KEC International Limited

India Equity Analytics 25-Jul-19 Company Update

Industry Eng. & Cons. All Businesses performing well, Entry into Smart Infra will boost
Bloomberg KECI IN
BSE CODE 532714 the Growth

RATING BUY Power T&D:- International market growing at faster pace compared to domestic market
supported by SAARC countries especially Bangladesh and Afghanistan. Subdued Capex by
CMP 309
PGCIL will continue to hurt domestic performance. Though, Rs 12000-15000 Cr opportunities
Price Target 408 in Green Energy Corridor and capex by some of SEBs will drive the domestic market. We expect
overall 13% CAGR revenue growth over FY19-21E.
Potential Upside 32%
SAE from Tower Manufacturer to EPC service provider:- SAE’s journey from a Tower
Manufacturer to EPC services provider will drive the strong growth going forward. In last two
year company has secured large orders in Power T&D which is expected to start form Q1FY20.
Railway, Growth Engine of the Company:- Indian Railway’s electrification drive continue to
provides strong growth opportunities as the Indian railway has plan to do 10000 Rkm
STOCK INFO
electrification every year for next 3 years in order to complete the 100% electrification of Broad
52wk Range H/L 355/229
Gauge railway network. KEC has 40% market share in railway electrification work.
Mkt Capital (Rs Cr) 8159 Civil a Constructive Growth Driver:- In last two years company has diversified its service
Free float (%) 49% offering to Civil construction of Plants, Factories and Residential buildings. Earlier it was limited
up to civil work for Water and Waste water treatment plants only. Now management is eyeing
Avg. Vol 1M (,000) 287
to enter into affordable housing. Management is very ambitious about the business prospect
No. of Shares (Cr.) 26 and expects to do revenue of Rs 1000 Cr in FY20 and Rs 2000 Cr in FY21.
Promoters Pledged % 0 Cable, higher capacity utilization limits the growth:- Currently operating at maximum
capacity, management does not envisage capacity addition in near term. The volume will not
grow significantly going ahead, improvement in revenue will be through better product mix
only. The higher demand of power cables may improve the operating margin further.
Solar, uncertain policy may impact the growth:- The Government’s target for the renewable
KEY FINANCIAL/VALUATIONS In Rs Cr energy is continuous to be ambitious but the uncertainty in the policy framework is
hampering/delaying the investment opportunities in the domestic market. Hence, company
FY19 FY20E FY21E
has shifted its focus on International market like MENA, Africa and South Asian countries.
Net Sales 11001 12622 14354 Smart Infra a New Avenue for the Growth:- Last year company has enter into this segment
EBITDA 1150 1329 1523 considering the government’s strong push for the Smart City Mission (a Rs 2 tr opportunities).
EBIT 1033 1221 1389 In last one year the SCM has picked up the pace and currently 1 lakh Cr of tenders are approved
PAT 496 591 699 and ready for the award. We expect the Smart Infra will become substantial business segment
EPS (Rs) 19 23 27 of the company going ahead.
Overall Growth will be Strong:- The revival of the domestic Power T&D projects execution,
EPS gr % 8% 19% 18%
strong growth in International business and continuous growth trajectory of Non T&D business
ROE (%) 20% 20% 20%
led by the Railway & Civil will help to post strong growth. Additionally, management’s strategy
ROCE (%) 35% 35% 34% of business and geography diversification will support the sustainable growth in the long run.
BVPS 95 114 137 Opening order book of Rs 20000 Cr with L1 orders of Rs 3500 Cr will support the revenue
P/B (X) 3.2 2.7 2.2 growth. We have model in 14% Revenue CAGR growth over FY19-20E.The improving margin of
P/E (X) 15.8 13.4 11.4 Non T&D business will help company to maintain operating margin above 10.5%.
EV/EBITDA 7.1 6.3 5.4 View and Valuation
KEC is poised well to capitalize growing opportunities in the Infra space and we believe that the
revenue growth trajectory of Non T&D business is likely to continue led by the Railway and Civil
business. Power T&D business is expected to back on track with 13% CAGR growth over
FY19-21E supported by the strong order book of Rs 20000 Cr plus with Rs 3500 Cr of L1 Orders.
RESEARCH ANALYST The management’s business diversification strategy to reduce dependency over single
segment will result into sustainable growth going ahead. We have estimated revenue CAGR
growth of 14% over FY19-21E. Operating margin continue to remain strong at 10.5%. RoE will
sustain at 20%.Currently stock is trading at 11x of FY21 EPS which is lower than its long term
average P/E of 16x. We value the stock at 15x and arrived at target price of Rs 408 per share.
We maintain our Buy rating on the stock.

The views expressed above accurately reflect the personal views of the authors about the subject companies and its(their) securities. The authors have not and
will not receive any compensation for providing a specific recommendation or view. Narnolia Financial Advisors Ltd. does and seeks to do business with
companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this
report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to the Disclaimers at www.narnolia.com Narnolia Financial Advisors Ltd.

 KEC
Continuous Business Diversification Yielding Strong Growth
Over the years KEC has continuously diversifying its business segment. In last two
decade company has successfully diversified its business from Power T&D to
Railway, Cables, Tower Supply, Substation, Solar, Civil and the latest diversification
into Smart Infra. Company has not only diversified its business segment but also able
to scale up the new business. Currently Non T&D business contributes around 34%
of in the revenue compared to 14% four years back. The timely diversification into
other segment is yielding better result. As the last year Company’s largest Power
T&D business was down by 7% but despite that overall revenue was up by 9%. Non
T&D business has reported growth of 62% YoY led by the Railway (up by 127% YoY)
and Civil (up by 86% YoY).Going forward we expect the dependency on Power T&D
business will further reduce as the non T&D business growing at robust pace. This
will help KEC to grow sustainably going forward.

