KEC International expects to clock grow its revenues by 15 percent and order inflow growth of 10 to 15 percent in FY24. This implies Rs 20,000 crore of sales and Rs 25,000 crore of order inflows. In the first quarter of financial year 2023-24 (until June 15th), the company has secured Rs 2,400 crore in order inflows driven by the civil and railway segments.

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KEC International is primarily engaged in Engineering, Procurement and Construction business (EPC) projects and systems and related activities for power transmission, distribution, railway and other EPC businesses. The company is a part of RPG group which is a diversified conglomerate with interests in areas of infrastructure, tyres, information technology, pharmaceuticals, energy and plantations.

The management in its annual investor day held on June 15th guided for gradual EBITDA margin recovery in FY24 and normalizing in FY25. EBITDA margins have been weak in FY22 and FY23 driven by the impact of unhedged commodity exposure in legacy contracts and losses in Brazil. With Brazil EPC projects completed and commodity prices cooling off, management expects EBITDA margin to improve to 6 percent in first half of financial year 2023-24 and exit the year at 9 to 10 percent in fourth quarter of FY24. This leads to FY24 full-year margin at 7 percent. From FY25, the management expects a normalized EBITDA margin of above 9 percent.

The company has witnessed a revival of transmission ordering from Saudi Arabia, with a significant tender pipeline in FY24E. Management is estimating INR15-20bn sales in FY24E from Saudi Arabia. In the US, competition has reduced from foreign vendors, with the US not taking in Chinese supplies and Turkish vendors owing to volatile domestic politics and rampant inflation. Furthermore, the company has received Rs 150 crore from Afghanistan in the first quarter of FY24.

The EPC player expects 15-20 percent growth in Indian Transmission and Distribution (T&D) ordering in near term which can compensate for the relatively flattish railway ordering growth that it expects. T&D tendering pipeline is strong and in recent tariff-based competitive bids (TBCB), payment terms have improved as well.

Within the civil business, Rs 5,000 crore revenue in FY24 is expected and is also exploring fully-funded projects in Africa and South Asia. The company has taken a conscious decision to avoid EPC projects in Latin America after facing issues in Brazil EPC contracts. The focus will be on tower supplies denominated in hard global currencies like the USD as it mitigates forex risk.

Nomura maintains a Buy rating on the stock with a target price of Rs 598. Key

risks as highlighted by Nomura are delayed EBITDA margin recovery and a worsening of working capital levels. The stock is trading flat on the exchanges at Rs 550 at 10 am on June 16th.

(Edited by : Vahishta Unwalla)