4QFY2018 Result Update | Cable

May 21, 2018

KEI Industries

BUY

CMP

`433

Performance Update

Target Price

`508

Y/E March (` cr)

4QFY18

4QFY17

% yoy

3QFY18

% qoq

Investment Period

12 months

Net sales

1,030

739

889

EBITDA

101

Stock Info

Sector

Cable

EBITDA margin (%)

9.8

9.9

(0.05bps)

9.5

0.3

Market Cap (Rs cr)

3,393

Adjusted PAT

Net Debt

750

Beta

0.6

Source: Company, Angel Research

52 Week High / Low

471/198

Avg. Daily Volume

16,814

For 4QFY2018, KEI Industries (KEI) posted good set of results, exceeding our

Face Value (Rs)

expectations on both, top-line as well as bottom-line fronts. Revenues grew by

BSE Sensex

33,812

~39% yoy (above our estimate), however, the company reported flat operating

Nifty

10,442

Reuters Code

KEIN.BO

margins. On the bottom-line front, KEI reported growth of ~40% yoy to `50cr on

Bloomberg Code

KEII.IN

the back of strong top-line growth and lower interest cost.

Top-line driven by strong volume growth: The Company’s top-line grew by ~39%

Shareholding Pattern (%)

Promoters

46.3

yoy to `1,030cr on the back of strong growth in cable prime segment i.e. Cables

MF / Banks / Indian Fls

12.4

and Turnkey Projects. Cable segment grew by ~24.3% yoy during the quarter,

FII / NRIs / OCBs

6.4

whereas Turnkey Projects reported a growth of ~42% yoy. Currently, the company

Indian Public / Others

34.9

has order book of `2,570cr (out which EPC is around `1,425cr and balance from

cables, substation & EHV)

Abs. (%)

3m 1yr 3yr

Sensex

7.4

27.1

22.9

Profitability driven by strong revenue growth and lower interest: On the operating

KEI

16.3

100.5

553.8

front, the company’s margin remained flat on yoy basis at 9.8%. However, KEI

reported ~40% yoy rise in its net profit to `50cr on the back of strong revenue

growth and lower interest cost.

Outlook and Valuation: We expect KEI to report net revenue CAGR of ~16% to

~`4,646cr over FY2018-19E 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 a CAGR of ~19% to `207cr over the

same period on the back strong revenue and lower interest costs. At the CMP of

`433, the stock trades at 16.2x its FY2020E EPS of `26.8. Thus, we maintain our

Historical share price chart

Buy rating with the Target Price of `508.

500

450

Key Financials

400

Y/E March (` cr)

FY2017

FY2018

FY2019E

FY2020E

350

300

Net sales

2,628

3,466

4,049

4,646

250

% chg

13.0

31.8

16.8

14.7

200

Adj. Net profit

145

174

207

150

100

% chg

50.6

54.6

19.9

19.1

EBITDA margin (%)

10.2

9.8

10.0

EPS (`)

12.1

18.7

22.5

26.8

P/E (x)

35.7

23.1

19.3

16.2

P/BV (x)

7.1

5.5

4.4

3.5

Source: Company, Angel Research

RoE (%)

19.8

23.8

22.6

21.6

Amarjeet S Maurya

RoCE (%)

20.3

22.6

24.4

24.9

022-40003600 Ext: 6831

EV/Sales (x)

1.5

1.2

1.0

0.8

[email protected]

EV/EBITDA (x)

14.9

11.8

9.8

8.5

Source: Company, Angel Research Note

Please refer to important disclosures at the end of this report

KEI Industries| 4QFY2018 Result Update

Exhibit 1: 4QFY2018 Performance

Y/E March (` cr)

4QFY18

4QFY17

% yoy

3QFY18

% qoq

FY2018

FY2017

% chg

Net Sales

1,030

739

39.4

889

16.0

3,466

2,628

31.8

Consumption of RM

715.7

539

32.8

621

15.2

2,411

1,828

31.9

(% of Sales)

69.5

72.9

69.9

69.6

69.5

Staff Costs

28.7

10.7

147

112

31.4

(% of Sales)

4.0

4.3

4.2

4.3

Other Expenses

173

81.1

146

18.2

568

420

35.2

(% of Sales)

16.8

12.9

16.5

16.4

16.0

Total Expenditure

929

666

39.5

804

15.5

3,126

2,360

32.5

Operating Profit

101

38.7

19.9

339

269

26.2

OPM

9.8

9.9

9.5

9.8

10.2

Interest

28.8

30.2

(4.4)

25.1

14.6

112

124

(10.1)

Depreciation

8.0

7.8

3.0

8.2

(2.8)

13.5

Other Income

(1)

PBT (excl. Ext Items)

52.1

9.2

204

126

62.2

Ext (Income)/Expense

PBT (incl. Ext Items)

52.1

9.2

204

126

62.2

(% of Sales)

6.2

5.7

6.6

5.9

4.8

Provision for Taxation

(% of PBT)

22.1

15.6

33.0

29.2

25.7

Reported PAT

40.4

27.0

145

54.6

PATM

4.8

4.4

4.2

3.6

Minority Interest After NP

Extra-ordinary Items

Reported PAT

40.4

39.02

27.0

144.8

93.6

54.6

Source: Company, Angel Research

May 21, 2018

KEI Industries| 4QFY2018 Result Update

Outlook and Valuation

We expect KEI to report net revenue CAGR of ~16% to ~`4,646cr over FY2018-

19E 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 a CAGR of ~19% to `207cr over the same period on the back

strong revenue and lower interest costs. At the CMP of `433, the stock trades at

16.2x its FY2020E EPS of `26.8. Thus, we maintain our Buy rating with the Target

Price of `508.

