KEI Industries: All wired up – BUY
CMP Rs116, 12-mts Target Rs168, Upside 44.8%
KEI Industries has transformed itself into a comprehensive wires and cables manufacturer and has emerged as a major player in this segment over the last two years. Its portfolio spans house wire cables to extra‐high‐voltage cables (EHV) (up to 220kV). The company registered 27% volume growth in FY16, outperforming most of its peers. The institutional segment is set to witness a surge in demand as a consequence of growth in infrastructure and power T&D sector. The company's efforts to raise its retail sales by increased spend on brand building and expanding its reach would also boost overall volumes. EPC business with an order book of Rs.20bn, provides strong revenue visibility over the next three years. A combination of increased contribution from EHV and EPC segments and focus on retail sales would lead to 13.6% revenue CAGR for KEI. This combined with nominal increase in margins and lower interest costs would translate into an earnings CAGR of 37.4% over FY16-18E. With strong free cashflow, the company expects to repay its entire term debt in 3‐4 years. Attractive valuations of 7.6x FY18E P/E makes the stock a compelling buy. We recommend a Buy with a target price of Rs.168.
Lakshmi Machine Works Ltd: Exports to lead – Not Rated
CMP Rs4,320
Lakshmi Machine Works (LMW) is the third largest player globally and accounts for 70% of domestic textile machinery market by volume and 60% by value. We interacted with the management of LMW to get an update on the textile machinery industry and the company's plan to increase its global presence. The management believes domestic market growth would remain tepid as customer utilisation levels are low at 50-55% and the government has amended its Technology Upgradation Fund (TUF) scheme towards weaving, processing and finishing of garments. In the export market, the management expects its share to increase on account of increased product portfolio and venturing into new geographies. The company has started exporting its full range of products against exports of ring frame only in the initial period. LMW's China subsidiary would turnaround in FY17 as it has increased local sourcing (70%) and imports only critical parts from India. Share of active orders of domestic order book of Rs24bn stood at 60%. The company is focusing on value addition to offset the impact of lower volume growth. Earnings growth would remain subdued due to slowdown in textile sector. At the CMP, the stock trades at 19x FY18E P/E, higher than its historical average of 16.2x.
You received this message because you are subscribed to the Google Groups "LONGTERMINVESTORSRESEARCH" group.
To unsubscribe from this group and stop receiving emails from it, send an email to longterminvestorsresearch+unsubscribe@googlegroups.com.
Visit this group at https://groups.google.com/group/longterminvestorsresearch.
For more options, visit https://groups.google.com/d/optout.
No comments:
Post a Comment