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Shares of KEI Industries hit a new high of Rs 2,221, up 6 per cent on the BSE in Wednesday’s intra-day trade in an otherwise subdued market. Thus far in the calendar year 2023 (CY23), the stock of electrical cables manufacturer has rallied 52 per cent on strong financial performance and positive outlook. In comparison, the S&P BSE Sensex was up marginally by 0.03 per cent at 63,163 at 10:58 AM today. The index has gained 3.3 per cent so far in CY23.
KEI manufactures and markets power cables - low tension, high tension and EHV, house wire, stainless steel wire catering sectors such as power, oil refineries, railways, automobiles, cement, steel, fertilizers, textile and real estate, among others.
In the years to come, multiple factors will boost growth of Cables & Wires and open up an avenue of possibilities for the industry. Which include 5G Spectrum, Communication Advancements, Automation & Robotics, Dominance of organized sector and Industries Capex.
KEI’s revenue increased 21 per cent year-on-year (YoY) to Rs 6,912 crore in FY23, led by growth of 23 per cent YoY in the winding and house wire segment, 20 per cent YoY in the cable segment, and 10 per cent YoY in the stainless-steel wire segment.
KEI maintained its healthy revenue growth guidance at 16-17 per cent and expects 10.5-11 per cent plus margins in the near term, given strong demand outlook in sectors like Infra/Railway/Data Centres etc.
Despite volatile business cycles and raw material prices due to price fluctuations in metal, plastic and rubber components, KEI’s margins have been healthy and stable (FY23: 10.2 per cent; FY22: 10.3 per cent, FY21: 10.9 per cent, FY20: 10.2 per cent, FY19: 10.5 per cent), backed by market and end-user industry diversification and prudent inventory management.
As on 31 March 2023, KEI had an order book of Rs 3,568 crore; 40 per cent of the orders were from the cables division, 24 per cent from the EHV cables division, 27 per cent from the EPC division and 9 per cent from cable exports.
Analysts at Prabhudas Lilladher are positive on the company for long term given focus on diversification of product portfolio and de-risking business (retail accounts for ~44 per cent with target to reach 48-50 per cent in FY24), scale-up in distribution network (1,910 dealers, will grow by 7-8 per cent p.a), healthy balance sheet with net cash of Rs 4bn (including acceptances) by Mar-23 and strong order book of Rs 3,570 crore across domestic & export EPC & cables businesses.
With KEI’s larger focus on the high-margin retail segment and likely increase in exports, the overall EBITDA margin is likely to sustain at 10.5 per cent-11 per cent in FY24. However, in the medium term, the EBITDA margins are likely to increase to around 12 per cent due to more than 60 per cent of the revenue being derived from high-margin segments (retail and exports) and better fixed cost absorption, resulting from the increased top-line, according to ICRA.
Substantial progress in the ongoing capex as per the schedule, leading to an increase in the scale of operations, with the visibility of achieving approximate EBITDA of Rs 1,000 crore, along with the improvement in the product/segment mix while maintaining the credit metrics could lead to a positive rating action, ICRA said in rating rationale.
Technical View
Bias: Positive
Target: Rs 2,385; Rs 2,415
Support: Rs 2,180
Resistance: Rs 2,340
The stock has seen a steady rise since late 2020, from levels of Rs 300 or so to Rs 2,233. The overall bias, basis on the price-to-moving averages action remains positive for the stock.
As per the monthly Fibonacci chart, the stock is presently testing some resistance around Rs 2,340, above which the next targets shall be Rs 2,385 and Rs 2,415.
The near-term bias is likely to remain bullish as long as the stock holds above Rs 2,180-level. Sustained trade below the same could see the stock re-test its 20-DMA (Daily Moving Average) around Rs 2,050.
(With inputs from Rex Cano)
