3QFY2019 Result Update | Cable

February 12, 2019

KEI Industries

BUY

CMP

`349

Performance Update

Target Price

`486

Y/E March (` cr)

3QFY19

3QFY18

% yoy

2QFY19

% qoq

Investment Period

12 months

Net sales

1,087

889

997

EBITDA

118

101

Stock Info

EBITDA margin (%)

10.8

9.5

133bp

10.1

70bp

Adjusted PAT

Sector

Cable

Source: Company, Angel Research

Market Cap (` cr)

2,756

For 3QFY2019, KEI Industries (KEI) posted good set of results, which are largely

Net Debt (` cr)

671

in-line with our expectations on both top-line as well as bottom-line fronts.

Beta

0.6

Revenue grew by

~22% yoy, while the company reported a marginal

52 Week High / Low

495/249

improvement on operating margins front. On the bottom-line front, KEI reported

growth of ~24% yoy to `48cr on the back of strong top-line growth.

Avg. Daily Volume

39,700

Face Value (`)

Strong growth in Cable and Stainless Steel Wire segment boosted the overall

profit: The company’s top-line grew by ~22% yoy to `1,087cr on the back of

BSE Sensex

36,212

strong growth in Cables and Stainless Steel Wire segments. Cables segment grew

Nifty

10,859

by ~25% yoy during the quarter, whereas Stainless Steel Wire reported a growth

Reuters Code

KEIN.BO

of ~19% yoy. However, Turnkey Projects grew only ~6% yoy. Currently, the

Bloomberg Code

KEII.IN

company has order book of `3,866cr (out of which EPC is around `1,508cr and

balance from cables, substation & EHV)

Profitability driven by strong volume and operating margin improvement: On the

Shareholding Pattern (%)

operating front, the company’s margins improved 133bps yoy at 10.8% on the

Promoters

45.9

back of lower employee cost and other expenses. KEI reported ~24% yoy rise in

its net profit to `48cr.

MF / Banks / Indian Fls

16.5

FII / NRIs / OCBs

10.0

Outlook and Valuation: We expect KEI to report net revenue CAGR of ~19% to

~`4,878cr over FY2018-20E mainly due to (a) higher order book execution in

Indian Public / Others

27.5

EPC segment; (b) growth in EHV business; (c) higher B2C sales; and (d) higher

exports. On the bottom-line front, we expect CAGR of ~27% to`233cr over the

same period on the back of strong volume growth. Thus, we maintain our Buy

Abs. (%)

3m 1yr 3yr

rating on KEI Industry with a Target Price of `486.

Sensex

3.9

6.2

50.5

Key Financials

KEI

10.0

(9.5)

233.6

Y/E March (` cr)

FY2017

FY2018

FY2019E

FY2020E

Price Chart

Net sales

2,628

3,466

4,106

4,878

% chg

13.0

31.8

18.5

18.8

600

Adj. Net profit

145

178

233

500

% chg

50.6

54.6

23.1

31.0

400

EBITDA margin (%)

10.2

9.8

10.3

10.5

300

EPS (`)

12.1

18.7

23.1

30.2

200

P/E (x)

28.5

18.5

15.0

11.5

100

P/BV (x)

5.6

4.4

3.5

2.7

RoE (%)

19.8

23.8

23.1

23.7

RoCE (%)

20.3

22.6

25.5

27.2

EV/Sales (x)

1.3

1.0

0.8

0.7

Source: Company, Angel Research

EV/EBITDA (x)

12.4

9.9

7.9

6.4

Source: Company, Angel Research Note

Amarjeet S Maurya

022-40003600 Ext: 6831

[email protected]

Please refer to important disclosures at the end of this report

KEI Industries| 3QFY2019 Result Update

Exhibit 1: 3QFY2019 Performance

Y/E March (` cr)

3QFY19

3QFY18

% yoy

2QFY19

% qoq

9MFY19

9MFY18

% chg

Net Sales

1,087

889

22.4

997

9.1

2,968

2,428

22.2

Consumption of RM

768.4

621

23.7

680.5

12.9

2,027

1,695

19.6

(% of Sales)

