Jump Of Upto 15% From This Mid Cap Stock

Emkay Global has recommended investors to buy stock of KEC International, a mid cap stock. A potential gains of upto 15% are visible based on the brokerage coverage report. Recent quarter numbers shared show the revenue growth was strong. The brokerage report states the key growth drivers of KEC's revenue and the estimated valuations of it.

About KEC International

KEC International is a mid cap company having market cap of Rs 12,216.84 crore. This company is a USD 1.8 billion Engineering, Procurement, and Construction (EPC) major player. It renders projects in key infrastructure sectors such as Power Transmission & Distribution, Railways, Civil, Urban Infrastructure, Solar, Smart Infrastructure, Oil & Gas Pipelines, and Cables.

KEC's robust and integrated capabilities span the entire EPC value chain from 'concept to commissioning'.The company has successfully executed complex projects across some of the world's most difficult terrains and conditions, aided by robust engineering, procurement, execution and project management capabilities. Its vast manufacturing footprint extends across India, Dubai, Brazil and Mexico. Its global presence has enabled a robust and agile supply chain that extends across six continents in over 105 countries.

Strong revenue growth of 31% for the quarter

According to the coverage report, the company's revenue growth was seen to grow by 31% and was driven by sales and a healthy order book. "KEC International reported 31%/24% YoY revenue growth for 3QFY23/9MFY23 at the consolidated level. Key drivers for this growth during this quarter are transmission and distribution (T&D) (including SAE) sales growing at 41% and civil at 75% YoY. YTD order inflows stood at Rs155 billion, driven by (T&D), civil, and railways. Order book (Rs290 billion) along with L1 currently stands at ~Rs 60 billion. T&D/Civil/Railways account for 46%/28%/17% of the order book. Given the 9MFY23 revenue run rate and good inflow, the company is confident to achieve revenue growth in excess of 20% in FY23."

Management shares guidance for margins

Margins were muted due to KEC's subsidiary SAE and legacy projects. EBIDTA loss seen for several past quarters but it would improve. "SAE loss and fast-paced completion of legacy projects have been the key drag for the company's margin at a consolidated and standalone level. More than Rs3.5 billion of EBITDA loss has been realized at SAE level in the past seven quarters. This is expected to break even in Q4FY23 and return to normalized margin levels in FY24. Standalone EBITDAM at 4.6% was a negative surprise and was mainly on account of legacy orders. Management expects margin to improve by 75-100bps in 4QFY23 and reach ~9/10% by the end of FY24."

Net working capital (NWC) needs to further improve as it is still high, the coverage report stated. "Debt including acceptances at the end of Q3FY23 stood at Rs 56.2 billion vs. Rs 59.2 billion QoQ. The company further reported debt reduction to ~Rs 53 billion by the end of this fiscal. NWC has been reduced to 139 days from 148 days at the end of Q2, though it is still higher than normalized levels in our view."

'Buy' Stock of KEC International at a price target of Rs 525

Emkay Global's coverage report explains the reason for its buy recommendation to invest in KEC International. "We have cut down our FY24 EPS by 18% due to delayed margin improvement in SAE and lower standalone margin, though long-term margin expectation (9-10%) remains intact. We expect EBITDAM of 7.9%/9.6% in FY24E/FY25E. We maintain our 'Buy' rating and roll forward our valuation to Dec-23, with a price target of Rs 525, based on PE of 15x (long-erm average PE). In the past few years, civil has become one of the large segments for the company and has led to strong inflows and execution.

The stock price per share closed at Rs 474.15, with an intraday growth of 3.89%. If you invest in this mid cap stock at the current market price of Rs 474.15 you will probably earn massive returns of 10.72% by December 23. Its 52-week high is at Rs 549.20 per share and 52-week low is at Rs 345.15.

Disclaimer

The stock has been picked from the brokerage report of Emkay GLobal, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.