Capex plans, robust demand may keep KEI Industries charged up
Source: Live Mint
KEI Industries Ltd is preparing to carry out its enhanced capital expenditure (capex) guidance. The cable and wire company recently completed a fundraise of ₹2,000 crore through a qualified institutional placement (QIP) at ₹3,800 a share. These funds are expected to help its balance sheet and support its greenfield expansion at Sanand in Gujarat, where it has plans for ₹1,800-1,900 crore of capex (in phases) to increase its cable capacity. This increased capacity is expected to generate additional revenue of ₹5,000 crore by FY28.
In the half year to September (H1FY25), the company expanded its cable & wire capacities meaningfully across many facilities. “Its cable capacity increased about 36% and wires capacity 27% in H1FY25 compared to FY24-end capacity,” said a Motilal Oswal Financial Services report dated 27 December.
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KEI commissioned brownfield facilities at Chinchpada and Pathredi in H1FY25, which it believes will facilitate revenue growth of 16-17% for FY25. This is in keeping with its 17% year-on-year revenue growth in FY24.
Motilal Oswal expects KEI’s cumulative capex to outpace its cumulative operating cash flow over FY25-27 and estimates free cash outflow of ₹630 crore and ₹21.6 crore in FY25 and FY26, respectively, with free cashflow of ₹170 crore in FY27.
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Meanwhile, volatile copper prices adversely impacted the Ebitda margin in Q2FY25, which contracted about 70 basis points year-on-year to 9.7%. Ebitda is earnings before interest, tax, depreciation and amortisation. Still, management retained its Ebitda margin guidance of about 10.5-11% for FY25 in the Q2 earnings call.
Robust long-term outlook
As such, the long-term outlook is robust thanks to public and private capex on overall infrastructure development. The company’s retail business appears promising, contributing about 54% of sales in H1FY25, aided by a strong distribution network.
Amid this, KEI’s shares are up 33% so far in 2024. The stock trades at 46 times estimated FY26 earnings, showed Bloomberg data, which leaves little room for sharp near-term upside. While robust demand in the sector augurs well, sharp volatility in copper prices and a delay in capex are key threats.
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“Revival in extra-high-voltage cable and exports (Q2 revenue down 51% and up 7% year-on-year, respectively) are key monitorables in H2FY25,” said a report by Systematix Institutional Equities dated 24 December. Adjusting to enhanced equity share capital (around 6% dilution) and the revised capex plans, Systematix expects a 18% and 20% compound annual growth rate (CAGR) in revenue and Ebitda over FY24-27E (FY19-24: 14% and 14% CAGR).
