Fundamental Analysis Of KEC International: In the current global landscape, governments are placing a strong emphasis on strengthening their fundamental infrastructure, from transportation networks like roads and railways to power generation and transmission. This increased focus has put companies like KEC International Limited in the spotlight focus.
In this article, we shall conduct a Fundamental Analysis Of KEC International and try to analyze the potential outlook of the company.
Fundamental Analysis Of KEC International
We’ll begin our Fundamental Analysis Of KEC International by becoming acquainted with the company’s operations and products. Following that, we’ll go into the stock’s financials. The article concludes with a highlight of plans and a summary.
Industry Overview
The total output of the global construction market was $10.7 trillion in 2020 and is projected to increase to $15.2 trillion by 2030. This industry is becoming a significant contributor to economic growth, with spending levels expected to reach 13.5% of the global GDP.
The Infrastructure Industry in India is expected to grow by 12% and reach ₹45,907 Billion in 2023. The growth momentum is expected to continue with a forecasted CAGR of 9.9% during 2023-2027, reaching ₹66,955 Billion by 2027.
The National Infrastructure Pipeline (NIP) for FY 2019-25 has been designed to provide world-class infrastructure to citizens, to improve their quality of life. It is supported by a 33% increase in planned capital expenditure by the government.
The expanded infrastructure budget for 2023-24 includes significant capital increase outlays for transportation, such as railroad infrastructure and multimodal logistics park, as well as for urban infrastructure, green energy transition, and public utilities.
Company Overview
KEC International Limited (KEC) is a flagship company of the RPG group. It is a leading global infrastructure Engineering, Procurement, and Construction (EPC) company that delivers projects to various sectors.
The sectors in which the company operates include Power Transmission and distribution, Railways, Civil and urban Infrastructure, Solar, Smart Infrastructure, Oil and gas Pipelines, and Cables.
The company offers a comprehensive range of services covering the entire project lifecycle, from conception to commissioning.
As of FY23, the company has 8 manufacturing facilities with a product capacity of 4,22,200 MTPA located across India, Dubai, Brazil, and Mexico. The company has established its footprint in more than 110 countries. Of this, it has executed EPC projects in 70+ countries, supplied cables to 90+ countries, and supplied towers to 65+ countries.
Order book of the company
As of FY23, the company has reported an order intake of ₹22,378 Cr which is a year-on-year growth of 30%. T&D, Civil, and Railways are the segments that contributed majorly to the increase in the company’s order book.
During FY23, the following were the orders intakes from various business segments of the company:
- Transmission and Distribution segment: Order intakes of over ₹10,000 Crores across India, the Middle East, SAARC, Far East, Africa & America.
- Railway segment: Order intake of ₹2,900 Crores.
- Civil segment: Secured orders of over ₹6,600 Crores in FY23
The following image gives you the breakdown of the company’s order book from various segments:
KEC International – Financials
Using the annual reports declared by the company, we will now conduct a fundamental Analysis Of KEC International.
Revenue and Net Profit Growth
The profit and loss account indicates that the company has increased its revenue from ₹11,001 crores to ₹17,281 crores. This gives the company a CAGR of 11.95% on its revenue.
Despite the increasing revenue, the company’s profits have been on a declining trend from FY22.
During FY23, the company reported a net profit of ₹176 crores compared to a net profit of ₹496 crores in FY19. This gives the company a negative CAGR of 22.82% on its profits.
The table below shows the total income and net profit of KEC International Ltd for 5 financial years:
| Year | Revenue from operations(₹ In crores) | Profit after tax (₹ In crores) |
|---|---|---|
| 2023 | 17,281 | 176 |
| 2022 | 13,742 | 332 |
| 2021 | 13,114 | 553 |
| 2020 | 11,965 | 566 |
| 2019 | 11,001 | 496 |
| 4-year CAGR growth | 11.95% | -22.82% |
Let us now analyze the margins of the company to understand the reason behind the company’s decrease in profits
Margin Analysis
Looking at the margins of the company, we can notice that the decline in the net profits of the company is due to the increase in the operating expenses. This has led to an overall decline in the company’s overall margins.
