July 28, 2009 1

1QFY2010 Result Update

KEC International

ACCUMULATE

Price Rs460

Target Price Rs501

Investment Period 12 months

Stock Info

Sector Transmn. Tower

Market Cap (Rs cr) 2,271

Beta 0.7

52 WK High / Low 505 / 109

Avg. Daily Volume 32745

Face Value (Rs) 10

BSE Sensex 15,332

Nifty 4,564

BSE Code 532714

NSE Code KEC

Reuters Code KECL.BO

Bloomberg Code KECI@IN

Shareholding Pattern (%)

Promoters 41.9

MF/Banks/Indian FIs 40.9

FII/ NRIs/ OCBs 6.2 Indian Public/others 11.0

Abs. 3m 1yr 3yr

Sensex (%) 39.4 6.8 43.6

KEC (%) 119.2 18.3 88.8

Top-line grows robust 21%: KEC International reported a robust 21% yoy growth in Top-line to Rs726.8cr (Rs600cr) in 1QFY2010 largely driven by strong Order booking. Around 64% of Revenues came from the company’s International business (Rs467cr) while the balance came from its South Asian business.

Forex gain aids OPM expansion by 159bp: On the Operating front, Raw material, Erection and Sub-contracting expenses spiked by 599bp yoy. However, KEC delivered positive surprise recording 159bp expansion in OPM during the quarter to 11.8% (10.2%) on account of the 719bp yoy decline in other expenditure. KEC registered Rs19.9cr gains in Forex transactions, which helped restrict the decline in Margins. Hence, EBITDA grew 39.9% yoy to Rs86.0cr (Rs61.4cr) during the quarter.

Bottom-line grew a robust 50.5%: KEC reported Net Profit of Rs38.4cr for 1QFY2010 up 50.5% yoy on the back of higher OPM.

Improved visibility on the back of steady Order inflow: During the quarter, the company bagged Orders worth Rs743cr, of which three orders worth Rs575cr came from the South Asia region, while the balance Rs168cr constituted other International orders. Going ahead, we expect the company to augment its domestic orders following additional allocation to the APDRP and RGVYP schemes.

Key Financials Y/E March (Rs cr) FY2008 FY2009 FY2010E FY2011E

Net Sales 2,814 3,427 4,013 4,707 % chg 37.9 21.8 17.1 17.3

Net Profit 172.2 116.3 195.3 247.3 % chg 64.6 (32.5) 67.9 26.7

OPM (%) 12.6 8.8 10.6 10.9

EPS (Rs) 34.9 23.6 39.6 50.1 P/E (x) 13.2 19.5 11.6 9.2

P/BV (x) 4.6 4.1 3.1 2.4

RoE (%) 34.8 20.8 26.9 26.2

RoCE (%) 29.7 22.9 28.1 28.9

EV/Sales (x) 1.0 0.8 0.7 0.6

EV/EBITDA (x) 7.9 9.2 6.6 5.4

Source: Company, Angel Research

Performance Highlights

Girish Solanki

Tel: 022 – 4040 3800 Ext: 319 e-mail: girish.solanki@angeltrade.com

V. Srinivasan

Tel: 022 – 4040 3800 Ext: 330 e-mail: v.srinivasan@angeltrade.com

July 2

28, 2009

RevenueAround 64with the ba

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July 28, 2009

3

Transmission Towers

KEC International

Outlook and Valuation

KEC, which recently witnessed good inflow of domestic orders primarily from PGCIL and other State Electricity Boards (SEBs), is well poised to bag more orders from the domestic markets. Further, KEC derives close to 63% of its Revenue from its overseas operations and is expected to clock good growth in this space as well going ahead. Thus, KEC is set on high growth path on the back of a healthy Order Book position, stable Margins (registered in spite of a volatile commodity and currency markets) and diversification into the Railways and Telecom Segments, where the government is set make substantial investments.

On the domestic front, PGCIL is expected to float tenders to the tune of Rs10,000cr (company’s addressable market) in FY2010. Similarly, the various SEBs have also become active and a number of tenders are expected to be floated by them as well. Moreover, with the global economy getting slowly getting back on track, tenders are expected to be floated by the Northern African countries like Egypt and Algeria too. Central Asia also appears to be a high potential market with many projects in the pipeline. New Tenders are being floated by countries like Saudi Arabia, Kuwait and UAE.

We have revised our Bottomline estimates upwards by 8% for FY2010E and by 5% for FY2011E factoring in 1QFY2010 numbers and improved Margin outlook. Accordingly, we expect KEC’s Top-line and Bottomline to post CAGR of 17.2% and 45.8% over FY2009-11E, respectively.

On the bourses, in the recent past the stock has rallied and achieved our earlier Target Price as well. At the current price of Rs460, the stock is trading at 11.6x FY2010E and 9.2x FY2011E Earnings and 5.4x FY2011E EV/EBITDA. We remain optimistic on the company’s growth prospects and recommend an Accumulate, with a revised Target Price of Rs501 (Rs477). Exhibit 4: 1QFY2010 Performance Y/E March (Rs cr) 1QFY2010 1QFY2009 % chg FY2009 FY2008 % chg Net Sales 726.8 600.1 21.1 3,427.4 2,814.5 21.8 Raw Material Costs 324.6 301.0 7.9 1,975.8 1,415.5 39.6 (% of Sales) 44.7 50.2 57.6 50.3 Erect & Sub cont exp 222.2 114.6 93.9 574.6 618.0 (7.0) (% of Sales) 30.6 19.1 16.8 22.0 Staff Costs 38.7 34.3 12.9 141.6 120.9 17.1

(% of Sales) 5.3 5.7 4.1 4.3 Other Expen 55.2 88.8 (37.8) 435.0 305.8 42.3 (% of Sales) 7.6 14.8 12.7 10.9 Total Exp 640.8 538.7 19.0 3,127.1 2,460.2 27.1 Operating Profit 86.0 61.4 39.9 300.3 354.3 (15.2) OPM (%) 11.8 10.2 8.8 12.6 Interest 21.8 18.0 20.7 100.0 67.7 47.8 Dep 6.2 4.6 34.2 22.7 25.1 (9.2) Other Income 0.2 0.1 60.0 0.3 0.3 13.1 PBT (excl. Extr. Items) 58.2 38.9 49.6 177.8 261.9 (32.1) Extr. Income/(Exp) - - - - PBT (incl. Extr. Items) 58.2 38.9 49.6 177.8 261.9 (32.1) (% of Sales) 8.0 6.5 5.2 9.3 Provision for Tax 19.8 13.4 47.8 61.5 89.7 (31.4) (% of PBT) 34.0 34.4 34.6 34.3 Reported PAT 38.4 25.5 50.5 116.3 172.2 (32.5) PATM (%) 5.3 4.3 3.4 6.1 Equity Capital 49.3 49.3 49.3 49.3 EPS (Rs) 7.8 5.2 23.6 34.9 Source: Company, Angel Research

July 28, 2009

4

Transmission Towers

KEC International

Research Team: Tel: 4040 3800 E-mail: research@angeltrade.com Website: www.angeltrade.com

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