Exports, recovery in smaller cities bring respite for KEI Industries
The management’s interactions with analysts at Jefferies India indicate better recovery in tier II and smaller citiesKEI saw substantial export sales in May and cables sales to institutional customers also picked-up from last month
PremiumMUMBAI: Shares of cables and wires manufacturer KEI Industries Ltd extended gains, rising 2.8% on Wednesday. It is still one-third lower than its peaks in January. But the recent recovery, with the stock up 29% in June, reflects the improvement in business environment.
The management’s interactions with analysts at Jefferies India Pvt. Ltd indicate better recovery in tier II and smaller cities. Due to covid-19 restrictions demand in large cities remained constrained. “Tier II-IV cities account for nearly 60% of dealer sales in the cables industry. April sales were affected even in these areas during the lockdown, but since May, the pick-up has been healthy. Sales in June 2020 are almost at levels expected in the pre-COVID scenario," analysts at Jefferies India said in a note.
Note that sales at the company have come to a standstill in the last ten days of the March quarter due to lockdowns.
Consequently, the company did not see any revenue growth last quarter. Tracking the covid-19 disruption to demand and retail network the management even warned of a revenue fall in current fiscal in an earnings call with analysts earlier this month. “The management expects FY2021 revenue to decline on account of covid-19 led lockdown while operating margins may get affected negatively by 50 basis points due to fixed costs," Sharekhan Ltd said in a 2 June note.
As governments across the globe and states in India easing lockdown restrictions, things are incrementally improving. Capacity utilization levels crossed 60%, points out analysts at Jefferies.
With ports functioning and construction work not restricted abroad, even during lockdowns, the company is fulfilling export orders. KEI saw substantial export sales in May, the management told analysts earlier this month. Cables sales to institutional customers also picked-up from last month.
The recovery in exports, tier II and smaller cities and institutional sales coupled with reduction in finance costs to debt repayment should help KEI withstand the market downturn better.
“KEI’s long-term structural story of higher growth in retail wires and a calibrated growth in engineering procurement and construction (EPC)/B2B has been delayed with weak demand outlook and stress in the channel. The company has a much larger share of exports/EHV (extra high voltage cables) & B2B business which will help it sail through tough times," analysts at Edelweiss Securities Ltd said in a note. B2B is business to business sales.
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