Recommendation: Buy
CMP = Rs 79
Price target: Rs 125
Result highlights:
- KEI Industries' (KEI) Q2FY2008 results were in line with our expectations. The net sales increased by 45.1% year on year (yoy) to Rs 198.4 crore led by a strong revenue growth in both power cable and stainless steel (SS) wire businesses.
- On segmental basis, the revenues of the power cable business grew by 49% to Rs 176.2 crore. The profit before interest and tax (PBIT) for the business grew by 40.2% to Rs 29.8 crore, while the PBIT margin declined by 110 basis points. The revenues of the SS wire business grew by19.6%, while the business reported a marginal loss due to volatility in nickel prices.
- The operating profit grew by 26.8% to Rs 27.9 crore. The operating profit margin (OPM) declined by 200 basis points to 14.1%. The OPM declined on the back of a marginal loss in the SS wire business.
- The interest expense rose by 66.2% to Rs 9.7 crore, while the depreciation charge increased by 23.8% to Rs 1.8 core. Consequently the net profit increased by 14.7% to Rs 11.6 crore.
- The current order backlog of the company (at the end of Q2FY2008) stood at Rs300 crore. Of this, Rs 75-crore worth of orders came for high tension (HT) cables, Rs 200 crore were for low tension (LT) power cables and the balance Rs 25 crore were for SS wires and house wires.
- The 100% export oriented undertaking (EOU) plant at Chopanki scheduled to be commissioned by October 2007 has been delayed slightly due to the non-availability of power. The plant is now expected to be operational in a month's time. The HT cable capacity expansion at the current plant would be operational by April 2008.
- In the view of all this, I maintain a strong Buy call on this stock at Rs 125, with a time frame of 6-8 months.