Exhibit 1: Business Diversification

Exhibit 2: Segmental Revenue (%) Exhibit 3: Order Book Segment Wise (%)

Exhibit 4: Segmental Order Inflow (%) Exhibit 5: Geographical Presence (No. of Country)

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 KEC

Non T&D business catching up the T&D business margin

Power T&D business margins are in the range of 10.5-11.5% while the margin of the non T&D business was lower than that. But now
with increasing volume, margin of non T&D business is catching up the margin of T&D business. Railway business is inching closer to
double digit and expected to touch double digit by the FY20. Better product mix and improvement in efficiency, operating margin of
cable business has also improved. Increasing volume at SAE level will help segment to perform better. Civil business margin is in line
with T&D at project level but due to initial/investment phase it is lower at business level. But considering the pace of growth it will catch
up the level. The improvement in margin of Non T&D business is validating by the improvement in overall margin despite change in
revenue mix. Revenue mix in FY19 has changed to 66:34 (T&D: Non T&D) compared to 77:23 in FY18, while operating margin has
improved by 50 bps to 10.5% v/s 10%.

Exhibit 6: Revenue Mix (%) Exhibit 7: EBITDA Margin Perfromance

Non T&D Contribution in Revenue has increased from 17% to 35% in Despite the change in revenue mix margin witness improvement year
span of 4 years backed by strong revenue growth in Railway and Civil after year from Fy16

Interest Cost will come down going ahead

RBI banned roll over facilities and buyer’s credit in June 2018, which led to structural change in borrowings mix. Large part of debt was
in foreign currency which converted into rupee loan. Additionally, squeeze in credit availability resulted into reduction in payables days.
At the same time availability of Steel and Copper was also short. Closure of Sterlite copper plant in Tamil Nadu has led to the short in
supply. All these led to the higher working capital requirement and in order to fund it company had to borrow money in Indian rupee and
overall debt has gone up to Rs 3251 Cr from 1639 Cr, mix also changes from 73:27 (foreign : India) to 40:60.
But towards the year end debt has come down to Rs 1697 Cr on account of 1) advances on International projects 2) Release of retention
money of Rs 450 Cr from Saudi 3) Sale of BooT asset (Rs 277 Cr) and mix is also improve from 40:60 to 43:57. Further, retention of
Rs250-300 Cr is likely to release in H1FY20. Management is confident to maintain debt below Rs 2500 Cr and interest cost at 2.5% of
the sales going ahead.

Exhibit 8: Borrowing Mix (%) Exhibit 9: Total Debt and Interest cost as % of Sales

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 KEC
Power T&D:- Growing at Steady Pace
Power T&D is the core business of the company and business is growing at steady
pace over the years. Company is offering Power T&D including Substation services on
turnkey basis in 68 countries. In 2010, Company has acquired lattice transmission
tower manufacturing company, SAE based in Americas. India, SAARC (Bangladesh
and Afghanistan), Americas (Brazil and Mexico) MENA and Africa are the key markets
for the company.

Steady Growth Supported by the Continuous Geographic

Diversification
Over the years company’s Power T&D project business growing at the steady pace and
reported revenue CAGR growth of 9% in period of FY11-FY19. Continuous geography
diversification is the main reason behind the steady growth over the year. Management
continuously looking to diversified in the new market. Last year (i.e FY19) company has
entered/re entered into 5 new geographies and currently serving EPC services into 68
countries. So the slowdown or bottleneck in one geography will compensate by the
others. In recent time the domestic market is going through tough phase but
international market growing at strong pace. Hence, overall numbers remain steady.

Exhibit 10: Power T&D Geographical Order Book

Over the years concentration on Indian market has reduce. Currently, company is offering power T&D
service in 68 countries.

SAARC:- Bright Spot for the Power T&D

SAARC is the bright spot for the power T&D projects and company is fully capitalizing
the growing opportunities. The share of region in the order book has sharply grown in
last 2-3 years. Till the FY16 region contributes around 8-9%, which has gone to 20% by
the end of the FY19. The main contributors are Bangladesh and Afghanistan.

Exhibit 11: SAARC Contiribution(%) in overall Order Book

Order book from SAARC Countries has grown by 99% CAGR in last 4 years

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 KEC

Bangladesh
According to the World Bank, Bangladesh is among the five fastest growing economy of
the world. GDP of the country is growing at an average of 6% since 2010. In 2014
country has moved into lower middle income country group. As per the government
data GDP is likely to touch 8% in 2019. The power sector of Bangladesh is growing at
rapid pace in last one decade. The installed capacity has grown from 3000 MW in 2009
to 15000 MW in 2017. Despite the strong growth in electricity generation, the per capita
consumption of electricity is 407 kWh in 2017, which is the one of the lowest among
South Asian countries. To keep up the GDP growth rate Bangladesh need to invest
heavily into power sector.

Exhibit 12: Power Consumption per Capita (kWh)

Source:- World Bank, NFAL

The Bangladesh government has planned to increase power generation capacity to

28000 MW by 2021 and 50000 MW by 2041. As far as the funding is concern,
Bangladesh is witnessing funding support from large multilateral agencies like JICA,
World Bank, KfW Bank, ADB and Europe Investment Banks. Additionally, EXIM bank of
India has also extended $ 4.5 bn loan (in April, 2018) to Bangladesh for the
development of the Social and Infrastructure projects. Bangladesh’s aging and
inadequate transmission network is not able to evacuate the power from power plant to
end consumer.

