Market Calls is bullish on KEI Industries and has recommended buy rating on the stock with a target of Rs 100.
Market Calls report on KEI Industries:
Investment Rationale
The KEI Industries has a market share of 15% selling mainly to institutions & it is targeting a marketshare of 20% in the coming years.
KEI Inds.’s books contracts with fixed prices, it has tender based sales. So it quotes raw material costs plus margins, thus its margins are cushioned from increasing costs caused due to the fluactuations in raw material prices.
The expansion plans being undertaken will help the company report higher utilisation levels, facilitate better operational controls, translate into significant savings on manufacturing and administrative overheads and most importantly, lay the foundation for taking on and executing high-value EPC projects.
Tax rate for the year estimated to be 26% for the current year and the next year. Expect tax rate to come down to 20% after that.
Previous quarter the Co. bagged two big contracts worth Rs 25 crore and Rs 19 crore.
Valuation
Backed by strong demand drivers, the cable industry is likely to witness strong volume growth, though the surge in input costs may create some challenges for the industry. However, it is expected the industry will be able to partly pass on rise in raw material cost to customers on account of strong demand.
Going forward considering the strong clientele, robust growth over the last few years and with the upcoming expansion plans the Co. is expected to post topline growth of 95% & 50% in FY07 & FY08. The CMP of Rs.74 is discounted 10.08X & 5.48X the estimated forward earnings of Rs.7.34 & Rs.13.48 for FY07 & FY08. We recommend a ‘BUY’ on the stock estimating an upside of 35% from the current levels (target of Rs 100) over a span of 12-months.