70.7

69.9

68.3

69.8

Staff Costs

17.1

2.3

126.1

105.9

19.0

(% of Sales)

4.0

4.2

4.4

Other Expenses

158

146

8.2

173

(8.7)

510.3

389.7

30.9

(% of Sales)

14.5

16.5

17.4

17.2

16.0

Total Expenditure

970

804

20.6

896

8.2

2,664

2,191

21.6

Operating Profit

118

39.6

101

16.7

305

237

28.3

OPM

10.8

9.5

10.1

10.3

9.8

Interest

34.7

25.2

38.1

30.5

13.9

93.9

82.5

13.8

Depreciation

8.5

8.2

3.7

8.5

0.7

25.3

24.3

4.4

Other Income

3.5

9.9

PBT (excl. Ext Items)

29.7

19.7

189

141

34.5

Ext (Income)/Expense

PBT (incl. Ext Items)

29.7

19.7

189

141

34.5

(% of Sales)

7.0

6.6

6.3

6.4

5.8

Provision for Taxation

67.1

45.5

(% of PBT)

36.0

33.0

34.5

35.5

32.4

Reported PAT

24.0

17.0

122

28.3

PATM

4.4

4.2

4.1

3.9

Minority Interest After NP

Extra-ordinary Items

Reported PAT

24.0

17.0

121.9

95.0

28.3

Source: Company, Angel Research

February 12, 2019

KEI Industries| 3QFY2019 Result Update

Outlook and Valuation

We expect KEI to report net revenue CAGR of ~19% to ~`4,878cr over FY2018-

20E mainly due to (a) higher order book execution in EPC segment; (b) growth in

EHV business; (c) higher B2C sales; and (d) higher exports. On the bottom-line

front, we expect CAGR of ~27% to `233cr over the same period on the back of

strong volume growth. Thus, we maintain our Buy rating on KEI Industry with a

Target Price of `486.

Downside risks to our estimates

 KEI’s EPC segment contributes ~14% to the total revenue. This segment

primarily depends upon government spending and any delay in investment

by the government may lead to reduction in order book and would impact its

revenue.

 Any unfavorable change in the prices of commodities, forex & interest rates,

and delay in project execution can hurt the company’s profitability.

Company Background

KEI Industries Limited (KEI) is a cable manufacturing company, engaged in

manufacturing and supply of power and other industrial cables. The company is

also engaged in Engineering, Procurement and Construction (EPC) business. It

operates through Cables and Turnkey Projects segments and has its manufacturing

facilities at Bhiwadi & Chopanki in Rajasthan and Silvassa in Dadra and Nagar

Haveli.

The cables segment comprises of a whole range of cables such as Extra High

Voltage (EHV), High tension (HT) and low tension (LT) power cables, control and

instrumentation cables, winding wires, flexible wires, and house and stainless steel

wires. The company's products are supplied to various sectors like oil refineries,

railways, automobiles, cement, steel, fertilizers, textile and real estate sectors.

February 12, 2019

KEI Industries| 3QFY2019 Result Update

Profit & Loss Statement

Y/E March (`cr)

FY2017

FY2018

FY2019E

FY2020E

Total operating income

2,628

3,466

4,106

4,878

% chg

13.0

31.8

18.5

18.8

Total Expenditure

2,360

3,126

3,683

4,366

Raw Material

1,828

2,411

2,899

3,444

Personnel

112

147

172

205

Others Expenses

420

568

612

717

EBITDA

269

339

423

512

% chg

11.0

26.2

24.7

21.1

(% of Net Sales)

10.2

9.8

10.3

10.5

Depreciation& Amortisation

EBIT

240

307

388

473

% chg

10.8

27.7

26.3

21.9

(% of Net Sales)

9.1

8.9

9.4

9.7

Interest & other Charges

124

112

128

130

Other Income

(% of PBT)

8.0

4.5

2.3

1.7

Share in profit of Associates

Recurring PBT

126

204

266

348

% chg

32.2

62.2

30.1

31.0

Tax

115

(% of PBT)

25.7

29.2

33.0

PAT (reported)

