2QFY2019 Result Update | Cable

November 3, 2018

KEI Industries

BUY

CMP

`349

Performance Update

Target Price

`500

Y/E March (` cr)

2QFY19

2QFY18

% yoy

1QFY19

% qoq

Investment Period

12 months

Net sales

997

749

884

Stock Info

EBITDA

101

Sector

Cable

EBITDA margin (%)

10.1

10.2

(7bp)

9.7

40bp

Market Cap (Rs cr)

2,838

Adjusted PAT

Net Debt

671

Source: Company, Angel Research

Beta

0.6

52 Week High / Low

495/248

For 2QFY2019, KEI Industries (KEI) posted good set of results, exceeding our

Avg. Daily Volume

32,550

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

Face Value (Rs)

BSE Sensex

34,893

~33% yoy (above our estimate), however, the company reported a marginal dip

Nifty

10,532

in operating margins. On the bottom-line front, KEI reported growth of ~45% yoy

Reuters Code

KEIN.BO

to`41cr on the back of strong top-line growth.

Bloomberg Code

KEII.IN

Strong growth in Cable and Stainless Steel Wire segment boosted the overall

Shareholding Pattern (%)

profit: The company’s top-line grew by ~33% yoy to `997cr on the back of strong

Promoters

45.9

growth in Cables and Stainless Steel Wire segment. Cables segment grew by

MF / Banks / Indian Fls

11.4

~36% yoy during the quarter, whereas Stainless Steel Wire reported a growth of

FII / NRIs / OCBs

0.0

Indian Public / Others

42.7

~21% yoy. However, Turnkey Projects remained flat on yoy basis. Currently, the

company has order book of `3,401cr (out of which EPC is around `1,556cr and

Abs. (%)

3m 1yr

3yr

balance from cables, substation & EHV)

Sensex

(8.2)

2.5

29.6

KEI

(20.0)

6.1

293.4

Profitability driven by operating margin improvement and lower interest: On the

operating front, the company’s margins contracted 7bps yoy at 10.1% on the

back of higher raw material cost. However, KEI reported ~45% yoy rise in its net

profit to `41cr owing to strong volume growth.

Outlook and Valuation: We expect KEI to report net revenue CAGR of ~17% to

~`4,708cr over FY2018-20E 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 ~22% to`215cr over the

same period on the back of strong volume growth. At the CMP of `349, the stock

trades at 12.6x its FY2020E EPS of `27.8, thus, we maintain our Buy rating on KEI

Historical share price chart

Industry with the Target Price of `500.

600

Key Financials

500

Y/E March (` cr)

FY2017

FY2018

FY2019E

FY2020E

400

Net sales

2,628

3,466

4,064

4,707

300

% chg

13.0

31.8

17.3

15.8

200

Adj. Net profit

145

178

215

100

% chg

50.6

54.6

22.8

20.7

EBITDA margin (%)

10.2

9.8

10.0

EPS (`)

12.1

18.7

23.0

27.8

P/E (x)

28.8

18.6

15.2

12.6

Source: Company, Angel Research

P/BV (x)

5.7

4.4

3.5

2.8

RoE (%)

19.8

23.8

23.0

22.1

Amarjeet S Maurya

RoCE (%)

20.3

22.6

24.4

25.1

022-40003600 Ext: 6831

EV/Sales (x)

1.3

1.0

0.8

0.7

[email protected]

EV/EBITDA (x)

12.5

9.9

8.2

7.0

Source: Company, Angel Research Note

Please refer to important disclosures at the end of this report

KEI Industries| 2QFY2019 Result Update

Exhibit 1: 2QFY2019 Performance

Y/E March (` cr)

2QFY19

2QFY18

% yoy

1QFY19

% qoq

1HFY19

1HFY18

% chg

Net Sales

997

749

33.1

884

12.8

1,881

1,540

22.1

Consumption of RM

680.5

524

29.8

578.4

17.7

1,259

1,074

17.2

(% of Sales)

68.3

70.0

65.4

66.9

69.8

Staff Costs

22.5

4.3

82.8

69.0

20.0

(% of Sales)

4.2

4.6

4.4

4.5

Other Expenses

173

114

52.1

179

(3.2)

352.1

243.5

44.6

(% of Sales)

17.4

15.2

20.2

18.7

15.8

Total Expenditure

896

673

33.2

798

12.3

1,694

1,387

22.1

Operating Profit

101

32.2

17.1

187

153

22.2

OPM

10.1

10.2

9.7

9.9

Interest

30.5

27.4

11.3

28.7

6.4

59.1

57.3

3.2

Depreciation

8.5

8.1

4.7

8.4

1.2

16.8

16.1

4.7

Other Income

2.4

2.6

PBT (excl. Ext Items)

50.9

25.6

113

37.8

Ext (Income)/Expense

PBT (incl. Ext Items)

50.9

25.6

113

37.8

(% of Sales)

6.3

5.6

5.7

6.0

5.3

Provision for Taxation

39.9

26.3

(% of PBT)

34.5

31.9

36.0

Reported PAT

45.2

28.6

31.4

PATM

4.2

3.8

3.6

3.9

3.6

Minority Interest After NP

Extra-ordinary Items

Reported PAT

45.2

32.18

28.6

73.5

56.0

31.4

Source: Company, Angel Research

November 3, 2018

KEI Industries| 2QFY2019 Result Update

Outlook and Valuation

We expect KEI to report net revenue CAGR of ~17% to ~`4,708cr over FY2018-

20E 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 ~22% to`215cr over the same period on the back of

strong volume growth. At the CMP of `349, the stock trades at 12.6x its FY2020E

EPS of `27.8, thus, we maintain our Buy rating on KEI Industry with the Target

Price of `500.

