CD Equisearch has given Hold recommendation for KEC International with a target price of Rs. 374 in its research report issued on Aug 30, 2022
CD Equisearch’s research report on KEC International
Driven by increasing construction activities in emerging markets, the global construction market, as per a report by Research and Markets, is expected to cross $15 trillion mark in 2022, when compared to $13.6 trillion a year ago. The report pegs the sector to grow at a CAGR of 10.8% to reach $ 22.9 dollars by 2026 driven by rising investments in infrastructure, energy and utilities sectors that would be further buoyed by government support measures. China, Brazil, India, Saudi Arabia and Indonesia will account for majority of this growth. KEC’s well-diversified order book stood at Rs. 23,720 crs as on June 30, 2022, excluding L1 positions of over Rs. 8000 crores diversified across businesses, with domestic markets contributing 66% to overall mix. Order intake in Q1FY23 was Rs. 3,472 crs, with 85% secured from domestic markets. The largest contributor to the order intake has been the civil and T&D businesses followed by railways and cables. The civil business has delivered an exemplary performance contributing 36% to overall order intake in Q1FY23, securing orders of over Rs. 1,200 crs across industrial, residential, hydrocarbon, defense and data centre segments primarily driven by gradual revival in the private capex in the industrial and the reality sector. The uptick in order intake has significantly enhanced the order book (including L1) of the civil segment to stand at an all-time high of over Rs. 10,000 crs comprising of turnkey EPC projects from marquee clients.
KEC’s robust order book (including L1) position of almost Rs. 31,000 crs as of June 2022 would aid uplift overall revenues by 15.5% and by 12.2% in FY23 and FY24 respectively. Friction in order execution due to external factors coupled with little specialization in execution of complex orders would constrict margins. Working capital stress would barely alleviate pain. Balancing odds, we assign ‘hold’ rating on the stock with target price of Rs 374 (previous target Rs 514) based on 18x FY24e EPS.