Exhibit 13: Installed Power Generation Capacity (MW)

Bangladesh government planned to increase Installed Capapcity to 28 GW by 2021 and 50 GW by

2041

Source:- Government Document

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 KEC
Power Grid Company of Bangladesh which is sole responsible for the transmission
network in the country has plan to construct 3098 Ckm of transmission lines and 106
Substation by 2020 and another 3005 Ckm and 90 Substation by 2025. Current
transmission network of Bangladesh is 10635 Ckm and majority of the network is
consist 33/132 kv lines. Out of the total network only 560 Ckm lines are on 440 kv lines.
So the going ahead large chuck of orders will be the higher voltage transmission line.
This will result into higher ticket size projects going ahead. In recent time, KEC has
secured order worth Rs 1500 Cr for construction of 440 kv transmission lines.

Exhibit 14: Transmission Network in Bangladesh

Source:- Government Document

Afghanistan
Afghanistan is another promising region in SAARC countries for the power T&D
projects. Power demand in Afghanistan is expected to increase from 2800 GWh in
2012 to 15909 GWh in 2023 as per Afghanistan Power Sector Master Plan. The current
Transmission network is highly fragmented and need huge investment. Only 29% of the
population is received electricity from the Grid network. The government is working on
to improve the power infrastructure in the country and planned to build transmission line
of 3000 Ckm and 34 Substation between FY19 to Fy23.

Green Energy Corridor

For the evacuation of large scale renewable energy, an Intra State Transmission
System project was approved by the Ministry of New and Renewable Energy in 2015-
16. Under the projects around 9400 Ckm transmission lines will be built with Substation
capacity of the 19000 MVA in 8 renewable rich states. The total projects cost are Rs
12000-15000 Cr. Around Rs 2500-3000 Cr worth of projects will be given to PGCIL for
development on nomination basis and reaming projects to private players on TBCB
basis.

SAE Tower:- From Tower Manufacturer to EPC Services

Provider
Historically, SAE is focused only on tower manufacturing and supplying towers in
Americas. But now considering the strong opportunities emerging in power T&D
market, management has started leveraging its EPC capabilities and started securing
full EPC projects. SAE’s journey from a Tower Manufacturer to EPC services provider
will drive the strong growth going forward.Currently, EPC orders contributes around
50% in order book.
Brazil’s energy agency Empresa de Pesquisa Energetica has chalked out the
investment plan of BRL 1.4 trillion for expansion of energy infrastructure by 2026. The
electricity consumption of the country is expected to increase from 516 TWh in 2016 to
741 TWh. For that transmission system need to increase to meet the demand. This
translate into investment opportunities of USD 30.8 bn in the ten years from 2016-2026.
Until 2024, Brazil Government plans to do 2 auctions per year in order to meet the
growing energy demand of the country. In December 2018, Brazil has awarded auction
worth of BRL 13.2 bn (USD 3.6 bn). The auction included 7152 km of transmission line
and substation capacity of 14819 MVA. As per the Brazil’s Ministry of Energy and
Mines, the next round of auction is planned in 2019. Last year company has secured
two large projects for power T&D for construction of 546 km transmission line. The
execution is expected to start soon.

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 KEC

Exhibit 15: SAE Order Inflow

From FY18 onwards company has started securing EPC orders in Brazil, Execution is likely to start from
Q1FY20

Exhibit 16: SAE Order Book Exhibit 17: SAE Revenue Perfromance

Order Book has moved into Rs 2000 Cr range from earlier range of Last year Revenue growth was impacted due to pending environment
Rs1000-1200 Cr backed by EPC orders approvals

Strong order book will led to robust Revenue Growth

KEC is sitting on the order book of Rs 14000 Cr with L1 orders of Rs 3500 Cr and we
expect the execution will be pick up going ahead. Domestic projects execution will pick
up after the election. Execution of International projects was impacted in last quarter on
account of delay in environmental approvals, which is expected to receive in Q1FY20
and execution will kick off. Much delayed projects in Brazil is also expected to start. We
have model in 13% CAGR growth in revenue in FY19-FY21E with the stable operating
margin.

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 KEC
Railway:- Growth Engine of the Company
KEC has forayed into Railway business in 2009 and offering turnkey services like
Overhead electrification, signaling, telecommunication, track lying and other civil works
in the domestic market. Company is one of the early entrants in the Railway
electrification space and electrified over 40% of the railway network i.e 16500 Km. After
the established strong execution capabilities in domestic market now company is
looking to expand its geographical presence in overseas market.
Strong Uptick in Railway Capex
Capex by the Indian Railway is one of the strong stimulator for the government to
support the capex cycle of the Indian economy. Over the years railway was the
significant contributor of the public sector spending. But especially in last 4-5 years we
have witnessed sharp uptick in railway capex. In the recent budget government has
planned capital outlay of Rs 1.59 trillion including budgetary support of Rs 65837 Cr.
This will augur well for Infrastructure sector.
Exhibit 18: Budgetry Allcation (In Rs. Tr)

Source:- Government Document

Indian Railway plans to do 100% Electrification by 2023

Indian Railway has planned to do 100% electrification of Broad Gauge railway network
by 2023 in order to reduce the country’s import bill. In last 3 years Indian Railway’s
electrification drive has picked up significantly and it has electrified over 4000 Rkm in
last year i.e 2017-18. Further in 2018-19, Indian Railway’s plan is to award tenders
covering 10000 Rkm of network. Government has plan to do electrification of 10000
Rkm of network every year for next 3 years and aim to complete electrification of entire
Broad Gauge network. KEC being dominate player with 40% market share, we expect
Company will have large chunk out of it.

