KEI Industries- 1QFY19 Result Update - Powering Through

KEI Industries - 2QFY19 – Results In- Line, Benefits From Capex to Start in FY20E

India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/6711" target="_blank" data-smartkarma-citation="entities:6711:1">Kei Industries (KEII IN)</a> is one of the leading wire and cable manufacturers in India. KEI manufactures extra-high voltage, high and low tension cables (EHV, HT &amp; LT), control and instrumentation cables, house wires, power cables, stainless steel wires, and electrical cables. We are optimistic about KEI because:
<ul class="">
<li>KEI has a diversified product portfolio which helps the company to service a wide spectrum of sectors</li>
<li>We expect the revenues to grow at a CAGR of 21% (FY18-20E). We also expect cable business to grow at a CAGR of 19%, Stainless steel wire business to grow at a CAGR of 13% and its engineering, procurement, and construction (EPC) business to grow at a CAGR of 36% over FY18-20E.</li>
<li>KEI has done Capex of Rs 500 Mn for LT cables, which has been operational from May 18 and is also doing Capex of Rs 600 Mn for HT cables, which will be operational from March 19. We expect revenue growth in FY19E and FY20E because of capex.</li>
<li>We expect EBITDA to grow at a CAGR of 26% (FY18-20E) and ~90bps growth in EBITDA margins from 9.7% in FY18 to 10.6% in FY20E. We expect EBITDA to grow due to cost reductions.</li>
<li>We expect PAT to grow at a CAGR of 37% (FY18-20E) and ~120 bps growth in PAT margins from 4.1% in FY18 to 5.3% in FY20E.</li>
<li>We expect RoE to grow from 26.9% in FY18 to 28.6% in FY20E and RoCE to grow from 28% in FY18 to 37% over the same period.</li>
</ul>
 We initiate coverage on KEI with a fair value objective of Rs. 558. This represents a potential upside of 23% from the CMP of Rs. 453 for the next 12 months. The stock is trading at 24/17/13x our earnings estimates for FY18E/FY19E/FY20E respectively.
<table class="table table-striped">
<tbody>
<tr>
<td>
Rs in mn
</td>
<td style="text-align: right;">
FY17
</td>
<td style="text-align: right;">
FY18
</td>
<td style="text-align: right;">
FY19E
</td>
<td style="text-align: right;">
FY20E
</td>
</tr>
<tr>
<td>
Revenue
</td>
<td style="text-align: right;">
28,352
</td>
<td style="text-align: right;">
34,964
</td>
<td style="text-align: right;">
43,707
</td>
<td style="text-align: right;">
50,811
</td>
</tr>
<tr>
<td>
PAT
</td>
<td style="text-align: right;">
987
</td>
<td style="text-align: right;">
1,441
</td>
<td style="text-align: right;">
2,072
</td>
<td style="text-align: right;">
2,712
</td>
</tr>
<tr>
<td>
EPS (Rs.)
</td>
<td style="text-align: right;">
12.7
</td>
<td style="text-align: right;">
18.5
</td>
<td style="text-align: right;">
26.6
</td>
<td style="text-align: right;">
34.9
</td>
</tr>
<tr>
<td>
PE (x)
</td>
<td style="text-align: right;">
37
</td>
<td style="text-align: right;">
24
</td>
<td style="text-align: right;">
17
</td>
<td style="text-align: right;">
13
</td>
</tr>
</tbody>
</table>
<div class="content-caption">Source- KEI 4QFY18 results, Trivikram Consultants Research</div>

Kei Industries (KEII IN) is one of the leading wire and cable manufacturers in India. KEI manufactures extra-high voltage, high and low tension cables (EHV, HT &amp; LT), control and instrumentation cables, house wires, power cables, stainless steel wires, and electrical cables. We are optimistic about KEI because:

KEI has a diversified product portfolio which helps the company to service a wide spectrum of sectors
We expect the revenues to grow at a CAGR of 21% (FY18-20E). We also expect cable business to grow at a CAGR of 19%, Stainless steel wire business to grow at a CAGR of 13% and its engineering, procurement, and construction (EPC) business to grow at a CAGR of 36% over FY18-20E.
KEI has done Capex of Rs 500 Mn for LT cables, which has been operational from May 18 and is also doing Capex of Rs 600 Mn for HT cables, which will be operational from March 19. We expect revenue growth in FY19E and FY20E because of capex.
We expect EBITDA to grow at a CAGR of 26% (FY18-20E) and ~90bps growth in EBITDA margins from 9.7% in FY18 to 10.6% in FY20E. We expect EBITDA to grow due to cost reductions.
We expect PAT to grow at a CAGR of 37% (FY18-20E) and ~120 bps growth in PAT margins from 4.1% in FY18 to 5.3% in FY20E.
We expect RoE to grow from 26.9% in FY18 to 28.6% in FY20E and RoCE to grow from 28% in FY18 to 37% over the same period.

 We initiate coverage on KEI with a fair value objective of Rs. 558. This represents a potential upside of 23% from the CMP of Rs. 453 for the next 12 months. The stock is trading at 24/17/13x our earnings estimates for FY18E/FY19E/FY20E respectively.




Rs in mn


FY17


FY18


FY19E


FY20E




Revenue


28,352


34,964


43,707


50,811




PAT


987


1,441


2,072


2,712




EPS (Rs.)


12.7


18.5


26.6


34.9




PE (x)


37


24


17


13




Source- KEI 4QFY18 results, Trivikram Consultants Research

KEI Industries - Power Packed for the Future