Shares of KEC International Ltd rose 3.5% on Thursday, a day when the Nifty 50 index fell 0.7%. The company’s management on Wednesday met analysts and threw light on various aspects such as order book, margin outlook and debt.
KEC’s high debt has been a matter of concern. At the end of June quarter (Q1FY23), the consolidated net debt including sanctions was at 6,076 crore, an increase of about 28% from the end of FY22. Accordingly, interest cost as a percentage of revenue increased from 2.2% in Q4FY22 to 3% in Q1. This is due to the loss through debt in the business of SAE Towers. In addition, the company’s working capital cycle increased sequentially and adverse conditions from higher commodity prices also did not help.
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However, return of SAE business, moderation in input cost and expected fall in net working capital days bodes well for investor sentiment. In the analyst meet, KEC said it expects the debt level to come down partially by the end of FY23.
Debt reduction will be a major trigger for KEC stock, which is down 18% from the 52-week high seen in October, though valuations remain low. Shares of KEC trade at 14 times estimated earnings for FY24, data from Bloomberg showed.
Margin performance has been another concern. However, it is expected to improve as the SAE order nears its end, along with favorable operating leverage. KEC aims to achieve double digit Ebitda margin by FY24. In FY12, the measure stood at 6.6%, down from 10.3% in FY2010.
On the bright side, KEC’s order book is promising. The company expects an order inflow of Rs 19,000-20,000 crore in FY23. Out of this it has got orders worth 6,000 crore so far. Order Book at present. is over 30,000 crore, which provides revenue visibility for 7-8 quarters, the company said in its presentation. There was an order book till FY22-end 23,716 crores. “The order book may actually be much higher than the management’s guidance of 15% in (revenue) growth, but may be limited due to higher working capital,” said analysts at Kotak Institutional Equities.
Meanwhile, diversification into non-transmission and distribution (T&D) sectors has helped KEC’s order book. Furthermore, as strong opportunities arise here, KEC expects revenue from the T&D segment to decline eventually. “We have been a supporter of KEC’s successful diversification strategy, which is scalable and profitable. However, debt levels are worrying and we await a lasting improvement.
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