KEI Industries Q2 Review - Weak Operating Result A Blip; Robust Outlook Intact: Systematix

Systematix Research Report

KEI Industries Ltd.’s strong revenue (up 17% YoY) and soft margins (gross down 219 basis points QoQ at 24.1%, Ebitda down 74 bps QoQ at 9.7%) led to inline Ebitda/PAT (up 9%/10% YoY).

All product categories grew strongly (LT/HT/HW up 21%/66%/22% YoY) except extra high voltage cables (down 51% YoY). Margins were mainly impacted by a large contraction in the EPC segment. Rise in inventory and lower payables resulted in negative operating cash flow in H1 FY25 (should normalize in H2).

While OCFs are expected to be strong (Rs 6 billion+ annually), the board has approved to raise up to Rs 20 billion via QIP to fund entire capex and working capital loan requirement.

Brownfield capex of LT/HT cables at Chinchpada and Pathredi are fully operational. Gujarat greenfield plant (~Rs 12bn capex) is expected to commission by Q1 FY26 in phases.

After a healthy 14%/17% YoY growth in Q2 volume/revenue, management aims 17% YoY revenue growth in FY25E and for the next five years. While retail sales (up 36% YoY, 55.4% mix in Q2) is expected to grow at 20%+ CAGR on regular addition of distributors in new markets, revival in EHV cable and exports (Q2 revenue down 51% and up 7% YoY respectively) are key monitorable in H2.

After weak operating performance in Q1, we cut our earnings estimates by 4-6%. We now expect 18%/19%/22% CAGR in revenue/Ebitda/PAT over FY24-27E (FY19-24: 14%/14%/26% CAGR) with a healthy ~19% RoE and ~28% RoCE.

We remain sanguine about KEI’s promising prospects. Maintain Hold with a revised target price of Rs 4,710 (40 times FY27E P/E, earlier Rs 4,902). Strong OCFs (Rs 6 billion+ annually) and a robust 37% RoIC in FY27E will keep investor’s interest high in KEI and should sustain its premium valuation.

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