KEI Industries - Growing with Economy

KEI is one of the leading cables manufacturers in India offering a comprehensive range of power cables and housing wires. KEI Manufactures variety of cables namely High Tension (HT) and Low tension (LT) power cables, Control and Instrumentation Cables, other specialty cables, rubber insulated power, control & instrumentation cables. KEI cables are used in a wide variety of industrial sectors, including power and transmission, refining and petrochemicals, oil and gas, cement, metals, telecommunication and fertilizer. KEI also manufactures and sell wide range of steel wires, which have various applications such as manufacturing of springs and fastenings.

The firm has four manufacturing plants in New Delhi, Bhiwadi in Rajasthan and Silvassa along with eight marketing offices across India and one marketing office in Dubai.

With huge capex in the power and infrastructure capacity by the end of twelveth planing commission the order book of domestic cables and wires demand is expected to remain strong. Opportunities for the cabling sector are also ripe in Africa, West Asia and the Gulf region which are poised to make significant investments in the power sector.

Expansion Plans

1) The company HT cables upgradation and LT cables expansion at Bhiwadi is in the final phase of construction and is expected to be operational by April 2008.
2) KEI new manufacturing facility at Chaupanki commenced commercial production in January 2008. The HT cable unit of the Chaupanki facility is in the final phase of construction and is expected to be commissioned by May 2008.
3) KEI is in the process of performing feasibility study to manufacture cables of 132 KV and 220 KV from the existing upto 66 KV. The company has also acquired land for the same.
4) KEI expansion in housewire segment is complete to 2,50,000 kms of capacity. The company revenue during the coming year is expected to increase exponentially.

KEI is in the process of massive brand building and visibility exercise to make “KEI” a household name. This along with the enhanced capacity in the house wire segment is expected to Increase KEI topline significantly.

Positives

1) Strong order demand from middle east, Africa and domestic companies.
2) Increased marketing presence in europe and south africa.
3) Strong business demand and low supply risk.

Risks

1) Increase in raw material prices.
2) Higher interest expense due to ongoing capital work in progress to impact the bottomline.
3) Further equity dilution can reduce shareholders return.

At the current market price of Rs. 63/- the stocks trades at less than 12 times it's fully diluted FY08E EPS of 5.6. We expect the commodity prices to cool down during FY09 with a possible US recession. This together with the full expansion in place is expected to fuel in KEI's bottomline and topline growth. Based on it's FY09E the stock trades at less than 7 times it's expected EPS of 10. Investor with medium risk profile can consider investment into this stock with a horizon of 24 months and a target of Rs. 120/-.