Target: ₹375

CMP: ₹428.65

We attended the KEC International (KEC) Annual Investor Conference for 2022 held on September 14.

We noted the following key takeaways from the call: KEC has guided for an order inflow of ₹20,000 crore for FY23, of which FYTD23 order inflow (OI) stands at ₹6,000 crore (about 30 per cent of FY23 guidance); with the last EPC project expected to be commissioned in Q3FY23, the SAE projects are expected to achieve a positive margin; without EPC projects, the company expects to maintain a margin of 8 per cent on manufactured products in SAE from FY24 onwards; the management has guided that it would bring NWC days down to 125-130 by Q4FY23 and subsequently to 100 by Q4FY24.

With commodity prices cooling off and new order bids based on higher commodity prices, KEC expects margin to move upwards from Q3FY23 onwards. It expects to achieve near double-digit EBITDA margin from FY24.

Given rich valuation and a debt-heavy balance sheet, we maintain Reduce rating on the stock, with a target price of ₹375/share (14x Mar-24E EPS). Substantial debt reduction is key for rerating.

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