KEI Industries Q3 Results Review - Robust Demand Intact; Huge Capex To Drive 15%+ Revenue CAGR: Systematix

Systematix Report

KEI Industries Ltd.'s healthy and inline Q3 (volume/revenue/Ebitda/profit after tax up 13%/16%/19% /17% YoY) was led by ~2 times surge in extra high voltage cable sales (Rs 1.86 billion) and exports (Rs 1.96 billion). Ebitda margin came flattish at 10.5%. The strong Rs 38.3 billion order book comprises of engineering, procurement and construction (Rs 9.5 billion), exports (Rs 4.8 billion) and all verticals. Retail sales (up 16.4% YoY) contributed 46% to total sales (to reach 50% soon).

Pan-India network expansion is helping KEI Industries to gain market-share in wires. Looking at robust market potential, KEI Industries plans to invest over Rs 15 billion over the next three years (~Rs 5 billion annually) in building capacities across product lines and achieve 15% plus revenue compound annual growth rate.

The ongoing capex of Rs 1.1 billion at Chinchwad for Housewire is likely to be operational in phases by March 2025 and would have ~Rs 9 billion revenue potential. The greenfield plant (~Rs 10 billion capex at Sanand over the next three years) is likely to be operational in phases from Q4 FY25 having Rs 50 billion revenue potential.

Rise in scale and superior mix (retail, EHV) will drive Ebitda margins towards 12% in three years (~10.5% currently). We broadly maintain our earnings estimates post an inline Q3 result and expect 16%/20%/22% CAGR in revenue/Ebitda/profit after tax over FY23-26E (FY18-23: 15%/16%/27% CAGR).

Healthy return of equity (19%), return on capital employed (27%) and return on invested capital (36%) in FY26E should sustain.

Strong operating cash flow (~Rs 5-6 billion annually) will be deployed towards planned capex. We remain sanguine about KEI’s promising growth prospects.

However, post significant re-rating and currently at ~32 times FY26E profit earning, we maintain 'Hold' rating on the stock with an unchanged target price of Rs 3,325 (35 times FY26E P/E).

Strong earnings growth visibility would continue to evince investor interest, in our view.

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