Exhibit 19: Yearly Route Km Electrified Exhibit 20: Railway Network

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 KEC
Diversification within the Railway Segment
Company has forayed in the railway business in 2009 and started taking the projects
related to overhead electrification only. In line with the company strategy of diversifying,
it has developed its capabilities into civil work,Track lying, Signaling and
Telecommunication. In order to strengthen the offering, Company has acquired Jay
Signaling Pvt Ltd., an Indian Railway signaling automation system and Technology
Company in 2010.Currently 70% order book comprises composite/ non overhead
electrification projects. The diversification within the segment helps company to
mitigate quantity risk in overhead electrification work and to remain competitive.
Increasing Urbanization and strain on existing infrastructure is driving the investment
into Regional rapid transit system, Metro System and Dedicated freight corridor.
Management is planning to extend its offering in these segments.
Backward Integration to Support Robust Execution and Supply
Chain
Railway business has been growing at CAGR of 62% in last 6 years and growth is likely
to remain strong going forward. In recent past company has witness issue in supply
chain. Due to the ongoing credit squeeze in market, lot of small vendors impacted and
to support them company has extend the credit support. To ensure the robust execution
and strengthen the supply chain company has started manufacturing railway contact &
centenary conductors, signaling cables and galvanized steel structure at its tower and
Cable manufacturing facilities. Last year company has produced 40000 MTs of
galvanized railway structure in its factory and has increased installed capacity from
30000 to 48000 MTs per annum. Additionally, along with the Indian Railway company is
working on to on-board the large suppliers.
Margin is Inching closer to Power T&D business
Historically margin of the railway business is lower compared to the core power T&D
business due to lower volume and initial/Investment phase of the business. Though the
margin at project level is in line with Power T&D projects but due to higher overhead
expenses it is lower at business level. But as the volume is increasing the margin is also
improving. Currently operating margin of the business is close to double digit and
expected to touch the double digit by the year end.
Working Capital to watch out
Working capital cycle of the business is under stress as the company needs to extend
the credit support to its small venders in order to keep it up for the execution. Though,
the payment cycle is better than the other business. Company along with the Indian
railway is working on to bring in large vendors in supply chain. Additionally, company
has also started in housing manufacturing of some of the structures and Cables.

Exhibit 21: Railway Business Revenue Perfromance

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 KEC

Exhibit 22: Railway Business Order Inflow Exhibit 23: Railway Business Order Book

Civil:- Constructive Growth Driver

Two years back company has entered into the Civil segment. Under this business
company is offering Civil services for the plants, factories and residential buildings.
Currently, company is constructing plant for the leading companies in Auto and
Cement. Company has started taking residential building projects in Mumbai and
eyeing entry into affordable segment.

On the Same Railway Track

From 2017, company has started offering its civil services for construction of Factories,
Manufacturing Plants, Warehouses and Residential building. Earlier business is limited
up to the civil work of the water and waste water treatment plants only. Company is
operating into segment which is dominated by the small unorganized players and very
few large players. After the foray, company has never looked back as the revenue has
more than doubled every year in last two years. The management is expect the civil
business will grow like the Railway business has grown and aims to do revenue of Rs
1000 Cr in FY20 and Rs 2000 Cr in the FY21.

Exhibit 24: Civil Business Revenue Perfromance

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 KEC

Exhibit 25: Civil Business Order Inflow Exhibit 26: Civil Business Order Book

In FY18, Company re-enters in Civil business and expand its offering Execution of the projects is shorter in range of 12-15 months. So the
from Water projects to Factories, Plants and Residential buildings. orders received in the year is mostly executed in the same year itself.

Eyeing on Affordable Housing business

Company has completed the township building project for the leading business house
at its plant location and currently executing high rise residential project in Mumbai.
Completion of this project will help company to earn required credential as the civil
contactors for residential housing projects. Management is eyeing to enter into the
affordable housing segment considering the Governments strong push and the
benefits attached to it. The Urbanization rate of India is growing strongly with 0.5% of
the Indian population moving into urban area every year and it is expected to touch 40%
by 2030 from current level of 34.03%. The increase in urbanization with increase in
overall population will create huge demand for the housing. In recent budget
government has increased the Interest subsidy to 3.5 lakh from 2 lakh on affordable
house below 45 lakh. This will further enhanced the demand for the affordable housing.
Exhibit 27: Budgetary Allocation for the Affrodable Housing (in Rs Bn)

Source:- MHoUA

Order Inflow to be watch out

Current order book is Rs 406 Cr and management is targeting to do double the revenue
in FY20. Generally execution time frame of the projects in civil is short, ranging from 12-
15 months. So the order received in the year is mostly executed in the same year itself.
Last year company has secured new orders worth Rs 793 Cr and has executed orders
worth Rs. 498 Cr in FY19. So the timing and order value of the new orders are very
critical as far as revenue growth is concern. Considering the opening order book and
situation of capex cycle we have estimated revenue of Rs 800 Cr in FY20 and 1300 Cr
in FY21.

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 KEC

Exhibit 28: Progress Report of PMAY Urban Scheme (Since 2014)

Last update as on 15th Jul 2019

Financial Progress (Rs in Crore) Physical Progress (Nos)

