KEC International Q4: Good show on revenues but margins disappoint
1 min read 13 May 2021, 12:22 PM ISTOverall revenues have increased by almost 19% year-on-year to around ₹4,361 crore
PremiumMUMBAI : KEC International Ltd’s revenue growth for the March quarter was decent, although margins shrank. KEC is an engineering, procurement and construction company.
Last quarter, consolidated earnings before interest, tax, depreciation, and amortization (Ebitda) margin contracted by 200 basis points to 8.1%. One basis point is one-hundredth of a percentage point. One reason for lower margins is higher raw material costs given the sharp rise in commodity costs, particularly steel. Subcontracting expenses saw a steep rise. Ebitda margin is lower on a sequential basis, too.
However, what’s more worrying is that there doesn’t seem to be much respite on the margin front in the near future as well. As analysts from Nomura Financial Advisory and Securities (India) Pvt. Ltd said, “We expect near-term Ebitda margin (i.e., H1FY22) to be impacted by rising commodity prices, especially steel (difficult to hedge)." The broker has cut FY22 estimated earnings per share cut by 6% to reflect commodity headwinds on margins. "But execution is expected to remain robust and investments in new segments to drive growth leading to a long-term positive view," Nomura’s analysts have pointed out in a report on 13 May.
Coming back to the March quarter, as mentioned earlier, revenue growth was nothing to complain about. Overall revenues have increased by almost 19% year-on-year to around ₹4,361 crore. Growth was primarily driven by strong performance from KEC’s non-transmission and distribution (Non-T&D) business, revenues from which increased as much as 66% year-on-year. Within Non-T&D, railways and civil segments have done well. On the other hand, T&D revenues have declined by 6%.
KEC’s order inflows increased by 5% in FY21 to ₹11,876 crore. This is despite the impact of the covid-19 pandemic. Order book at the end of FY21 stood at ₹19,109 crore, which works out to 1.45 times FY21 consolidated revenues.
Analysts from Prabhudas Lilladher Pvt. Ltd said in a report on 12 May, “Given the strong order book, steady margin profile and healthy outlook in international T&D, as well as Non-T&D segment (railway and civil), we expect KEC to deliver 14%/28% revenue/profit after tax CAGR respectively, in FY21-23E." CAGR is compound annual growth rate.
Note that KEC’s shares have declined by around 20% from its 52-week high seen in March 2021. Even so, the stock has increased by 5% so far this calendar year. Near-term margin headwinds may keep significant upsides at bay.
