Buy This Small Cap Power Sector Stock For Target Price Of Rs 540: Emkay Global

Emkay Global in its recently published report on KEC International Ltd. (KEC) has given a buy call with a target price of Rs 540 apiece. According to the brokerage firm's estimated target price, KEC International's stock could jump 26% in 12 months. The brokerage recently interacted with the management of KEC International Ltd.

KEC International Limited is a small cap power sector company having a market cap of Rs 11,036.80 crore.

Stock Outlook

The current market price of KEC International's stock is Rs 429.30 apiece. The 52 week low level of the stock is Rs 345.50 and the 52 week high is Rs 550, respectively.

Returns on Investment

In a week the stock gave 5.95%. In the past 1 and 3 months, the stock gave a positive return of 9.24% and 15%, respectively. Over the year, the stock surged roughly 0.3%. In the past 3 and 5 years, the stock gained massive returns 72.93% and 34.3%, respectively. 

SAE becomes Achilles Heel

Over the past two years, SAE has seen significant margin erosion on account of commodity inflation, supply constraints, and delays in EPC projects. Now, of the four EPC projects, only one project is due for completion (Expected by Oct-Nov 2022). Hence, all pain-related to these projects is likely to be over in the current fiscal. KEC is still evaluating whether to take new EPC projects in Brazil, given the risks associated. Supply orders have been profitable and a large part of the book is presently under this category. Consequently, in the medium term, the company will not be taking big EPC projects and projects with external engineering. SAE's Mexico business is doing well and has orders for the next six quarters. There are renewable energy (RE) opportunities in the US as well, but logistics cost is acting as one of the determinants.

Long-term story intact

KEC has showed its ability to diversify across sectors (diversified into five new businesses since 2016), with exposure across T&D, railways, oil and gas, urban infrastructure, and other civil sectors, while keeping business fundamentals intact. Non-T&D formed 50% of the revenue in FY22 vs. 17% in FY16. Civil and urban infrastructure is going to be the structured growth story going forward. From executing small industrial plants in FY18, the company is now taking up high residential building, urban infra, data center, water pipelines, and airports projects, among others. 

Valuation and outlook

According to the brokerage firm, "Given that SAE's losses will continue for the next one or two more quarters, we have sharply cut our FY23 numbers (20%), though there is not much change in FY24 EPS (down 1%). We have introduced FY25 EPS at Rs40, in line with street's estimates. We expect KEC to return to ~10% margin in the coming years. We roll forward our valuation to Sept'23 with a TP of Rs540 (Rs495 earlier). We maintain BUY on the stock. Risks include further delay in project completion in SAE and weak order inflows."

Disclaimer

The stock has been picked from the brokerage report of Emkay Global. Greynium Information Technologies, the Author, and the respective Brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.