KEC International Share Price Could Reach Rs 1250: Sharekhan Research
Sharekhan has issued a BUY recommendation for KEC International, supported by robust growth in its Transmission and Distribution (T&D) order book, improved operational margins, and a promising revenue outlook. With a price target of Rs 1,250, the stock exhibits strong growth potential, trading at a P/E of ~18x its FY2027E EPS. Below is a comprehensive analysis based on the company's performance, market dynamics, and financial outlook.
Summary: Strong Order Book and Margin Expansion Highlight KEC’s Prospects
KEC International has showcased robust order inflows worth Rs 16,300 crore, a year-over-year growth of 60%, emphasizing its leadership in the T&D sector. The company’s Rs 43,000 crore order book, including L1 positions, offers a 2.5x revenue potential. Management has guided a 15% revenue growth and an operating profit margin (OPM) of 7.5% for FY25, bolstered by infrastructure tailwinds and strong execution capabilities. Sharekhan recommends a BUY on the stock with an upgraded price target of Rs 1,250, underpinned by its healthy order pipeline and margin improvement initiatives.
Strong Order Inflows Drive Growth
Robust Order Book: KEC’s T&D segment continues to secure large-scale projects, including orders worth Rs 1,704 crore from Power Grid Corporation of India Limited (PGCIL) for 765 kV Transmission Lines and GIS Substations. These inflows elevate the YTD order tally to Rs 16,300 crore, marking a 60% year-on-year growth.
Future Prospects: Management anticipates order inflows to surpass Rs 25,000 crore for FY25, buoyed by HVDC transmission projects, EPC Kavach orders, and a significant bidding pipeline.
Domestic T&D Segment to Lead Revenue Growth
Sectoral Tailwinds: Domestic T&D is projected to grow 30-40% in FY25E, supported by a robust order book and policy initiatives. Additionally, international T&D execution is expected to gain momentum in regions such as the Middle East, Far East, and North Africa.
Non-T&D Segments: Civil construction and railways contribute to KEC’s diversified portfolio. While railways are expected to decline by 15-20%, the civil segment shows promising double-digit growth potential.
Margin Expansion on Strategic Initiatives
Operational Efficiencies: Key drivers for margin expansion include the completion of legacy SAE orders, selective bidding for high-margin railway projects, and the commissioning of an integrated conductor manufacturing plant.
Management Guidance: OPM is projected to improve to 7.5% in FY25 and reach 9.2% by FY27, showcasing a steady recovery trajectory.
Valuation: BUY Recommendation with a Price Target of Rs 1,250
Growth Expectations: Sharekhan estimates a 16% revenue CAGR over FY24-27E, supported by margin improvement and healthy order inflows. The stock trades at 18x FY27E EPS, offering room for further upside.
Risks to Watch: Potential risks include a slowdown in tendering activities, escalation in input costs, and supply-side constraints.
Financial Snapshot and Performance Metrics
| Year | Net Sales (Rs Cr) | OPM (%) | Net Profit (Rs Cr) | EPS (Rs) | PER (x) |
|---|---|---|---|---|---|
| FY23 | 17,282 | 4.8 | 176 | 6.8 | 153.4 |
| FY24 | 19,914 | 6.1 | 347 | 13.5 | 77.8 |
| FY25E | 23,147 | 7.5 | 717 | 27.9 | 37.6 |
| FY26E | 26,791 | 9.0 | 1,193 | 46.4 | 22.6 |
| FY27E | 31,027 | 9.2 | 1,528 | 59.4 | 17.7 |
Sector Outlook: Infrastructure Boom to Drive Growth
Policy Support: Government initiatives like rural electrification, metro rail expansion, and 100% railway electrification by 2025 provide significant growth levers for infrastructure companies.
Energy and T&D Focus: India's power-generation capacity is expected to reach 777 GW by 2030, necessitating investments in high-voltage transmission grids, inter-regional connectivity, and renewable energy corridors.
Holdings of Mutual Funds in KEC International as on 30 September 2024
| Sr. No. | Holder Name | Holding (%) |
|---|---|---|
| 1 | HDFC Asset Management Co | 7.94 |
| 2 | Kotak Mahindra Asset Management Co | 3.19 |
| 3 | L&T Mutual Fund Trustee Ltd/India | 2.8 |
| 4 | DSP Investment Managers Pvt Ltd | 1.9 |
| 5 | Nippon Life India Asset Management | 1.76 |
| 6 | Tata Asset Management Pvt Ltd | 1.64 |
| 7 | Canara Robeco Asset Management Co | 1.49 |
| 8 | IDFC Mutual Fund/India | 1.49 |
| 9 | Vanguard Group Inc | 1.29 |
| 10 | Royal Bank of Canada | 0.92 |
About KEC International
KEC is a global leader in power transmission infrastructure, with a presence in over 61 countries. The company has diversified into railways, renewable energy, smart infrastructure, and civil construction, cementing its reputation as a multi-faceted infrastructure player.
Disclaimer
This analysis is for informational purposes only. Investors are advised to conduct their due diligence and consult financial advisors before making any investment decisions.
