PL Stock Report: KEI Industries (KEII IN) - Q1FY24 Result Update - Underperform vs peers, result in-line estimates - HOLD

KEI Industries (KEII IN) - Praveen Sahay - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs2,270 | TP: Rs2,319

Q1FY24 Result Update - Underperform vs peers, result in-line estimates

Quick pointers:

§ Reported volume growth of 22% in Q1FY24.

§ Healthy order book & maintain 16-17% revenue growth guidance for FY24.

KEI Industries (KEII) maintained its revenue growth guidance at 16-17% in cable business with volume growth of >20% in FY24 and expects around 11% margin in the near term, given strong demand outlook in sectors like Infra/Railway/Real estate/Renewable etc. The company has reported strong revenue in housing/winding wire (+33.3% YoY) & guided to continue strong traction in FY24. We are positive on the company for long term given 1) focus on diversification of product portfolio and de-risking business (retail accounts for 44.7% with target to reach 46-47% in FY24) 2) scale-up in distribution network (1,925 dealers, will grow by 7-8% p.a), 3) healthy balance sheet with net cash of Rs 1.75bn (excluding acceptances) by Jun-23 and 4) strong order book of Rs35.7bn across domestic & export EPC & cables businesses. Management expects Rs100bn revenue by FY26 with EBITDA margin target of 12-12.5%. We tweak our earnings estimates for FY24/FY25E and estimate Revenue/EBITDA/PAT CAGR of 18.0%/23.4%/24.5%. Maintain ‘HOLD’ at TP of Rs2,319 (unchanged).

Revenues grew by 13.9%, PAT up by 17.0%: Revenue grew 13.9% YoY to ~Rs17.8bn (PLe:Rs17.7bn). Cables segment grew 13.5% YoY to Rs16.1bn, Stainless Steel revenue decline 3.2% YoY to Rs590mn, EPC projects segment grew 20.2% YoY to Rs1.8bn. EBITDA grew by 11.7% YoY to Rs1.8bn (PLe: Rs1.8bn). EBITDA margin at 10.0% (PLe: 10.4%). Cables EBIT margins contracted by 20bps YoY to 8.8%. In EPC/ Stainless Steel Wires, EBIT margins expanded by 770bps/30bps YoY to 13.9%/5.3%. PAT stood at Rs1.21bn (+17.0%YoY; PLe Rs1.24bn). Domestic Institutional Wire & Cable sales grew by 13.7% YoY, whereas export inst. sales grew 23.6% YoY. Dealer/distributor driven sales grew by 22.04%YoY to Rs7.96bn. Dealer count is ~1925 vs 1800 in Q1FY23.Pending order book stood at Rs35.7bn in Q1FY24.Gross Debt stood at Rs1.3bn vs Rs1.0bn in Q1FY23. Cash balance stood at Rs3.05bn vs Rs1.7bn in Q1FY23.

Con call highlights: 1) KEI is targeting for 16-17% revenue growth in FY24, 2) Industry demand continues to be healthy in coming years, mainly from infrastructure (Solar/Wind, railways etc), real estate and power. 3) C&W business expected volume growth of 20%+ and EHV to reach Rs5.5-6.0bn by FY24, 4) KEI expected to do capex of Rs 3.5-4.0bn in FY24, which includes Rs2.5-3.0bn for greenfield expansion at Gujarat and Rs1.5bn related brownfield expansion at existing capacity to debottlenecking, 5) Silvasa plant expected to add revenue of Rs 5bn in LT cable which will start from Sept-23, 6) Gujarat plant commission in 18months, revenue contribution starts from Q4FY25. 7) KEI expects its export contribution to increase to 17% in FY24 from 10% in FY23, increase in export with addition of USA, 8) RM largely procures domestically with a natural hedge, 9) Dealer expansion is underway and 7-8% growth (100-150 dealers) is targeted every year, with focus on increasing revenue per dealer, 10) Capacity utilization: 90%/64% in cables/HW.

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