Downside risks to our estimates

 KEI’s EPC segment contributes ~14% to 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

manufacturing 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. The company's products are supplied to various sectors like oil refineries,

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

November 3, 2018

KEI Industries| 2QFY2019 Result Update

Profit & Loss Statement

Y/E March (`cr)

FY2017

FY2018

FY2019E

FY2020E

Total operating income

2,628

3,466

4,064

4,707

% chg

13.0

31.8

17.3

15.8

Total Expenditure

2,360

3,126

3,657

4,236

Raw Material

1,828

2,411

2,869

3,323

Personnel

112

147

171

198

Others Expenses

420

568

618

715

EBITDA

269

339

406

471

% chg

11.0

26.2

19.8

15.8

(% of Net Sales)

10.2

9.8

10.0

Depreciation& Amortisation

EBIT

240

307

371

431

% chg

10.8

27.7

20.9

16.1

(% of Net Sales)

9.1

8.9

9.1

9.2

Interest & other Charges

124

112

116

121

Other Income

(% of PBT)

8.0

4.5

3.8

3.1

Share in profit of Associates

Recurring PBT

126

204

265

320

% chg

32.2

62.2

29.8

20.7

Tax

106

(% of PBT)

25.7

29.2

33.0

PAT (reported)

145

178

215

Extraordinary Items

ADJ. PAT

145

178

215

% chg

50.6

54.6

22.8

20.7

(% of Net Sales)

3.6

4.2

4.4

4.6

Basic EPS (Rs)

12.1

18.7

23.0

27.8

Fully Diluted EPS (`)

12.1

18.7

23.0

27.8

% chg

50.6

54.6

22.8

20.7

November 3, 2018

KEI Industries| 2QFY2019 Result Update

Balance Sheet

Y/E March (`cr)

FY2017

FY2018

FY2019E

FY2020E

SOURCES OF FUNDS

Equity Share Capital

Reserves& Surplus

458

593

756

954

Shareholders’ Funds

473

608

772

969

Minority Interest

Total Loans

713

750

Deferred Tax Liability

Total Liabilities

1,233

1,404

1,568

1,766

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

2,166

2,540

Inventories

499

665

779

903

Sundry Debtors

739

883

1,035

1,199

Cash

107

156

Loans & Advances

119

173

203

235

Other Assets

Current liabilities

582

829

996

1,164

Net Current Assets

818

1,001

1,170

1,376

Deferred Tax Asset

Mis. Exp. not written off

Total Assets

1,233

1,404

1,568

1,766

November 3, 2018

KEI Industries| 2QFY2019 Result Update

Consolidated Cash Flow Statement

Y/E March (`cr)

FY2017

FY2018

FY2019E FY2020E

Profit before tax

134

204

265

320

Depreciation

Change in Working Capital

(259)

(145)

(137)

(157)

Interest / Dividend (Net)

123

112

116

121

Direct taxes paid

(30)

(60)

(88)

(106)

Others

Cash Flow from Operations

144

192

218

(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)

(116)

(121)

Cash Flow from Financing

(85)

(130)

(138)

Inc./(Dec.) in Cash

Opening Cash balances

107

Closing Cash balances

107

156

November 3, 2018

KEI Industries| 2QFY2019 Result Update

Key Ratios

Y/E March

FY2017

FY2018

FY2019E FY2020E

Valuation Ratio (x)

P/E (on FDEPS)

28.8

18.6

15.2

12.6

P/CEPS

22.1

15.2

12.7

10.6

P/BV

5.7

4.4

3.5

2.8

Dividend yield (%)

0.2

0.4

0.5

0.6

EV/Sales

1.3

1.0

0.8

0.7

EV/EBITDA

12.5

9.9

8.2

7.0

EV / Total Assets

2.7

2.4

2.1

1.9

Per Share Data (`)

EPS (Basic)

12.1

18.7

23.0

27.8

EPS (fully diluted)

12.1

18.7

23.0

27.8

Cash EPS

15.8

22.9

27.6

32.9

DPS

0.7

1.3

1.8

2.2

Book Value

61.3

78.7

99.9

125.5

Returns (%)

ROCE

20.3

22.6

24.4

25.1

Angel ROIC (Pre-tax)

21.0

24.0

26.3

27.7

ROE

19.8

23.8

23.0

22.1

Turnover ratios (x)

Asset Turnover (Gross Block)

4.3

5.6

6.2

6.9

Inventory / Sales (days)

Receivables (days)

103

Payables (days)

Working capital cycle (ex-cash) (days)

130

123

122

121

November 3, 2018

KEI Industries| 2QFY2019 Result Update

Research Team Tel: 022 - 39357800

E-mail: [email protected]

Website: www.angelbroking.com

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Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number INH000000164. Angel or its associates has not

been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market. Angel or its

associates/analyst has not received any compensation / managed or co-managed public offering of securities of the company covered

by Analyst during the past twelve months.

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decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

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referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and

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contrary view, if any

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Disclosure of Interest Statement

KEI Industries

1. Financial interest of research analyst or Angel or his Associate or his relative

2. Ownership of 1% or more of the stock by research analyst or Angel or associates or relatives

3. Served as an officer, director or employee of the company covered under Research

4. Broking relationship with company covered under Research

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%)

November 3, 2018