With a planned capacity addition of Rs 800 crore, KEI is a growth story worth watching
By Suhani Adilabadkar A 300% return is worth looking at - and that is what KEI Industries (which is in 20 stock screeners) has achieved over the past ten years. After plunging to the lows of Rs.12 as debt peaked and PAT halved in March 2014, KEI has bounced back . Investor wealth has multiplied 30 times since early 2014. Growth has been up with PAT CAGR at 40% for the past five years, highest among its peer group, the top four, Havells, Honeywell Automation, Finolex Cables and V-Guard. Second only to market leader Havells in terms of revenues, KEI Industries is a growth story to watch out for both in medium and long term. Quick Takes: KEI Industries is one of the leading manufacturers and suppliers of power and other industrial cables in India with a 400 product portfolio. The firm is among the only three companies to manufacture EHV cables in India. Capacity addition ramp up of about Rs. 800 cr in the next 2-3 years is projected. Operating Profit Margin was the highest in the past 8 quarters at 10.82% with Revenue and PAT growing at 22% and 24% YoY in Q3 FY19. KEI Industries – Inception The journey for the firm started in 1960 as a partnership manufacturing switch board cables for DOT. After conversion into a public limited company, PVC/XLPE Power cables and stainless steel wires were added to its manufacturing capability before getting listed in 1995. KEI Industries is one of the leading manufacturers and suppliers of power and other industrial cables in India with a 400 product portfolio. Its wiring and engineering solutions functional through three major segments, Cables, Stainless Steel Wires and Turnkey Projects. They cater to both retail and institutional clients across domestic and international markets engaged in industries such as power, oil refineries, railways, automobiles, cement, steel, real estate, textile and fertilizers. Stable Revenue Diversification Though revenue segmentation is categorized on the basis of Cables, Stainless Steel Wires and Trunkey Projects, on an operational basis, the company functions through three segments, Retail, Institutional and Exports. KEI Industries entered retail business in early years of 2000 which mainly constitutes HW (Household Wires) and LT (Low Tension) cables. The retail segment contributes 32% of total revenues driven by rapid urbanization, higher electricity generation, rising GDP along with government schemes such as ‘Housing For All by 2022’ and 100 smart cities. KEI Industries has a market share of 8% in domestic retail segment. Institutional segment with its sub-segments, EPC and EHV contributes 55% of the entire revenue basket. With a robust cable portfolio, KEI completed its value chain in 2008, right from manufacturing to supplying and executing EPC contracts. Cables constitute 25% of the total project cost and thus in-house cost efficiencies drive EPC revenues which are roughly 16% of total revenue mix. The other sub segment EHV (Extra High Voltage) cables is a consequence of collaboration with Switzerland-based BRUGG Kables in 2010 to cater to growing needs of power plants, transmission companies and metro cities. KEI is among only three companies to manufacture EHV cables in India. Just 8 years into business, revenue contribution is low at just 5% but with robust growth potential as EHV domestic market size is roughly Rs. 2000 cr. Exports constitute 13% of revenue mix and have been growing at a CAGR of 16% over FY2007-18. Focusing mainly on Oil & Gas and Power Utilities sectors, KEI Industries has global presence across 45 countries. Strong Capex and Guidance with Robust Financial Wiring There are four state-of-the-art plants located at Bhiwadi, Chopanki and Patheri (Rajasthan) and Silvassa (Dadra and Nagar Haveli) fulfilling the growth agenda. Capex is on full swing from mid 2018 in Patheri for LT power cable first phase which has now been completed and undergoing second phase for HT (High Tension) power cable expansion. The entire project will be commissioned by March 2019 with a cost of Rs 35 crore and augment HT power cables capacity by Rs.200 Crores on an annual basis. With respect to the company's Silvasa Plant, the Chairman and MD Anil Gupta added, “The company is spending approximately Rs.45 crores in FY2019 and FY2020 for a capacity addition of around Rs.300 crores in the first phase and in second phase the company will spend another Rs.30 crores by end of 2019-2020, which will add further capacity of Rs.300 crores for house wires taking the total capacity of that plant to Rs.600 Crores per year on annual basis”. A ramp up of about Rs. 800 cr revenue seems very ambitious. The KEI Management seems confident as Rajeev Gupta, Executive Director clarified, “We have to grow by 20% every year CAGR, so this much capacity needs to be in place”. The only chink in the amour is high debt equity ratio at 1.12 and KEI Management seems to be aware of this hard fact as borrowings have not increased since March 2018 and capex requirements will be met through internal accruals. In addition to that, finance cost to net sales has declined to 3.16% against 3.35% same period previous year. The company expects its retail business due to its lower working capital requirements and better realizations achieve 40% of total sales mix in the next three years. In addition to that there is 15-20% growth target for EPC segment with annual turnover close to Rs.1150-1200 cr from next financial year. And Lastly, EHV business which was withheld due to late customer clearances of production will be touching Rs.75 -80 cr per quarter from March quarter, sequential growth of more than 50%. KEI Industries has been delivering consistent performance over the past 4 years. In December quarter FY19, Operating Profit Margin was the highest in the past 8 quarters at 10.82% with Revenue and PAT growing at 22% and 24% YoY respectively. And the recipe for this year after year consistent growth numbers and its long term sustainability? Rajeev Gupta, Executive Director says, “The performance of the company is because we are making the company’s customer base highly diversified in terms of sectors catered right from power to industry to infrastructure and also the geographies catered.' The company's greater focus on export efforts is what management believes, will drive growth for the firm.01-04-2019