Project Investment Central Central Project Investment Central Central
Name of the Proposal in Assistance Assistance Proposal in Assistance Assistance
State/ UT Considered Projects Sanctioned Released Considered Projects Sanctioned Released
Andhra Pradesh 570 69,908 18,832 6,817 1,247,988 685,198 310,361 156,634
Bihar 391 13,903 4,196 1,376 268,939 138,602 57,602 61,026
Chhattisgarh 1,253 9,648 3,442 1,135 229,201 154,528 57,482 58,890
Goa 10 122 15 14 658 599 598 598
Gujarat 818 46,205 9,195 6,012 527,669 446,258 316,220 279,131
Haryana 516 25,119 4,140 671 260,548 38,095 16,290 16,550
Himachal Pradesh 101 456 155 65 8,639 6,549 2,598 2,590
Jammu & Kashmir 209 1,859 531 107 34,657 22,356 5,218 6,385
Jharkhand 370 11,651 2,798 1,415 187,581 113,588 66,548 66,502
Karnataka 1,792 34,477 9,223 3,129 582,469 285,555 150,726 151,520
Kerala 437 4,737 1,942 1,044 123,836 88,182 52,315 52,956
Madhya Pradesh 1,282 34,993 10,702 5,951 689,732 509,979 284,227 291,031
Maharashtra 848 87,503 15,070 4,578 986,933 376,120 223,164 244,480
Orissa 533 5,218 2,226 837 142,033 86,146 54,124 51,994
Punjab 548 2,634 878 379 56,786 36,058 15,886 16,036
Rajasthan 345 11,047 3,000 1,032 182,417 102,897 64,931 65,807
Tamil Nadu 2,563 33,380 9,968 3,532 648,855 535,002 249,093 227,876
Telangana 246 18,097 3,327 1,673 210,988 177,662 71,922 48,814
Uttar Pradesh 3,279 55,905 19,894 6,592 1,295,895 662,429 339,109 341,770
Uttarakhand 145 2,354 636 327 34,653 17,348 10,654 10,847
West Bengal 361 16,245 5,414 2,703 351,405 243,573 153,565 154,927
Arunachal 31 358 149 105 6,285 6,867 1,644 1,744
Assam 210 2,212 1,077 506 71,527 49,655 15,295 16,976
Manipur 27 1,095 643 195 42,821 22,064 3,204 3,913
Meghalaya 36 177 70 6 4,658 1,556 1,038 931
Mizoram 32 631 459 111 30,027 6,675 1,436 1,865
Nagaland 50 800 457 152 28,760 19,228 3,846 4,656
Sikkim 11 15 8 3 529 501 236 288
Tripura 63 2,236 1,241 630 80,347 49,568 36,342 36,342
A&N Island (UT) 3 54 9 0 612 36 20 20
Chandigarh (UT) - 58 5 5 249 5,209 5,209 3,121
D&N Haveli (UT) 3 278 81 53 4,604 3,692 1,880 1,880
Daman & Diu (UT) 6 52 16 11 942 538 401 401
Delhi (UT) - 2,728 319 319 14,111 54,691 38,091 15,727
Lakshadweep (UT) - - - - - - - 2,555
Puducherry (UT) 24 528 175 64 11,507 7,353 2,524
Grand Total 17113 496683 130293 51550 8368861 4954357 2613799 2396783

*Including incomplete houses of earlier NURM

Source:- MHoUA

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 KEC

Cable
Formerly known as RPG Cable, It is into manufacturing of Power (HT and EHV cables
up to 220 kv), Control & Instrumentation, Telecom, Railway and Solar Cables.
Company also provides turnkey cabling solution for the HT and EHV cables in domestic
and International markets. Company continuously expanding its geographical
presence and currently present into 77 countries. The RPG cable was merged into KEC
international in 2010. Company has two manufacturing plants located at Vadodara in
Gujarat and Mysore in Karnataka.

Higher Capacity Utilization limits the volume growth,

Profitability may improve
Last year segment has reported revenue growth of 17% YoY mainly on account of
higher share of EHV cables and export. The segment has reported best ever margin on
account of better product mix and operational efficiency. Last year company has closed
its Silvasa factory and transfers the assets at Vodadara factory. Currently company is
operating at the maximum level and management does not envisage capex for the
capacity addition in near term. So the volume will not improve significantly going ahead,
improvement in revenue will be through better product mix only. On the demand front,
demand for the power cables is likely to remain strong in domestic market as the many
costal states are planning to convert their aerial transmission networks to underground
considering the increasing cyclone situation. The higher demand of power cables may
improve the operation margin further.

Exhibit 29: Cable Business Revenue Performance

Exhibit 30: Cable Business Order Inflow Exhibit 31: Cable Business Order Book

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 KEC

Solar
Solar business offers comprehensive EPC services across large-scale ground-
mounted and rooftop solutions, including Single Axis Tracking projects. Additionally,
company has started manufacturing solar structures and in discussion with the
prospective clients for the solar structure. Company is also initiating strategic ties up
with tracker manufactures for the supply of solar structures. Company is continuously
looking to expand its presence in international market and has tie up with international
developers for the MENA and South East Asia Market.

Indian Solar Sector witnessing bottleneck

Indian Solar sector has witnessed strong demand on back of government’s continuous
push for the renewable energy and in last 5 years India has added new solar capacity of
25.5 GW as against 3 GW. But during the last year the sectors has witness set back in
terms of new capacity addition in Solar and Wind as well. Solar Capacity addition has
come down from 9.3 GW in FY18 to 6.5 GW in FY19 on account of lower tariff,
imposition of safeguard duty on solar panel and currency depreciation (90% Solar
panel is imported from China and Malaysia). The inability of domestic players to supply
and higher price of solar panel will not help the sector to put up desirable capacity.
Though the government continues to remain upbeat on new capacity addition and plan
to add new capacity of 8 GW in FY20 and ultimately want to bid out 500 GW tenders for
renewable power(majority will be through Solar) by 2030. Till July 2019, MNRE has
awarded new tenders of 1.2 GW. Due to the uncertainty in the domestic market related
to government policy, company is focusing on the International markets like MENA,
Africa and South Asian countries.

Exhibit 32: Installed Capacity and Addition

Imposition of safeguard duty on Solar Panel (India import 90% of its requirement) impacted the
capacity addition in Fy19.

