KEC International - Making Powerful Moves

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A flagship company of the RPG Group, KEC International’s order book at the end of 9MFY11 stood at Rs 8,000 crore. This is the highest level that the company has attained as far as its order book is concerned and is 2.74 times its sales for the first three quarters of this fiscal. KEC received orders worth Rs 1,359 crore in the month of January 2011. All this adds a tremendous amount of fundamental appeal to the stock with a dividend yield of 1.3 per cent, thus making it worth the while to include it in your portfolio.

KEC is engaged in providing engineering, procurement and construction (EPC) services in power transmission, distribution, sub-stations, railways, telecom, and cables. With a presence in more than 44 countries and an experience of over 60 years, the company has been able to deliver projects related to power transmission across different geographical locations. KEC has a strong presence in the Middle East, Africa, and Central Asia. The company acquired SAE Towers, a leading tower manufacturing company with a strong presence in North and Latin America in September 2010 for a consideration of USD 95 million. This has further consolidated its position in the American market.
SAE Towers has an annual capacity of 1,00,000 MT. BOP (electrical package) and water treatment are the other new growth areas that KEC is venturing into. The company has a consolidated current order book of Rs 8,000 crore with Rs 2,300 crore of new order inflows during the December quarter itself. This includes around Rs 700 crore of orders from SAE Towers of which orders worth Rs 280 crore were bagged in the December quarter. The order inflows include Rs 876 crore of transmission line orders and Rs 980 crore of sub-station orders.

Transmission and distribution forms 65 per cent of the order book and the US-based subsidiary is contributing to around 9 per cent of the total order book of the company. The order book which is to be executed in the next 18 – 24 months gives a clear visibility for the company’s revenues going forward. The orders from Indian Railways stand at Rs 450 crore and this, according to the management, is likely to double in the next fiscal.

On the financial front, for Q3FY11 the topline and bottomline witnessed a good growth. The topline recorded a growth of 13 per cent for Q3FY11 on a YoY basis and stands at Rs 1,071 crore as against Rs 948 crore in Q3FY10. The bottomline witnessed a growth of 25 per cent for Q3FY11 on a YoY basis and stands at Rs 58 crore as against Rs 46 crore in Q3FY10.

On the valuation front, at the current price the company discounts its trailing 12-month earnings by 11.78 times which is much cheaper as compared to the industry P/E of 21 times. Its EV/EBITDA stands at 6.37x and the ROE stands at 28.24 per cent. For the last three years the company has witnessed a CAGR of 23 per cent and 18 per cent in sales and PAT respectively. The future looks quite strong with clear visibility and one can look at appreciation in the stock to the tune of 15 – 20 per cent over the next one year.