KEI Industries Ltd (KEI)

Categories: Blog,Uncategorized
July 2, 2019Posted By Admin

KEI is one of the three large companies in the power cable space in India apart from having presence in EPC business. The company manufactures high- and low-tension cables (HT, LT, EHV), control & instrumentation cables, house wires (HW), power cables, stainless steel wires (SSW) and electrical cables. KEI is headquartered at New Delhi and has manufacturing facilities at Bhiwadi (Rajasthan), Chopanki (Rajasthan) and Silvassa (D & NH).

kei

KEI has presence globally in over 45 countries with its primary focus on oil & gas and utilities segment. The company offers a wide range of cables viz. EHV (66kV to 400kV), MV (11kV to 33kV) and LV (<11kV) cables. The pricing scenario is competitive, and KEI has the ability to offer customized solutions and specialty cables. Middle East still continues to be the major contributor to export revenue, but the company is also expanding its geographies into the East Asia Pacific regions through subsidiaries and agencies.

Institutional Business

The company has established its presence in the institutional space by offering multi-products with a multi-locational presence. The company has a well-entrenched marketing presence across all states which has enabled them to deliver products fast across the country from plants in the North and West and servicing the customers flawlessly. The company has created a presence in building specialized offerings to tap niche segments such as the shipping sector, oil and petroleum plants, etc. The company is now looking at tapping several large realty brands and strengthening all- India presence by embarking on opening new warehouses across the country. The company derived around 56% of its total revenues from this segment. The key clients of its institutional business includes  ABB, Essar, India Railways, NTPC, Tata Power, GUVNL, Hindalco, Punj Lloyd among others.

Retail Business

 KEI derives around 31% of its business from the retail segment which mostly comprises of comprises of house wires (HW) and a part of Low-Tension cables (LT) sold through dealer network. The company has been consistently ramping up its dealer network apart from aggressive brand building initiatives and dealer electrician meet which is likely to result in enhanced contribution of the retail segment to its business. The increase in retail contribution augurs well for the company as this would improve the margins of the company as the retail segment contributes margins to the tune of about 11% the institutional B2B business margins are generally about 9%. In the domestic wires space the company has added 18 new dealers in Q1FY19 which takes the total number to about 1302 dealers.

EPC Segment

 According to industry the continuous focus of the government on Infra sector is likely to throw up significant opportunities in the EPC space. Industry reports estimate that for every rupee invested in power generation capacity, almost 60% is invested in equipment and EPC work. The consumption of cables in turnkey EPC power projects account for nearly one-fourth of the total project cost. KEI offers extensive turnkey solutions including design, engineering, procurement, project management services, etc. The company has an execution timeline of ~24 months, and their order book has grown extensively from ~Rs. 4bn in FY14 to ~Rs. 15bn as on end of Q1FY19.

KEI’s in-house execution capabilities, their capability to manufacture their own EHV cables/ HV Cables which account for ~70% of their EPC project value, their ability to offer an entire range of products such as instrumentation cables, control cables and power cables and a strong marketing infrastructure have enabled the company to build great reputation in the industry. The EPC segment of the company contributes ~19% to the total revenue in FY18 and has also grown at a robust CAGR of 42% over FY14-18. The company’s  Key clients in this segment include Larsen & Toubro, Alstom, ABB Group, Siemens, etc.

Exports

KEI has presence in over 45 countries across the globe with primary focus on oil & gas and utilities segment. The company offers a wide range of cables viz. EHV (66kV to 400kV), MV (11kV to 33kV) and LV (<11kV) cables. The company has been constantly increasing its presence in overseas locations by opening new branch offices. KEI has opened new offices in Singapore, Nigeria, Kazakhstan apart from existing offices in Dubai/Abu Dhabi.  The company also has a strong presence in Korea & Australia through an agent and a recently opened subsidiary in Australia. Exports contribute about 13% of the revenues and offers healthy margins of about 11% in line with its retail business margins.

Recommendation

 We expect the company’s business to grow by about 20% during the next couple of years driven by strong order book which provides visibility to the company. The stock at the CMP of Rs.480/- trades at about 20.96x its FY19 EPS. The growth will henceforth be driven by increasing contribution of the retail segment and higher exports contribution which will increase its margins. Though the contribution of Institutional business will continue to be the highest contributor the reduction of its overall contribution augurs well as the segment contributes lower margins of about 9%. We recommend medium term investors to BUY the stock.