The management of KEC International at its analyst meet sounded quite positive about their outlook as they see the headwinds abating. Management emphasized its focus on revenue growth, profitability and better working capital management.
They mentioned that the tender pipeline remains healthy at Rs 1.1 lakh Crore, (domestic ~50%) of which orders worth Rs.30,000 Cr are already tendered out. KEC International has also targeted an order book of Rs.40,000 Cr by FY25. Margin is expected to start improving from H2FY23 onwards with legacy orders in SAE getting completed, softening of commodity prices, lower freight cost and execution of new orders.
Also expects to achieve near double-digit EBITDA margin from FY24. Given a healthy order book and tender pipeline, management maintained its revenue growth guidance of ~15% and order inflow of ~Rs1,900-2,000 Cr for FY23E.
Management also expects working capital days to come down to 120-130 days in FY23 (vs 150 days currently) owing to the closure of loss-making SAE projects, receivables from Afghanistan and railways payment getting normalized. For FY24 management targets to further bring down net- working capital to 100 days.
Transmission & Distribution (T&D) segment to drive growth
T&D accounts for ~50% of the total revenue of KEC International as of FY22. The domestic T&D market is witnessing a revival with orders coming from PGCIL and private players. KEC had secured a prestigious order to build India’s first 765kV Digital GIS Substation from PGCIL in Q1FY23. Domestic T&D order inflows are likely to be driven by Green Energy Corridor Phase-II and Leh Ladakh HVDC lines going forward. The oil & gas pipeline segment opportunity for KEC is Rs. 5,000-6,000 Cr annually.
Reduction in debt going forward
As of June 22, consolidated net debt (including acceptances) stood at Rs. 6,080 Cr vs Rs.4,770 Cr as on Mar 22. However, interest costs for Q1FY23 increased to 3% of sales (vs. 2.2% in Q4FY22). Management has guided that it will reduce net debt by Rs. 500 Cr by Q4FY23.
Out of the total analysts covering KEC International, 70% have a buy rating on the stock with a 12-month target price of Rs. 481.