The reason for the overall decline in profits can be attributed to the unfavorable commodity prices, higher logistic costs, and the adverse performance of its subsidiary (SAE situated in Brazil).
The table below shows the operating profit margins and net profit margins of KEC International Ltd for 5 financial years:
| Year | Operating Profit Margin | Net Profit Margin |
|---|---|---|
| 2019 | 10.50% | 4.50% |
| 2020 | 10.30% | 4.70% |
| 2021 | 8.70% | 4.20% |
| 2022 | 6.60% | 2.40% |
| 2023 | 4.80% | 1.00% |
Return Ratios: RoCE and RoE
The company’s declining profits have had a noticeable impact on its financial performance. This can be seen from the decreasing ROE and ROCE from FY23.
Over the last 5 years, the ROE and ROCE of the company have been on a declining trend and reported at 4.8% and 11.8%, respectively during FY23.
This is an indication of the company’s declining returns to shareholders’ capital and a decline in the efficiency of the utilization of its resources.
The table below shows the ROE and RoCE of KEC International Ltd for 5 financial years:
| Year | ROE | ROCE |
|---|---|---|
| 2023 | 4.80% | 11.80% |
| 2022 | 9.50% | 12.10% |
| 2021 | 18.00% | 19.50% |
| 2020 | 21.60% | 23.20% |
| 2019 | 22.40% | 26.60% |
Debt & Interest Coverage Ratio
If we look at the company’s leverage situation, we can notice that the company is reporting a slight but increasing debt-to-equity ratio year-on-year. This is an indication of the increasing debt in the company. For FY23, the debt-to-equity ratio was reported at 0.9.
Furthermore, the interest coverage ratio of the company has also declined which can be attributed to increasing debt and declining profits.
During FY23, the company reported an interest coverage ratio of 1.6. This means the company has just earned enough profits to additionally cover its interest payments 1 time.
The table below shows the leverage ratios of KEC International Ltd for 5 financial years:
| Year | Debt to Equity | Interest Coverage Ratios |
|---|---|---|
| 2023 | 0.9 | 1.6 |
| 2022 | 0.8 | 2.9 |
| 2021 | 0.1 | 4.5 |
| 2020 | 0.2 | 4 |
| 2019 | 0.2 | 3.8 |
Future Plans Of KEC International
So far we looked at the previous fiscals’ data for our fundamental analysis of KEC International. In this section, we’ll try to make sense of what lies ahead for the company and its investors.
- The company has a robust order book and L1 position of over ₹.34,000 Crores which is expected to bring in revenues over the coming quarters.
- The company Tenders under Evaluation & Tenders in Pipeline of over ₹100,000 Cr. These tenders can help in generating more revenue for the company.
- The company is becoming more selective in bidding for tenders with high commodity risk.
- The Company has secured projects in the Automatic Block Signalling segment and is presently implementing the KAVACH system on over 750 km of the railway line.
- In line with the diversification strategy, the company’s civil business has received orders in the high-growth areas of commercial buildings and logistics sectors. The business has also moved into the hydrocarbons sector by securing multiple orders for process units, buildings, and infrastructure for a leading refinery.
Key Metrics
We are almost at the end of our fundamental analysis of KEC International. Let’s take a quick look at the stock’s important metrics.
| Particulars | Figures | Particulars | Figures |
|---|---|---|---|
| CMP | ₹ 610.5 | Market Cap (Cr.) | ₹ 15,624 |
| EPS | ₹ 7.31 | Stock P/E | 79 |
| RoCE (%) | 11.80% | RoE(%) | 4.80% |
| Promoters Holding | 51.9 % | Debt to Equity | 0.9 |
| Net Profit Margin(%) | 1.00% | Operating Profit Margin(%) | 4.80% |
Conclusion
As we conclude our fundamental analysis of KEC International, we can conclude that, though the company has increasing revenues, its profits were affected by various external and internal factors.
If the company manages to tackle these external factors like the logistic costs and commodity risks, its profits can have a positive outlook.
It is also important to note that investment decisions should not be based solely on the information provided above. It is recommended that individuals conduct their research before making any investment decisions.
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