Anand Rathi

KEI Industries (Buy)

CMP: ₹319.1

Target: ₹441

KEI’s flattish revenue/PAT, though short of estimates, were quite encouraging. The healthy 9.6 per cent EBITDA margin was down 134 bps y-o-y, 101 bps q-o-q. Overall volumes were up 9 per cent y-o-y (18 per cent in FY20) with sales of institutional cable growing 23 per cent y-o-y while EPC/ retail sales declined 25 per cent/21 per cent y-o-y. EHV sales and exports continue to be robust. The longer NWC cycle (by 13 days to 79) was the result of an increase in inventories/debtors. Despite good collections over Apr-May (₹450 crore), we are cautious about FY21. We believe growth in the cable industry will continue while wires will see demand from smaller towns.

The strong order book (of ₹3,300 crore, including ₹730 crore of EHV and ₹1,640 crore exports), diversified customers and healthy balance sheet are positives. The ₹150 crore order for 400kVA cables (EHV) now places KEI among the world’s top manufacturer. The recent fund raising (₹500 crore) has helped repay debt and is good for future capex.

Valuation: We remain positive on KEI and retain our ‘Buy’ rating for its leading position in cables, healthy order book, diversified customers and better balance sheet.

Risks: Volatile raw material costs, delay in industrial capex.