Q4FY23 Review KEC International: On the cusp of earnings turnaround

5 May 2023 , 11:35 AM

KEC International (KECI) closed FY23 with reasonable balance-sheet repair with focus on normalization of NWC cycle, reduction in elevated debt levels, generating FCF and turning SAE EBITDA-positive. Strong tailwinds in T&D ordering from domestic and international markets and domestic infra spending has helped drive ~29% YoY growth in OB at Rs. 306 billion; and is expected to sustain momentum in FY24.

Having secured Rs. 222 billion inflows in FY23 (+30% YoY) and a strong order book of Rs. 306 billion, (29% YoY, 1.8x sales), KECI has turned cautious and selective for new projects in FY24; keeping PV clauses, NWC terms and size of projects as key constraints. After a stellar 37% CAGR in FY21-23, Rs. 250 billion (12-15% YoY) inflows in FY24 are targeted. Ordering outlook remains bullish in T&D (domestic + international), Civil and O&G segments, and soft for Rail EPC portfolio due to increased competition.

Analysts at IIFL Capital Services have trimmed their FY24/25 EPS estimates by 10/2%, respectively with gradual improvement in OPMs through FY24. They are forecasting 40% EPS CAGR in FY22-25 (5x in 2yrs on a depressed base of FY23). The stock trades at reasonable valuations of 13x FY25 estimated EPS.