KEC International - Growth drivers in place
Key highlights of the result
 A balanced and diversified order book provides revenue visibility: KEC's order
book stands at Rs8,116cr i.e. ~1.8x of its FY2011 revenues, which provides good
revenue visibility for the medium-term. The order book of the company comprises
of various segments i.e. Transmission (~72.5%), Power Systems (~19.6%),
Railways (~4.7%), Cables (~1.8%) and the balance in Telecom and Water (~1.1%).
 SAE Tower acquisition would drive revenue and profitability: KEC International
had completed the acquisition process of US-based SAE Tower, along with its
subsidiary firms in Brazil, Mexico and America in 2QFY2011. SAE Tower is a leading
manufacturer of lattice transmission towers in the Americas with annual production
capacity of 100,000MT spread over 2 locations i.e. Monterrey, Mexico (35,000 MT)
serving the North American market and Belo Horizonte, Brazil (65,000 MT) serving
the Latin American market.
 Greenfield expansion of cable plant will trigger top-line growth: The Company
is setting up a green-field plant at Vadodara (Gujarat, India) to cater to the increasing
demand of Extra High Voltage Power Cables and it will also install power cables
with annual capacity of 3,000 cable kilometers and cables with manufacturing
capability of up to 220 KV and 400 KV. The total investment for the same estimated
at Rs175cr.
 "Geographical and business diversification" strategy, correctly set: KEC is
continuously expanding its footprint in the global markets, while, it already has
strong presence in South Asia, Middle East, Africa, Central Asia and North America
& Latin America. KEC has undertaken various projects across 45 countries globally
and it derives more than half of its revenues from outside India.
Outlook and Valuation
Net Sales in FY2011 grew by 14.5% to Rs4,474cr from Rs3,907cr in FY2010. Going
forward, we expect a 18.9% CAGR in Net Sales over FY2011-13E to Rs6,323cr. Based
on the current order book worth ~Rs8,116cr, we believe that the expected growth is
achievable.
We expect the company to maintain EBITDA margins in the range of ~9.7%-10.2%,
going forward. KEC has recently acquired SAE Towers, which has a relatively higher
operating profit margin (~14%) compared to its global peers. We expect that the
profitability of KEC would boost post the acquisition of SAE Tower. We expect the
company to achieve Net Profit CAGR of 18.2% during FY2011-13E.
At the CMP of Rs79, the stock is trading at a P/E of 8.4x and 7.2x its FY2012E
and FY2013E EPS respectively. Considering the company's growth prospects
and high return ratios, we have arrived at a revised target price of Rs123, valuing
the stock at 11x FY2013E EPS.

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