145

178

233

Extraordinary Items

ADJ. PAT

145

178

233

% chg

50.6

54.6

23.1

31.0

(% of Net Sales)

3.6

4.2

4.3

4.8

Basic EPS (Rs)

12.1

18.7

23.1

30.2

Fully Diluted EPS (`)

12.1

18.7

23.1

30.2

% chg

50.6

54.6

23.1

31.0

February 12, 2019

KEI Industries| 3QFY2019 Result Update

Balance Sheet

Y/E March (`cr)

FY2017

FY2018

FY2019E

FY2020E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

458

593

756

971

Shareholders’ Funds

473

608

772

987

Minority Interest

Total Loans

713

750

Deferred Tax Liability

Total Liabilities

1,233

1,404

1,568

1,784

APPLICATION OF FUNDS

Gross Block

604

624

654

685

Less: Acc. Depreciation

199

231

266

306

Net Block

405

393

388

380

Capital Work-in-Progress

Investments

Current Assets

1,399

1,830

2,176

2,601

Inventories

499

665

787

936

Sundry Debtors

739

883

1,046

1,243

Cash

130

Loans & Advances

119

173

205

244

Other Assets

Current liabilities

582

829

1,006

1,208

Net Current Assets

818

1,001

1,170

1,394

Deferred Tax Asset

Mis. Exp. not written off

Total Assets

1,233

1,404

1,568

1,784

February 12, 2019

KEI Industries| 3QFY2019 Result Update

Consolidated Cash Flow Statement

Y/E March (`cr)

FY2017

FY2018

FY2019E FY2020E

Profit before tax

134

204

266

348

Depreciation

Change in Working Capital

(259)

(145)

(149)

(189)

Interest / Dividend (Net)

123

112

128

130

Direct taxes paid

(30)

(60)

(88)

(115)

Others

Cash Flow from Operations

144

193

214

(Inc.)/ Dec. in Fixed Assets

(20)

(30)

(31)

(Inc.)/ Dec. in Investments

(62)

Cash Flow from Investing

(62)

(20)

(30)

(31)

Issue of Equity

Inc./(Dec.) in loans

251

Dividend Paid (Incl. Tax)

(4)

(10)

(14)

(19)

Interest / Dividend (Net)

(158)

(112)

(128)

(130)

Cash Flow from Financing

(85)

(142)

(149)

Inc./(Dec.) in Cash

Opening Cash balances

Closing Cash balances

130

February 12, 2019

KEI Industries| 3QFY2019 Result Update

Key Ratios

Y/E March

FY2017

FY2018

FY2019E FY2020E

Valuation Ratio (x)

P/E (on FDEPS)

28.5

18.5

15.0

11.5

P/CEPS

21.9

15.1

12.5

9.8

P/BV

5.6

4.4

3.5

2.7

Dividend yield (%)

0.2

0.4

0.5

0.7

EV/Sales

1.3

1.0

0.8

0.7

EV/EBITDA

12.4

9.9

7.9

6.4

EV / Total Assets

2.7

2.4

2.1

1.8

Per Share Data (`)

EPS (Basic)

12.1

18.7

23.1

30.2

EPS (fully diluted)

12.1

18.7

23.1

30.2

Cash EPS

15.8

22.9

27.6

35.3

DPS

0.7

1.3

1.8

2.4

Book Value

61.3

78.7

99.9

127.7

Returns (%)

ROCE

20.3

22.6

25.5

27.2

Angel ROIC (Pre-tax)

21.0

24.0

27.3

29.5

ROE

19.8

23.8

23.1

23.7

Turnover ratios (x)

Asset Turnover (Gross Block)

4.3

5.6

6.3

7.1

Inventory / Sales (days)

Receivables (days)

103

Payables (days)

Working capital cycle (ex-cash) (days)

130

123

122

121

February 12, 2019

KEI Industries| 3QFY2019 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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by Analyst during the past twelve months.

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Disclosure of Interest Statement

KEI Industries

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors

Ratings (Returns):

Buy (> 15%)

Accumulate (5% to 15%)

Neutral (-5 to 5%)

Reduce (-5% to -15%)

Sell (< -15%)

February 12, 2019