Exhibit 33: Solar Business Revenue Performance Exhibit 34: Solar Business Order Book

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 KEC
Smart Infra: - New avenue for the Growth
Smart Infra is the company’s latest business diversification. Under this segment company plays the system integrator role to develop
smart cities. Scope of the work includes to built Integrated Command & Control Center, Surveillance Systems, Smart Poles, Intelligent
Traffic Management, Data Centers and Solid Waste Management. In the first year of operation company has secured orders worth Rs
233 Cr for the development of Smart city and Smart Grid. Company has deployed smart pole in Ludhiana in partnership with Ludhiana
Smart City and Raychem RPG. The Smart Pole offering services like surveillance cameras, Wi-Fi, digital display, environmental
sensors, etc.
Rs 2 tr Opportunities under Smart City Development Program
List of the 100 smart cities has finalized in total 4 rounds and identified the total 5151 projects worth Rs 2 lakh Cr. The Central and State
government will form a SPV for the development of each cities and allocate fund of Rs 500 Cr per city by Central and State government
each for the development. So total investment of Rs 1 lakh Cr will be funded by the governments and remaining amount will be funded
through other sources like PPP, Debt, Own funds and Convergence. In Budget 2019, Government has allocated Rs 6500 Cr for the
smart city development.
Exhibit 35: City Wise Investment Opportunities

Smart City Invement Smart City Invement Smart City Invement Smart City Invement
Required Required Required Required

Round 1 Round 2 Round 3 Round 4

Ahemdabad 2,290 Agra 2,133 Aizwal 1,870 Itanagar 1,343
Belagavi 3,449 Ajmer 1,771 Aligarh 2,443 Bihar Sharif 1,517
Bhopal 2,719 Amritsar 3,386 Allahabad 2,239 Bareilly 2,120
Bhubaneswar 4,537 Aurngabad 1,293 Amaravati 1,874 Diu 1,443
Chennai 1,366 Gwaliar 2,251 Bengluru 1,792 Erode 1,544
Coimbatore 1,384 Huballi 1,662 Bilaspur 3,966 Kavaratti 527
Davanagere 1,307 Kalyan Dombivali 1,442 Dahod 1,020 Moradabad 1,767
Guwahati 2,161 Kanpur 2,245 Dehradun 1,408 Saharanpur 890
Indore 4,584 Kohima 1,661 Gandhinagar 1,394 Silvassa 1,004
Jabalpur 3,788 Kota 1,387 Gangtok 1,764 Shillong 1,032
Jaipur 1,936 Madurai 1,333 Jammu 3,465
Kakinada 1,993 Mangluru 2,001 Jhansi 1,308
Kochi 2,038 Nagpur 1,002 Karimnagar 1,879
Ludhiana 1,061 Namchi 921 Karnal 1,310
NDMC 2,998 Nashik 1,944 Muzaffarpur 1,580
Pune 2,363 Rourkela 2,441 Naya Raipur 1,739
Solapur 2,247 Salem 1,802 Pasighat 1,486
Surut 2,597 Shivmoga 1,517 Patna 2,499
Udiapur 1,197 Thane 5,404 Pimpri Chinchwad 1,095
Vizag 1,602 Thanjavur 1,118 Puducherry 1,785
Total 47,618 Tirupati 1,611 Rajkot 2,429
Tumakuru 2,226 Sagar 1,608
Round 2 Ujjain 2,176 Satna 1,457
Agartala 1,644 Vadodara 2,011 Shimla 2,727
Bhagalpur 1,309 Varanasi 2,269 Srinagar 3,816
Chandigarh 5,857 Vellore 1,281 Thoothukudi 979
Dharamsala 2,097 Tiruchirapali 1,271
Faridabad 3,350 Tiruneveli 1,218
Imphal 1,344 Tiruppur 1,257
Lucknow 2,053 Trivandrum 1,538
Newtown Kolkata 1,532
Panaji 531
Port Blair 778
Raipur 3,937
Ranchi 1,489
Warangal 2,653
Total 50,285 Total 56,215 Total 13,186

Narnolia Financial Advisors Ltd.

 KEC
After the launch of program in 2015, the progress has picked up robustly in last one
year. As on the January 2019, the government has tender out work of Rs 1 lakh Cr (2794
projects) and out of it work order on 2050 projects worth Rs 62000 Cr has been issued.
The total work of Rs 11000 Cr comprising 612 projects have been completed till January
2019. The reaming projects are under development and will tender out as and when
project gets finalize.

Exhibit 36: Tender Issued Under Smart City Mission

Source:- MHoUA

Exhibit 37: Work Order Issued Under Smart City Mission

Source:- MHoUA

Exhibit 38: Work Completed Under Smart City Mission

Source:- MHoUA

Narnolia Financial Advisors Ltd.

 KEC

Exhibit 39: Source of Funding for the Smart City Mission

Source:- MHoUA

Exhibit 40: Deployed Samrt Pole under Smart City Mission

KEC has deployed Smart Pole at Ludhiana in partnership with Ludhiana Smart City and Raychem
RPG.The Smart Pole offering services like surveillance cameras, Wi-Fi, digital display,
environmental sensors, etc.

Narnolia Financial Advisors Ltd.

 KEC

Exhibit 41: Geographical Presence

Currently company presence across 100 + countries, EPC projects in 68 countries, Supplying cables
into 77 countries and tower supply into 62 countries.

As on FY18 End

Narnolia Financial Advisors Ltd.

