kei: Fundamental Radar: Why KEI Industries could surpass October highs to hit record in next 12 months?

has rallied more than 70% from its February lows to hit a fresh record high in October 2022 but soon lost momentum. Fundamental factors suggest that a new high is in the offing.

Investors who missed the rally can still look at buying the stock now or on dips for a target of Rs 1895 on strong management guidance, doubling of revenues and improved margins.

Industries is a leading player in the wires and cables (W&C) space with an extensive product portfolio and distribution reach with PAN India presence.

KEI ranks among the top three wires and cables (W&C) manufacturers in the country. It services retail and institutional customers.

Its product portfolio ranges from housing wires to extra high voltage (EHV) products that cater to cabling requirements of sectors such as power, oil refineries, railways, automobiles, cement, steel and real estate.

Data suggests that in-house wires’ current market share is ~6%, while in cables it has a market share of ~12%.

Cables and wires industry is highly fragmented, but the market share of organised players is expected to grow from 61% in FY2014 to touch 74% in FY2023E, which augurs well for industry leaders like KEI, said a Sharekhan report.

Investment rationale:

Wires & cables form an essential part of the industrial capex. E.g. in Real estate, cables comprise 3.5-4% of the total expenditure, in transmission & distribution the proportion is at 15-25%, Cables also have stringent qualifying norms in the institutional business as it has a lifetime of at least 25-30 years.

Hence, there is a huge scope for growth for KEI given its presence in varied sectors.

“KEI has sharpened focus on its retail business by increasing its dealer and distribution base (currently at 1,805 in numbers) and expects its retail segment to grow by 30-35% y-o-y,” Khadija Mantri, AVP Research at Sharekhan by

, said.

KEI expects 10-15% Y-o-Y growth in exports in the coming years. The company is present in the Middle East, Africa, and Australia and is now expanding in Latin America.

“Hence, a better product mix (higher proportion of retail segments and EHV cables) and operating leverage due to volume growth would lead to margin improvement in the coming years,” she said.

Growth guidance:

The management expects a 17-18% revenue CAGR for the next two-three years and eyes an operating margin of 10.5-11% and PAT margin of 6.5% on a sustainable basis. It aims to almost double its revenue to Rs 10,000-11,000 crore by FY26/FY27.

Key risks

Mantri highlighted that any slowdown in the sectors that it caters to can significantly impact demand for KEI’s products. Secondly, sharp movements in commodity prices are the risk factors.

Valuation

The 5-year revenue and PAT CAGR has been better than its competitors

and .

“It has a strong balance sheet as it has become net cash and has healthy ROE and ROCE at 19% and 23% respectively. The stock trades at 25x and 21x its FY2024/FY2025E EPS. We recommend a Buy on the stock with a target price of Rs 1,895 per share,” recommends Mantri.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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