KEI Ind Q3FY17: Margins likely to improve further in coming quarters; Buy for medium and long term
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KEI INDUSTRIES LTD reported stellar third quarter FY17 with PAT rising at 83% YOY and stood at Rs. 272 Mn against Rs. 149 Mn corresponding period previous year. Sequential growth was also strong at 19% in the current December quarter. Revenue was seen at Rs. 7659 Mn rising 27% YOY, with quarterly growth of 13% in Q3 FYI'Z. Revenue stood at Rs. 7659 Mn against Rs. 6009 Mn same period previous year. EBDITA was reported at Rs. 782 Mn in Q3 FYI'Z against Rs. 622 Mn corresponding quarter previous year, registering a double digit growth of 26% YOY. On quarterly basis, EBDITA increased 14% in the current Q3 FY17 and operating expenditure was a tad lower at 13% QOQ. Operating expenditure stood at Rs. 6951 Mn compared to Rs.5464 Mn corresponding quarter previous year, rising 27% YOY. Other Income declined 88% YOY and was reported at Rs. 3 Mn compared to Rs. 13 Mn in Q3 FY16. KEI Industries witnessed strong volume growth & demand resulting in double digit growth capitulating into strong Net Profit Margins expanding 108 bp on yearly basis. One basis point is 1/100th of a percentage. EBDITA Margin came under pressure as revenue & operating expenditure grew parallely both yearly and QOQ. EBDITA & Net Profit Margin stood at 10.21% & 3.55% in the current December quarter compared to 10.35% and 2.47% corresponding quarter previous year. Cables contribute 70% of its revenue and grew 18% YOY. Stainless steel wire business & turnkey projects grew 21% & 48% YOY in the current December quarter. Export sales stood at Rs. 1170 Mn in the current quarter against Rs. 280 Mn corresponding quarter previous year, rising 312% YOY. Major concern area for the company remains interest expense which constitutes 4.45% of revenues at Rs. 341 Mn in the current December quarter.
KEI Industries Ltd with market cap of Rs. 29834 Mn is a ranked amongst the top three cable manufacturing companies in India, catering to requirements of a wide spectrum of sectors, such as- Power, Oil Refineries, Railways, Automobiles, Cement, Steel, Fertilizers, Textile And, Real Estate etc. The company has performed well in the current quarter and is expected to improve its margins further in the coming quarters. We recommend BUY for the stock for medium & long term investment with PE multiple of 14.52 x FY17 & 10.29 x FY18E with a target price of Rs. 285.
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Suhani Adilabadkar is a Research Analyst registered with SEBI ((INH200003240)) She has done PGDBA (Finance), MS (Finance) and a Fellowship from Insurance Institute of India. She maintains a blog where she publishes research reports across industries - oasisfundamentals.blogspot.in.
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