KEI Industries Q4 Results Review - Robust Outlook Intact; A 20%+ Earnings CAGR To Drive Re-Rating: Systematix

Systematix Research Report

KEI Industries Ltd.’s strong and inline Q4 (volume/revenue/Ebitda/profit after tax up 24%/19%/21% /22% YoY) was led by strong revenue in extra high voltage cables (up 107% YoY at Rs 2.3 billion; FY24: Rs 6.6 billion, up 80% YoY) and house wires (up 31% YoY).

Management retained its robust guidance of 15%+/20%+ revenue/PAT compound annual growth rate over five years, driven by India and exports. After surging 51% in FY24, exports is expected to grow 50%+ in FY25.

Key drivers are large infra capex world over, buyer’s China+1 strategy and KEI Industries having major certifications in place to sell products in Europe and U.S. markets. Growth in EHV cables revenue (FY24: Rs 6.6 billion) is expected only after new capacity gets operational in FY27.

Retail sales is expected to grow at 20%+ CAGR on addition of distributors in new markets and will aid its Ebitda margin (12% by FY27 from ~10.5% currently). Cables is expected to grow faster than wires, per KEI Industries.

To support future growth, the company plans to invest ~Rs 20 billion over FY23-26 to build capacities across product lines. Post Q4, we raise FY26E earnings by 4%, expecting better growth and expect 17%/21%/24% CAGR in revenue/Ebitda/PAT over FY2426E (FY19-24: 14%/14%/26%).

We remain sanguine about KEI Industries’ promising growth prospects and maintain Hold rating with a higher Rs 4,444 target price (45 times FY26E P/E versus earlier Rs 3,804 at 40 times).

A 20%+ earnings CAGR and healthy return on equity (~20%), return on capita employed (~28%) and return on invested capital (~37%) in FY26E should sustain its premium valuation. Strong operating cash flows (~Rs 6 billion annually) will be deployed towards planned capex.

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