Buy KEI Industries, target Rs 500: Phillip Capital

Phillip Capital (India) has given a buy recommendation on KEI Industries with a target price of Rs 500.

Shares of KEI Industries traded at Rs 466.25 around 2:35 pm on 23 May, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

March quarter highlights:

• Revenue was up 22 per cent YoY to Rs 1,260 crore. Strong growth from retail, up 29 per cent YoY, EHV up 81 per cent (from a lower base), EPC up 32 per cent.
• Gross margin at 28 per cent, down 270bps YoY. Ebitda at Rs 140 crore, up 36 per cent YoY.
• Higher interest cost (Rs 42.3 crore, up 47 per cent YoY, mainly because of higher bank guarantee BG, FY19 KEI has paid Rs 17 crore of BG) resulting in a PAT of Rs 59.9 crore, up 21 per cent YoY.

Investment rationale:

At the current market price, the stock trades at an FY20/21 PE of 14.7 times/11.9 times and EV/Ebitda of 8 times/6.7 times, said the brokerage.

"Considering strong product mix, healthy order book, and improving B2C share, we expect revenue CAGR of 18 per cent and PAT CAGR of 27 per cent over FY19-21," said the brokerage.

Improvement in profitability and reducing working capital requirement will lead to operating cash flow of Rs 120 crore in FY20 and 280 crore in FY21. We value it at a FY21 EV/EBITDA of 7.5 times, the brokerage added.