Accumulate KEC International; target of Rs 176: Centrum

KEC International Ltd (KEC) for Q3FY17 on a consolidated basis, reported good margin improvement and PAT growth, despite a decline in revenue. EBITDA margin expanded by 139bps YoY to 9.5%, highest in the last 21 quarters, on the back of better performance by SAE Towers (100% subsidiary) and railway business along with completion of legacy orders. In addition, lower interest expense (down 16%) led to a net profit growth of 139% to Rs 63 crore. Outlook We anticipate, better order execution across all business segments, will help maintain the EBITDA margin performance. However, we believe, the only challenge for KEC is achieving the revised revenue growth guidance for FY17 (9MFY17 revenue down 4% to Rs 5,735 crore). KEC trades at 11.9x its FY18E EPS. Given the continued operational efficiency, we maintain our Accumulate rating and value the stock at 12x Sept’18 EPS, giving us a target price of Rs 176.

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