forward.

Valuation and recommendation:

The stock is currently trading at 16 times FY25E earning per share. We maintain our 'Hold' rating on the stock with a target price of Rs 600/share, implying a downside of 2% from the current market price.

Key Risks to our estimates and target price

• Lower order intake may impact revenue growth.

• A rise in commodity prices may impact margins.

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