Rs 398 to Rs 2,592: This stock turned into a multibagger in three years; heading toward record high

Shares of KEI Industries Ltd have delivered multibagger returns in the last three years. KEI Industries stock, which closed at Rs 398.55 on August 21, 2020 hit an intraday high of Rs 2592 on the BSE today (August 22, 2023), delivering 550.35% returns in three years. During a period of two years and one year, the stock climbed 261% and 85%, respectively. In comparison, Sensex has zoomed 69.53% in three years. The stock of the wires and cable manufacturer hit a yearly low of Rs 1350.70 on August 29, 2022 and a record high of Rs 2812.20 on July 19, 2023.

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In the current session, KEI Industries shares reached an intraday high of Rs 2592, rising 1.85% against the previous close of Rs 2544.85 on BSE. A total of 2428 shares of the firm changed hands, amounting to a turnover of Rs 62.15 crore on BSE. Market cap of the firm rose to Rs 23,271.45 crore. In terms of technicals, the relative strength index (RSI) of KEI Industries stands at 61, signaling the stock is neither oversold nor overbought. The stock has a one-year beta of 0.6, indicating very low volatility during the period. KEI Industries shares are trading higher than the 5 day, 20 day, 50 day, 100 day and 200 day moving averages.

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Q1 Earnings Net profit for Q1 came at Rs 121.38 crore against Rs 103.76 crore in the same period of fiscal year 2023. Revenue rose to Rs 1,790.90 crore for the first quarter ended June 30, 2023, as compared to Rs 1,568.94 crore a year ago. Profit before tax climbed 16.42% to Rs 163 crore in the June 2023 quarter against Rs 140 crore in the June 2022 quarter.

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EBITDA margin in the June quarter rose to 10.47% as against 10.42% YoY. PAT margin in the June quarter has increased to 6.81% as against 6.63% YoY.

EBIDTA during Q1 came at Rs 186.60 crore against Rs 163.16 crore against the same quarter in the previous year.

Earnings Review

Nuvama Institutional Equities has assigned a target price of Rs 2650 on the stock.

“Given very strong demand for cables (also indicated by KEI) and with capacity expansion that KEI is executing, we expect its revenue to double over five years. Raising the target PE to 32x (from 27x) and rolling over to Q1FY26E lifts our target price to Rs 2,650 (from Rs 2,130); ‘BUY’, said Nuvama.

Praveen Sahay, Research Analyst, Prabhudas Lilladher said, “Management expects Rs 100 crore revenue by FY26 with EBITDA margin target of 12-12.5%. We tweak our earnings estimates for FY24/FY25E and estimate Revenue/EBITDA/PAT CAGR of 18.0%/23.4%/24.5%. Maintain ‘HOLD’ at TP of Rs 2,319 (unchanged).”

Incred Equities assigned a target price of Rs 2,598 on the stock based on a P/E of FY25F EPS.

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The brokerage listed out key business triggers to watch out for in coming months.

1. Strong public/private capex driving exponential demand for cables. Existing capacity and brownfield expansion ensures a revenue CAGR of 16-17% over FY23-25F.

2. Consistent market share gains in cable and housing wire businesses.

3. Share of the housing wires segment in total sales close to 50%.

4. Meaningful cash generation to be reinvested in capacity expansion to fuel growth.

Bull-case arguments not factored in by street

1. International markets want Indian cable supplies. Export growth could be higher than management’s guidance.

2. Faster reduction in the net working capital cycle leading to a meaningful decline in non-fund debt (LC/BG) servicing costs.

3. The FMEG segment’s underperformance and the C&W segment’s outperformance is leading to overvaluation of C&W stocks.

Valuation

1. Stock trades at a P/E of 35x/30x its FY24F/25F EPS, respectively. On an EV/EBITDA basis, it trades at 24x/20x FY24F/25F EPS, respectively.

2. We have an ADD rating on the stock with a target price of Rs.2,598 based on a P/E of FY25F EPS.

About the company

KEI Industries is engaged in the business of manufacturing, sale and marketing of all range of power cables up to 400kV - Low Tension (LT), High Tension (HT) and Extra High Voltage (EHV), Control and Instrumentation Cables, Specialty Cables, Elastomeric/Rubber Cables, Submersible Cables, Flexible and House Wires, Winding Wires. KEI is also engaged in execution of Engineering, Procurement and Construction projects (EPC) for survey, supply of materials, design, erection, testing & commissioning on a turnkey basis.