Kinetic growth to continue
Continues to expand its capacity aggressively to capitalise on the increasing demand for power cables due to expansion and upgradation of power transmission network.
| Buy | KEI Industries |
| BSE Code | 517569 |
| NSE Code | KEI |
| Bloomberg | KEII@IN |
| Reuter | |
| 52-week High/Low | Rs 130 / Rs 65 |
| Current Price | Rs 80 (as on 10th October 2007) |
KEI Industries is an established player in the power cables segment and is the second largest power cable company in India. The company produces power cables, SS wires and house wires. They have traditionally manufactured Low Tension (LT) cables since inception, and since last year forayed into High Tension (HT) cables. They have four plants- one in Delhi, two in Bhiwadi and fourth in Silvassa. The company is in the process of setting up a fifth plant in Uttaranchal.
Cable industry is in the buoyant phase
Measures to reduce the demand-supply gap in the power sector will continue to drive the demand for the transmission cabling industry for years together. The Indian government's thrust to improve inter-regional power transmission and embark on underground cabling to reduce distribution losses will also provide a positive demand impetus. The ongoing infrastructure and realty boom and the huge capex planned in various heavy industries continue to create unprecedented demand for power cables. Opportunities for the cabling sector are also ripe in Africa, West Asia and the Gulf region, which are poised to make significant investments in the power sector. In a nutshell, there is a robust demand potential visible on the horizon.
The power cables industry is expected to grow at a CAGR of 20-25% over the next few years. The current size of the industry is Rs 5000 crore and is expected to grow to Rs 15000 crore by FY2012. Most of the business is expected to flow to existing players.
The prospects of the industry underwent a change a year ago when New investments in power sector were planned under Plax X and XI for addition of 100,000MW of power, thus generating huge demand for power cables in generation, transmission and distribution. Set up of special freight corridor by railways and other up-gradation programmes will also increase demand for cables.
Strong customer base
The company enjoys strong demand from various sectors- Power, cement, fertilizers, Steel, Infrastructure, energy, international EPCs. The company sells most of its production in the institutional segment (70%) and 20% in retail segment. Some of their big customers are L&T, ABB, NTPC, Tata Power, Indian Railways, Seimens, Areva, BPCL, IOC, Essar, Sail, Tata Steel, Suzlon energy, Gail, ONGC etc.
Financials have kept pace with the strong demand
For the quarter ended June 2007, sales grew 84% to Rs 183.04 crore. However OPM fell 220 basis points to 13.1%. Thus OP was up by 58% to Rs 23.96 crore. Other income was up from just Rs 13 lakh to Rs 3.68 crore (due to forex gains on pending FCCBs) and interest cost rose 155% to Rs 8.55 crore. As depreciation rose 37% to Rs 1.91 crore, PBT went up by 62% to Rs 17.18 crore.
As taxation (including deferred tax) grew 79% to Rs 5.25 crore, PAT went up by 56% to Rs 11.93 crore.
Reaping benefits of past strategies
All the strategies that the company had embarked upon in the past have showed results. One of the key accomplishments of the company included the timely completion and on track capacity expansion of the HT plant. Contribution of HT cables to the overall revenues has doubled.
The company has also successfully acquired orders in the EPC space for cable supply and laying of cables. Revenue from sales to institutional customers continued to be robust while revenues from the export sector where it has been focusing in the recent past has also grown well.
Capacities have been expanded continuously
Over the past three years the company has been continuously increasing its capex. Capacity of SS (stainless steel) wires, which stood at 2400000 kg in FY 2004, was increased to 2650000 kg in FY 2005. This was further increased to 3250000 kg in FY 2006 and then 4800000 kg in FY 2007. Thus in past 3 years its capacity of SS wires was increased by 100%.
During the same period, cable capacity was increased from 14000 Kms to 25000 Kms to 32000 Kms to 40000 in FY 2007. Cable capacity grew by 186% in past 3 years.
Capacity of Winding Wire was increased 150% from 100000 kms in FY 2006 to 250000 kms in FY 2007.
Further expansion
The company is setting up New Project at Chopanki (Rajasthan) for manufacture of existing range of products i.e. LT / HT power cable. The New Project will be commissioned by October 2007. The approximate cost of the Project is Rs 55-60 crore which will be executed in two phases. The company is expecting an additional turnover of approximately Rs 250 crore from this Project. The company is also undertaking modernisation & expansion of its existing units at Bhiwadi & Silvassa.
Keeping in view benefits expected from HT facilities and expansion in LT Power Cables and ongoing expansion in House Wire/ Flexible Wire facility at Silvassa, the management expects that barring unforeseen circumstances there will be substantial increase in sales and profit of the company during the year 2007-08.
Valuation is attractive
In FY 2008, we expect the company to register sales and net profit of Rs 934.99 crore and Rs 59.36 crore. On fully diluted equity of Rs 14.2 crore, EPS works out to 8.4. The share price trades at Rs 80. P/E works out to just 9.6.
|
| 0503 (12) | 0603 (12) | 0703 (12) | 0803 (12P) |
| Sales | 203.16 | 298.29 | 600.65 | 934.99 |
| OPM (%) | 9.6 | 14.7 | 14.4 | 13.8 |
| OP | 19.6 | 43.76 | 86.77 | 129.23 |
| Other inc. | 1.93 | 2.04 | 0.61 | 4.23 |
| PBIDT | 21.53 | 45.80 | 87.38 | 133.46 |
| Interest | 6.85 | 9.46 | 23.74 | 39.14 |
| PBDT | 14.68 | 36.34 | 63.64 | 94.33 |
| Dep. | 1.99 | 2.69 | 5.65 | 8.30 |
| PBT | 12.69 | 33.65 | 57.99 | 86.03 |
| Tax | 4.30 | 7.64 | 17.85 | 26.67 |
| PAT | 8.39 | 26.01 | 40.14 | 59.36 |
| EPS* (Rs) | 1.2 | 3.7 | 5.7 | 8.4 |
| * Annualised on diluted equity of Rs 14.20 crore; Face Value: Rs 2 | ||||
| KEI Industries: Results |
|
| 0706 (3) | 0606 (3) | Var. (%) | 0703 (12) | 0603 (12) | Var. (%) |
| Sales | 183.04 | 99.35 | 84 | 600.65 | 298.29 | 101 |
| OPM (%) | 13.1 | 15.3 |
| 14.4 | 14.7 |
|
| OP | 23.96 | 15.20 | 58 | 86.77 | 43.76 | 98 |
| Other inc. | 3.68 | 0.13 | 2731 | 0.61 | 2.04 | -70 |
| PBIDT | 27.64 | 15.33 | 80 | 87.38 | 45.80 | 91 |
| Interest | 8.55 | 3.35 | 155 | 23.74 | 9.46 | 151 |
| PBDT | 19.09 | 11.98 | 59 | 63.64 | 36.34 | 75 |
| Dep. | 1.91 | 1.39 | 37 | 5.65 | 2.69 | 110 |
| PBT | 17.18 | 10.59 | 62 | 57.99 | 33.65 | 72 |
| Tax | 4.05 | 2.54 | 59 | 14.65 | 5.26 | 179 |
| Deferred Tax | 1.20 | 0.40 | 200 | 3.20 | 2.38 | 34 |
| PAT | 11.93 | 7.65 | 56 | 40.14 | 26.01 | 54 |
| EPS* (Rs) | 6.7 | 4.3 |
| 5.7 | 3.7 |
|
| * Annualised on diluted equity of Rs 14.20 crore; Face Value: Rs 2 | ||||||
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