 KEC

View and Valuation

KEC is poised well to capitalize growing opportunities in the Infra space and we believe
that the revenue growth trajectory of Non T&D business is likely to continue led by the
Railway and Civil business. Power T&D business is expected to back on track with 13%
CAGR growth over FY19-21E supported by the strong order book of Rs 20000 Cr plus
with Rs 3500 Cr of L1 Orders. The management’s business diversification strategy to
reduce dependency over single segment will result into sustainable growth going
ahead. We have estimated revenue CAGR growth of 14% over FY19-21E. Operating
margin continue to remain strong at 10.5%. RoE will sustain at 20%. Currently stock is
trading at 11x of FY21 EPS which is lower than its long term average P/E of 16x. We
value the stock at 15x and arrived at target price of Rs 408 per share. We maintain our
Buy rating on the stock.

Exhibit 42: RoE

RoE will maintain 20% level

Exhibit 43: P/E

Currently stock is tranding lower than its long term average valution multiple of 16x

Narnolia Financial Advisors Ltd.

 KEC

KEY MANAGEMENT PERSONNEL
Managing Director & CEO
Mr. Vimal Kejriwal
Chief Financial Officer
Mr. Rajeev Agarwal
KEC International Limited, the flagship company of RPG Group is global Infrastructure
Engineering, Procurement and Construction (EPC) major. It is offering services across
Power T&D, Railway, Cables, Tower Supply, Civil, Solar and Smart Infra. It has
presence across 100 plus countries. It is ISO 9001, ISO 14001 and OHSAS 18001
certified company. Company has 5 tower manufacturing plants across India (Nagpur,
Jabalpur and Jaipur) ,Brazil and Mexico with annual capacity of 3,12,000 MTs and 2
state of art Cable manufacturing facilities in India (Vadodara and Mysore).

Milestone of the Company

Corporate Action
DATE ACTION EFFECT
23-Jun-11 Dividend 1.2
27-Jun-12 Dividend 1.2
7-Aug-13 Dividend 0.1
16-Jun-14 Dividend 0.6
20-Jul-15 Dividend 0.9
22-Mar-16 Interim Dividend 1.0
18-Jul-17 Dividend 1.6
20-Jul-18 Dividend 2.4
15-Jul-19 Dividend 2.7

Shareholding Pattern
3Q 4Q 2Q Experience Management Team
FY19 FY19 FY19
Promoters 51 51 51
DII 8 7 7
FII 22 25 26
Others 19 18 16
Pledge % - - -

TOP 5 SHAREHOLDER %
HDFC Prudence Fund 9.25
Reliance Power & Infra Fund 3.93
Aditya Birla Sun Life Midcap Fund 3.52
Kotak Standard Multicap Fund 2.79
IDFC Sterling Value Fund 2.16

Narnolia Financial Advisors Ltd.

 KEC

Trade Information- Bulk/Block Deal

DATE CLIENT NAME DEAL QUANTITY PRICE

5-Feb-19 SWALLOW ASSOCIATES LLP S 1790000 247
5-Feb-19 CHATTARPATI APARTMENTS LLP P 1790000 247

Trade Information- Insider Information

DATE NAME OF PERSON-CATEGORY DEAL QUANTITY

27-Mar-19 STEL Holdings Limited Acquisition 7000
25-Mar-19 STEL Holdings Limited Acquisition 7
22-Mar-19 STEL Holdings Limited Acquisition 3000

Narnolia Financial Advisors Ltd.

 KEC

Financial Details

Income Statement
Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Revenue from Operation 8,093 8,657 8,710 8,755 10,091 11,001 12,622 14,354
Change (%) 14% 7% 1% 1% 15% 9% 15% 14%
EBITDA 493 512 692 818 1,006 1,150 1,329 1,523
Change (%) 29% 4% 35% 18% 23% 14% 16% 15%
Margin (%) 6% 6% 8% 9% 10% 10% 11% 11%
Depr & Amor. 71 88 132 130 110 117 108 134
EBIT 423 424 561 688 896 1,033 1,221 1,389
Int. & other fin. Cost 263 309 279 254 229 312 323 329
Other Income 14 146 10 29 21 23 11 14
EBT 173 261 291 463 687 744 909 1,074
Exp Item 18 - - - - - - -
Tax 88 100 144 159 229 257 318 375
Minority Int & P/L share of Ass. 0 0 (0) - - - - -
Reported PAT 67 161 148 305 460 496 591 699
Adjusted PAT 58 161 148 305 460 496 591 699
Change (%) -11% 178% -8% 106% 51% 8% 19% 18%
Margin(%) 1% 2% 2% 3% 5% 5% 5% 5%

Balance Sheet

Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Share Capital 51 51 51 51 51 51 51 51
Reserves 1,140 1,132 1,239 1,535 1,946 2,384 2,886 3,481
Networth 1,192 1,183 1,290 1,586 1,997 2,435 2,938 3,532
Debt 1,809 2,702 3,023 2,008 1,639 1,697 2,362 2,518
Other Non Cur Liab 93 135 141 152 145 164 164 164
Total Capital Employed 1,794 1,910 1,883 2,362 2,736 2,976 3,479 4,073
Net Fixed Assets (incl CWIP) 992 1,039 1,011 963 998 986 1,072 1,088
Non Cur Investments - 0 - - - - - -
Other Non Cur Asst 351 295 297 222 254 220 220 220
Non Curr Assets 1,343 1,334 1,308 1,185 1,252 1,206 1,292 1,309
Inventory 505 390 360 395 627 641 736 836
Debtors 3,808 3,846 4,658 4,200 5,039 4,875 5,602 6,371
Cash & Bank 144 198 85 208 231 276 179 388
Other Curr Assets 1,234 1,807 1,919 496 667 895 1,027 1,168
Curr Assets 5,691 6,240 7,022 5,299 6,564 6,687 7,543 8,763
Creditors 3,213 1,997 2,027 3,167 4,658 4,801 5,533 6,292
Provisons 115 76 83 103 83 50 58 66
Other Curr Liab 989 882 1,262 1,552 1,746 100 1,893 2,153
Curr Liabilities 4,317 2,955 3,372 4,822 6,487 4,952 7,484 8,511
Net Curr Assets 1,374 3,285 3,650 476 77 1,736 59 252
Total Assets 7,411 8,180 8,891 8,728 10,539 11,694 13,143 14,920

Narnolia Financial Advisors Ltd.

