Business

kei: Fundamental Radar: Why can KEI Industries break through October highs to hit a record in the next 12 months?


rallied more than 70% from the February low to hit a new record high in October 2022 but quickly lost momentum. The fundamentals suggest that a new high is forming.

Investors who missed out on the bull run can still consider buying the stock now or at a discount with a target of Rs 1895 based on strict management guidelines, double sales and profit margins. improved.

Industries is a leader in the field of wire and cable (W&C) with an extensive product portfolio and distribution coverage with the presence of PAN India.

KEI ranks among the top three electrical wire and cable (W&C) manufacturers in the country. It serves retail and institutional customers.

Its product portfolio ranges from household electrical wires to ultra-high voltage (EHV) products that meet the cable requirements of sectors such as electricity, refineries, railways, automobiles, cement, etc. , steel and real estate.

The data shows that the current market share of indoor wires is ~6%, while the market share of cables is ~12%.

The Sharekhan report says the cable and wire industry is highly fragmented, but the market share of organized companies is expected to grow from 61% in 2014 to 74% in 2023E, which is a credit good signal for industry leaders like KEI.

Investment basis:

Wires and cables are an essential part of industrial capital. For example, in Real Estate, cable accounts for 3.5-4% of total spending, in transmission and distribution it is 15-25%, Cable also has strict quality standards in the sports business. because it has a lifespan of at least 25-30 years.

Therefore, KEI has a huge growth opportunity thanks to its presence in various fields.

“KEI has increased focus on its retail business by increasing its dealer and distribution base (currently 1,805) and expects its retail segment to grow 30-35% y/y. same period,” said Khadija Mantri, AVP Research at Sharekhan.

speak.

KEI expects exports to grow by 10-15% YoY in the coming years. The company has a presence in the Middle East, Africa and Australia and is currently expanding in Latin America.

“As a result, better product mix (higher share of retail and cable EHV segments) and operating leverage due to volume growth will lead to improved margins in the coming years,” she said. speak.

Growth guide:

Management expects a compound annual growth rate (CAGR) of revenue of 17-18% over the next two to three years and targets an operating profit margin of 10.5-11% and an after-tax profit margin. is 6.5% on a sustainable basis. It aims to nearly double its revenue to Rs 10,000-11,000 crore by the financial year 26/2027.

main risk

Mantri stressed that any slowdown in the sectors it serves could significantly impact demand for KEI products. Second, strong commodity price volatility is a risk factor.

valuation

Revenue and CAGR NPAT 5 years better than competitors

and .

“It has a good balance sheet as it has turned into net cash and has healthy ROE and ROCE of 19% and 23% respectively. The stock trades at 25x and 21x EPS for the fiscal year 2024/2025E. We recommend Buy stock with target price of Rs 1,895/share,” recommended Mantri.

(Disclaimer: Recommendations, suggestions, views and opinions expressed by experts are their own. These do not represent the views of The Economic Times. )

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