Order boost

KEC International continues to see strong order inflows across segments this quarter, providing decent revenue outlook for the quarters ahead.

The company, one of the leading power transmission EPC (engineering, procurement and construction) players, on Monday announced that it has received orders worth Rs1,018 crore —- of which Rs786 crore is in the transmission segment, while the new segments railways and cables have got Rs97 crore and Rs135 crore, respectively. This takes its order inflows to around Rs2,400 crore this quarter and Rs7,400 crore cumulatively, which is almost 1.58 times its expected revenues for the current fiscal.

The order book stands well-diversified, both in terms of segments and geographical regions.
In terms of business segments, the transmission segment continues to contribute the maximum (around 68%) to its overall order book, while the contribution from its recently acquired US subsidiary, SAE Towers, is around 10%.
The new business verticals of power systems, railways and cables now form 13%, 5.5% and 3.5% of the order book, respectively.

The only segment where the company is seeing slow growth is telecom, where it hardly has any order. Also, on a geographical basis, the orders are well-spread across regions such as South Asia, Central Asia, Middle East, Africa and Americas.

The new business segments are seeing increased traction and would aid revenue growth, while derisking its business model as the domestic transmission & distribution space is increasingly becoming competitive with many players vying for orders from the Power Grid Corporation.

KEC, which has reported Ebitda margins of 10% in the first half of this fiscal, is likely to maintain the same for the current fiscal. However, increasing share of higher-margin SAE orders would lead to better operating margins in the coming years.

However, it may see pressure on its net profit margins on account of higher interest costs in the second half of the fiscal. The company, which acquired SAE through debt funding, had total debt of Rs1,510 crore as at September 30, 2010.

The stock of KEC International, which had hit a low of Rs431.50 per share on December 16, closed Tuesday up 1.47% at Rs490.70 per share on the BSE.

At the current market price, the stock trades at 11.8 times its expected FY11 earnings and 9.45 times its expected FY12 earnings. Most analysts remain positive on the stock from a long-term perspective.