 KEC

Financial Details

Cash Flow
Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
PBT 155 261 148 305 460 496 909 1,074
(inc)/Dec in Working Capital (396) (321) (835) 703 (234) (579) 1,072 (525)
Non Cash Op Exp 71 88 132 130 110 117 108 134
Int Paid (+) 263 309 279 254 247 312 323 329
Tax Paid 113 122 133 104 230 298 318 375
others 287 319 661 669 399 96 323 329
CF from Op. Activities (9) 153 (75) 1,662 660 199 (158) 637
(inc)/Dec in FA & CWIP (146) 117 (23) (67) (136) (108) (193) (150)
Free Cashflow (155) 269 (99) 1,595 524 90 (352) 487
(Pur)/Sale of Inv - - - - 612 622 0 -
others 1 0 (3) (24) 4 (59) - -
CF from Inv. Activities (136) 125 (23) (183) (4) (69) (193) (150)
inc/(dec) in NW - - - - - - - -
inc/(dec) in Debt 410 106 306 (1,122) (365) 234 665 156
Int. Paid (263) (305) 276 (256) (221) (317) (323) (329)
Div Paid (inc tax) (15) (17) 58 (1) (41) (61) (88) (104)
others - - - - - - - -
CF from Fin. Activities 132 (216) 639 (1,379) (638) (150) 254 (278)
Inc(Dec) in Cash (14) 62 541 100 17 (21) (98) 209
Add: Opening Balance 146 132 185 75 176 193 276 179
Closing Balance 132 194 741 176 193 175 179 388

Key Ratio
Y/E March FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
ROE 6% 14% 11% 19% 23% 20% 20% 20%
ROCE 24% 22% 30% 29% 33% 35% 35% 34%
Asset Turnover 1.09 1.06 0.98 1.00 0.96 0.94 0.96 0.96
Debtor Days 172 162 195 175 182 162 162 162
Inv Days 23 16 15 16 23 21 21 21
Payable Days 145 84 85 132 168 159 160 160
Int Coverage 2 1 2 3 4 3 4 4
P/E 26.0 12.8 21.2 17.6 21.7 15.8 13.4 11.4
Price / Book Value 1.5 1.7 2.4 3.4 5.0 3.2 2.7 2.2
EV/EBITDA 4.5 5.1 5.3 7.3 10.5 7.1 6.3 5.4
FCF per Share (7) 2 (7) 62 20 3 (14) 19
Div Yield 0.5% 0.5% 1.6% 0.0% 0.5% 0.8% 0.9% 1.1%

Narnolia Financial Advisors Ltd.

Narnolia Financial Advisors Ltd. is a SEBI registered Research Analyst having SEBI Registration No. INH300006500. The Company/Analyst (s) does/do not
have any holding in the stocks discussed but these stocks may have been recommended to clients in the past. Clients of Narnolia Financial Advisors Ltd. may
be holding aforesaid stocks.

The stocks recommended are based on our analysis which is based on information obtained from public sources and sources believed to be reliable, but no
independent verification has been made nor is its accuracy or completeness guaranteed.

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No penalties have been levied on NFAL by any Regulatory/Statutory authority. NFAL, it’s associates, Research Analyst or their relative may have financial
interest in the subject company. NFAL and/or its associates and/or Research Analyst may have beneficial ownership of 1% or more securities in the subject
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Correspondence Office Address: Arch Waterfront, 5th Floor, Block GP, Saltlake, Sector 5, Kolkata 700 091; Tel No.: 033-40541700; www.narnolia.com.

Registered Office Address: Marble Arch, Office 201, 2nd Floor, 236B, AJC Bose Road, Kolkata 700 020; Tel No.: 033-4050 1500; www.narnolia.com

Compliance Officer: Manish Kr Agarwal, Email Id: mkagarwal@narnolia.com, Contact No.:033-40541700.

Registration details of Company: Narnolia Financial Advisors Ltd. (NFAL): SEBI Stock Broker Registration: INZ000166737 (NSE/BSE/MSEI); NSDL/CDSL: IN-
DP-380-2018; Research Analyst: INH300006500, Merchant Banking: (Registration No.: INM000010791), PMS: (Registration No.: INP000002304), AMFI
Registered Mutual Fund distributor: ARN 3087

Registration Details of Group entities: G. Raj & Company Consultants Ltd (G RAJ)-BSE Broker INZ260010731; NSDL DP: IN-DP-NSDL-371-2014 || Narnolia
Commerze Limited (Formerly Microsec Commerze Ltd.)-MCX/NCDEX Commodities Broker: INZ000051636 || NarnoliaVelox Advisory Ltd.- SEBI Registered
PMS: INP000005109 || Eastwind Capital Advisors Pvt Ltd. (EASTWIND)-SEBI Registered Investment Adviser: INA300005439 || Narnolia Insurance Brokers
Limited (Formerly Microsec Insurance Brokers Ltd.)-IRDA Licensed Direct Insurance Broker (Life & Non-Life) Certificate No. 134, License No. DB046/02 ||
Narnolia Securities Ltd. (NSL)-AMFI Registered Mutual Fund distributor: ARN 20558, PFRDA NPS POP: 27092018 || Narnolia Capital Advisors Pvt. Ltd. - RBI
Registered NBFC:B.05.02568.

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Narnolia Financial Advisors Ltd.