Nomura Lifts KEC International Price Target On Hopes Of Margin Recovery
The stock rose as much as 3.08% during the day on the NSE to the highest in over two months.
Nomura Research raised KEC International Ltd.'s target price by over 60% on expectation that the company's margin will improve gradually on robust transmission and distribution business outlook.
The brokerage has kept a 'buy' rating on the stock and raised the target price to Rs 960, which is 60.53% higher from Rs 598 earlier. The current target price implies a potential upside of 18.7% from the previous close.
KEC will likely deliver a compound annual growth rate of 23% in transmission-and-distribution order inflows during financial year 2024–27, the brokerage said in a note.
The company is a major beneficiary of capital-expenditure recovery in domestic T&D. India is aiming to deploy renewable capacity of nearly 500 gigawatts by fiscal 2023 and planned a substantial capex of Rs 2.4 lakh crore over FY24–30.
In international markets, capex momentum in Saudi Arabia and the UAE, rise in tower supply to the US and Australia, large-value interconnection projects in Africa to drive growth in the T&D space. Bottoming out in Bangladesh is also going to aid the market, Nomura said.
Civil business outlook is also looking positive for KEC with substantial opportunities in residential and commercial buildings, and increased allocation in the Jal Jeevan Mission, according to Nomura.
The brokerage is expecting order inflow of 33% CAGR over fiscal 2024–27.
KEC is expecting a closer to double-digit Ebitda margin by the end of the current fiscal because of rising share of order inflows, new T&D orders and improved profitability of subsidiaries, Nomura said.
Key Takeaways From Nomura's Note
Nomura maintains a 'buy' with a target price Rs 960 apiece, up from Rs 598. The target price implies an upside of 18%.
Robust transmission and distribution outlook; gradual margin recovery.
Management retained FY25 order inflow/revenue growth guidance of 40%.
Aim for Ebitda margin of 7.5% for FY25 vs 6.1% FY24 margin.
T&D and civil to propel order inflows.
International T&D to be driven by capital expenditure in Saudi Arabia and the UAE.
Large value interconnection projects in Africa and bottoming of Bangladesh/CIS markets.
Expects revenue/Ebitda/profit CAGRs of 12%/28%/58% over FY24–27.
Key risks To Ebitda Margin:
Volatility in steel prices.
Supply-chain constrains, which reduces the company's bargaining power with engineering, procurement and construction companies.
KEC's track record of missing margin guidance during FY21–24.
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On the NSE, KEC's stock rose as much as 3.08% during the day to Rs 833.95 apiece, the highest since April 4. It was trading 0.38% higher at Rs 815.65 per share, compared to a 0.29% advance in the Nifty at 10:35 a.m.
The share price has gained 47.95% in the last 12 months and 38.39% on a year-to-date basis. The total traded volume so far in the day stood at 2.4 times its 30-day average. The relative strength index was at 61.28.
Eleven out of the 23 analysts tracking the company have a 'buy' rating on the stock, five recommend 'hold' and seven suggest 'sell', according to Bloomberg data. The average of 12-month analyst price targets implies a potential upside of 51.4%.
