Edelweiss Recommendation on KEI Industries,
Last two years KEI faced problems due to economic down turn and inventory devaluation due to commodity prices cracking down. With revival in the
economy and higher spending on transmission and distribution; cables segment will see higher growth of about 25-30% for next 5-7 years. KEI being one of the leading players in this segment we believe the company will not only come out of the shadows but also will be able to capture the growing cable demand. We expect KEI to post a revenue and PAT CAGR of 32% and 118% respectively during FY10-12.
KEI has added 480 kms of EHV cables to its product portfolio which would be commissioned by September 2010. EHV cables has EBITDA margin of more than 20%. We believe this would help the EBITDA margins to grow from current about 6.7% to about 10% by FY12. Company has already shown signs of improvement by posting 7.5% EBITDA margin during Q1 FY11.
Expect KEI to post revenue and PAT CAGR of about 32% and 118% respectively for FY10-12E. At current market price of INR 31 the stock is trading at PE of
7.8x FY11E EPS of INR 4.0 and 3.2x FY12E EPS of INR 9.6. With huge growth in cables segment propelled by massive T&D expenditure and foray into EHV cables segment we believe there will be significant jump in KEI’s margin and net profit. We recommend BUY with target price of INR 48, upside of 54%.
