Anand Rathi 's research report on KEI Industries
KEI’s Q2 was operationally good. Retail and domestic cables recovered swiftly; weak exports were due to the high base (Dangote order). The strong 11.4% EBITDA margin was led by the gross-margin expansion. The stretched WC-cycle (lower payables, delayed payments from government projects) is likely to be normal in H2. The declining orderbook (Rs26bn) is due to reduction in EPC as KEI wants to focus more on retail. The money released due to lower WC needs will be used to strengthen distribution and its brand image.
Outlook
Current capacity would suffice till FY22; a capex plan will be finalised by Q4. Thus, we continue to like KEI for its bright prospects and retain a Buy with a target of Rs485 (14x FY22e P/E), earlier Rs473. FCF generation aided by reduction in its WC owing to its greater focus on retail sales (incl. entry into FMEG, like peers) would help in a re-rating of the stock.
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