Prabhudas Lilladher has given Buy recommendation for KEI Industries with a target price of Rs. 825 in its research report issued on Jun 23, 2021

Prabhudas Lilladher’s research report on KEI Industries

We believe KEI is well placed to capture demand for wires and cables given 1) wide product portfolio catering to various industries 2) amongst very few players having EHV cable capabilities 3) focus on scaling up channel expansion (1,655 dealers, grow by 10% p.a)/ brand building (3% of B2C Sales) & 4) tapping into rising export opportunities. Uptick in housing demand bodes well for KEI given increased focus on brand building, distribution expansion & increasing B2C sales ahead of proposed entry into FMEG products. We estimate a 30% CAGR in Housing Wires sales & increase in B2C sales contribution to 40-50% over 3-5 years (34% in FY21). We estimate KEI’s Sales/PAT to grow at a CAGR of 18.2%/ 22.8% over FY21-24E. We value the stock at 16x Sept23 earnings and arrive at a target price of Rs825. At current valuations of 14.1x FY23 EPS, KEI trades at a discount to other Wires & Cables peers – Polycab/ Finolex (24.5x/ 17.6x). Increasing retail sales & valuation discount will provide steady returns. Given mixed peer track record and long gestation, we are not factoring in any numbers or option value to proposed entry in FMEG space. We initiate coverage with BUY rating.

Outlook

We initiate coverage on KEI with BUY rating and target price of Rs825. We believe KEI is a compelling play on growing demand for wires & cables arising from Infrastructure, Industrial activity, Railway electrification and housing construction activity.