KEI Industries Q2 Results Review - Strong, Inline; Large Capex To Drive 15%+ Revenue CAGR: Systematix

Systematix Research Report

KEI Industries Ltd.'s strong and inline Q2 (volume/revenue/Ebitda/profit after tax up 26%/21%/27% /31% YoY) was led by four times surge in extra high voltage cable sales (Rs 1.69 billion, FY24E Rs 5-6 billion).

Ebitda margin expanded 47 basis points QoQ at 10.5%. The strong Rs 33.63 billion order book comprises of all verticals. Retail sales (up 14% YoY) contributed 47% to total sales. Exports (up 130% YoY, down 23% QoQ) are on a strong footing; KEI Industries is looking to expand its geographical footprint.

Looking at robust market potential, KEI Industries plans to invest over Rs 15 billion over the next three years (FY24E Rs 5 billion) in building capacities across product lines and achieve 15% plus revenue compound annual growth rate.

The recently commissioned low tension cables capacity in Silvassa can generate Rs 5 billion revenue. The greenfield plant (~Rs 10 billion capex at Sanand over the next three years) is likely to be operational in phases from Q4 FY25 having Rs 50 billion revenue potential.

Rise in scale and superior mix (retail, EHV) will drive Ebitda margins towards 12% in three years (~10.5% currently).

We maintain our earnings estimates post an inline Q2 result and expect 16%/20%/22% compound annual growth rate in revenue/Ebitda/profit after tax over FY23-25E (FY18-23: 15%/16%/27% CAGR).

Healthy return on equity (19%) and return on capital employed (27%) should sustain.

Strong operating cash flows (~Rs 5-6 billion annually) will be deployed towards planned capex. While we remain sanguine on KEI Industries’ promising growth prospects, after a significant re-rating and at ~31 times FY25E price/earning on current market price, we maintain our 'Hold' rating, with an unchanged target price of Rs 2,745, based on 35 times FY25E P/E.

While scope for further re-rating hereon is limited, strong performance would continue to evince investor interest and drive upside in the stock, in our view.

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