Fundamental Analysis of KEC International

Fundamental analysis of KEC International: In the current global environment, governments are focusing on strengthening basic infrastructure, from transportation networks such as roads and railways to power generation and transmission. This increased interest has brought companies like KEC International Limited into the spotlight.

In this article, we will conduct fundamental analysis on KEC International to analyze the company’s potential prospects.

Fundamental Analysis of KEC International

Our fundamental analysis of KEC International begins by learning about the company’s operations and products. Next, let’s look at equity finances. The article concludes with the main plan and summary.

Industry Overview

The total output of the global construction market was USD 10.7 trillion in 2020 and is expected to increase to USD 15.2 trillion by 2030. The construction industry is contributing significantly to economic growth, with spending levels expected to reach 13.5% of global GDP.

India’s infrastructure industry is expected to grow by 12% to reach Rs 45,907 trillion in 2023. The growth momentum is expected to continue at a CAGR of 9.9% between 2023 and 2027, reaching Rs 66,955 billion by 2027.

The National Infrastructure Pipeline (NIP) for FY 2019-25 is designed to provide world-class infrastructure to citizens and improve their quality of life. This is supported by a 33% increase in capital expenditure planned by the government.

The expanded infrastructure budget for 2023-24 includes significant increased capital spending on urban infrastructure, green energy transition, and public utilities, as well as transportation, including rail infrastructure and multimodal logistics complexes.

Company Overview

KEC International Limited (KEC) is the flagship company of RPG Group. A leading global infrastructure engineering, procurement and construction (EPC) company delivering projects across a variety of sectors.

The sectors in which the company operates include transmission and distribution, railways, civil and urban infrastructure, solar, smart infrastructure, oil and gas pipelines, and cables.

The company offers a comprehensive range of services covering the entire project life cycle from conception to commissioning.

As of FY23, the company has eight manufacturing facilities across India, Dubai, Brazil and Mexico with a product capacity of 4,22,200 MTPA. The company has a presence in more than 110 countries. Among these, we have carried out EPC projects in more than 70 countries, supplied cables to more than 90 countries, and supplied towers to more than 65 countries.

company order form

As of FY23, the company reported order intake of ₹22,378 Cr, a 30% growth over the previous year. The T&D, civil engineering, and railway sectors contributed greatly to the company’s increase in orders.

The orders received by the company’s various business segments during FY23 are as follows:

• Transmission and distribution sector: Place orders worth over ₹10,000 Crores across India, Middle East, SAARC, Far East, Africa and America.
• Railroad sections: Orders of ₹2,900 Crores received.
• Civil engineering sector: It secured orders worth over ₹6,600 Crores in FY23.

The following image shows a breakdown of the company’s order book across various sectors.

KEC International – Finance

Now, we will conduct a basic analysis of KEC International using the company’s published annual report.

Increased sales and net profit

According to the profit and loss account, the company’s revenue increased from ₹11,001 crores to ₹17,281 crores. This gives the company a revenue CAGR of 11.95%.

Despite the increase in sales, the company’s profits have been on a downward trend since FY22.

During FY23, the company reported a net profit of ₹176 crores compared to a net profit of ₹496 crores in FY19. This results in a negative CAGR of 22.82% for the company’s profits.

The table below shows KEC International Ltd.’s total revenue and net profit for five fiscal years.

Now, let us analyze the company’s margins to understand what is causing its profit decline.

Margin Analysis

Looking at the company’s margins, we can see that the decline in the company’s net income is due to increased operating expenses. This resulted in an overall decline in the company’s overall margins.

The overall decline in profits can be attributed to unfavorable raw material prices, high logistics costs and poor performance of its subsidiary (Brazil-based SAE).

The table below shows KEC International Ltd.’s operating profit margin and net profit margin for five fiscal years.

Rate of Return: RoCE and RoE

The company’s decline in profits had a noticeable impact on its financial performance. This can be seen in the decline in ROE and ROCE starting from FY23.

Over the past five years, the company’s ROE and ROCE have been on a downward trend, recording 4.8% and 11.8%, respectively, in FY23.

This indicates a decline in the company’s return on shareholder capital and less efficient use of resources.

The table below shows KEC International Ltd.’s ROE and RoCE for five fiscal years.

Debt and interest coverage ratio

Looking at the company’s leverage situation, we can see that the company is reporting a slightly increasing debt-to-equity ratio compared to the previous year. This means the company’s debt will increase. The debt-to-equity ratio for FY23 was reported to be 0.9.

The company’s interest coverage ratio also declined, likely due to increased debt and lower profits.

During FY23, the company reported an interest coverage ratio of 1.6. This means that the company has earned enough profits to cover one additional interest payment.

The table below shows KEC International Ltd.’s leverage ratio for five fiscal years.

KEC International’s future plans

So far, we have looked at past accounting data to analyze the fundamentals of Korea Expressway Corporation. In this section, we will try to understand what the future holds for the company and its investors.

1. The company has a robust order book and an L1 position of over ₹34,000 Crores, which is expected to generate revenue over the coming quarters.
2. Company bids under evaluation and pipeline bids worth over ₹100,000 Cr. These bids can help generate more revenue for the company.
3. The company is becoming more selective in bidding on bids with higher raw material risk.
4. The company has secured projects in the automatic block signaling sector and is currently implementing the KAVACH system on over 750 km of railway lines.
5. In line with its diversification strategy, the company’s civil engineering business received orders in the high-growth areas of commercial building and logistics. The business has also moved into the hydrocarbons sector, securing a number of orders for process equipment, buildings and infrastructure for leading refineries.

key indicators

We are almost done with our fundamental analysis of KEC International. Let’s take a quick look at some important stock indicators.

conclusion

Summarizing the fundamental analysis of KEC International, we can conclude that although the company’s sales are increasing, its profits have been affected by various internal and external factors.

If a company handles external factors such as logistics costs and product risks well, its earnings outlook can be positive.

It is also important to note that investment decisions should not be made solely on the information provided above. Individuals are advised to conduct research before making any investment decisions.

What do you think about the future of KEC International? Please share in the comments section.

Written by Aaron Barth

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