Downside risks to our estimates

 KEI’s EPC segment contributes ~14% in 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 and interest

rates, and delay in project execution can hurt its profitability.

Company Background

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

manufacture 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 Rajastahn 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. Their products are supplied to various sectors like oil refineries, railways,

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

May 21, 2018

KEI Industries| 4QFY2018 Result Update

Profit & Loss Statement

Y/E March (`cr)

FY2017

FY2018

FY2019E

FY2020E

Total operating income

2,628

3,466

4,049

4,646

% chg

13.0

31.8

16.8

14.7

Total Expenditure

2,360

3,126

3,644

4,181

Raw Material

1,828

2,411

2,859

3,280

Personnel

112

147

170

195

Others Expenses

420

568

615

706

EBITDA

269

339

405

465

% chg

11.0

26.2

19.4

14.7

(% of Net Sales)

10.2

9.8

10.0

Depreciation& Amortisation

EBIT

240

307

370

425

% chg

10.8

27.7

20.4

15.0

(% of Net Sales)

9.1

8.9

9.1

Interest & other Charges

124

112

121

127

Other Income

(% of PBT)

8.0

4.5

3.9

3.2

Share in profit of Associates

Recurring PBT

126

204

259

309

% chg

32.2

62.2

26.7

19.1

Tax

102

(% of PBT)

25.7

29.2

33.0

PAT (reported)

145

174

207

Extraordinary Items

ADJ. PAT

145

174

207

% chg

50.6

54.6

19.9

19.1

(% of Net Sales)

3.6

4.2

4.3

4.4

Basic EPS (Rs)

12.1

18.7

22.5

26.8

Fully Diluted EPS (`)

12.1

18.7

22.5

26.8

% chg

50.6

54.6

19.9

19.1

May 21, 2018

KEI Industries| 4QFY2018 Result Update

Balance Sheet

Y/E March (`cr)

FY2017

FY2018

FY2019E

FY2020E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

458

593

752

942

Shareholders Funds

473

608

768

958

Minority Interest

Total Loans

713

750

Deferred Tax Liability

Total Liabilities

1,233

1,404

1,564

1,755

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

2,158

2,514

Inventories

499

665

777

891

Sundry Debtors

739

883

1,032

1,184

Cash

107

160

Loans & Advances

119

173

202

232

Other Assets

Current liabilities

582

829

992

1,149

Net Current Assets

818

1,001

1,166

1,365

Deferred Tax Asset

Mis. Exp. not written off

Total Assets

1,233

1,404

1,564

1,755

May 21, 2018

KEI Industries| 4QFY2018 Result Update

Consolidated Cashflow Statement

Y/E March (`cr)

FY2017

FY2018

FY2019E FY2020E

Profit before tax

134

204

259

309

Depreciation

Change in Working Capital

(259)

(145)

(134)

(145)

Interest / Dividend (Net)

123

112

121

127

Direct taxes paid

(30)

(60)

(86)

(102)

Others

Cash Flow from Operations

144

196

227

(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)

(17)

Interest / Dividend (Net)

(158)

(112)

(121)

(127)

Cash Flow from Financing

(85)

(135)

(143)

Inc./(Dec.) in Cash

Opening Cash balances

107

Closing Cash balances

107

160

May 21, 2018

KEI Industries| 4QFY2018 Result Update

Key Ratios

Y/E March

FY2017

FY2018

FY2019E

FY2020E

Valuation Ratio (x)

P/E (on FDEPS)

35.7

23.1

19.3

16.2

P/CEPS

27.4

18.9

16.0

13.6

P/BV

7.1

5.5

4.4

3.5

Dividend yield (%)

0.2

0.3

0.4

0.5

EV/Sales

1.5

1.2

1.0

0.8

EV/EBITDA

14.9

11.8

9.8

8.5

EV / Total Assets

3.3

2.9

2.5

2.2

Per Share Data (`)

EPS (Basic)

12.1

18.7

22.5

26.8

EPS (fully diluted)

12.1

18.7

22.5

26.8

Cash EPS

15.8

22.9

27.0

31.9

DPS

0.7

1.3

1.8

2.1

Book Value

61.3

78.7

99.4

124.0

Returns (%)

ROCE

20.3

22.6

24.4

24.9

Angel ROIC (Pre-tax)

21.0

24.0

26.3

27.5

ROE

19.8

23.8

22.6

21.6

Turnover ratios (x)

Asset Turnover (Gross Block)

4.3

5.6

6.2

6.8

Inventory / Sales (days)

Receivables (days)

103

Payables (days)

Working capital cycle (ex-cash) (days)

130

123

122

121

May 21, 2018

KEI Industries| 4QFY2018 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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Disclosure of Interest Statement

KEI Industries

1. Analyst ownership of the stock

2. Angel and its Group companies ownership of the stock

3. Angel and its Group companies' Directors ownership of the stock

4. Broking relationship with company covered

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%)

May 21, 2018