ET's PRIME PICK -KEC International Ltd.
EquityWatch
NSE
walletwatch.com
BSE
walletwatch.com
Well placed
KEC International Ltd (KECIL) is riding high on the back of a massive order book position, says Rajiv Goel.KEC International Ltd (KECIL), the largest player in setting up transmission line projects in Asia and the second largest in the world after ABB, has reported a sharp growth in profit in the current fiscal. This is on the back of a large order book position of Rs 1746 crore as on date - enough to keep the company busy for the next two years. Several large orders too are in different stages of bidding, negotiations and finalisation.
Background
KECIL's main areas of business are design, manufacture, supply, construction of electric power transmission lines, turnkey projects for power transmission, railway electrification, setting up sub-stations and power distribution networks. While the company holds a 35 per cent share in the domestic market, it is set to increase to 65 per cent after its merger with RPG Transmissions Ltd. The merger, already approved by the respective boards of both companies, is awaiting clearance from FIs.
The Indian power transmission line market is estimated to be the second largest in the world after China. Over 80 per cent of KECIL's turnover comes from overseas projects. Its performance has merited recognition by the Indian government and other agencies.
How is KECIL placed?
HOLDING a dominant position in the industry with a 65 per cent marketshare (after merger), it is way ahead of its competitors such as Jyoti Structurals and Kalpataru Towers, who enjoy less than 10 per cent marketshare each. In the global market, it enjoys a 12 per cent share, next only to that of ABB. The company appears confident of increasing its share in the global market to 20 per cent in the next 3 to 4 years.
KECIL enjoys a competitive edge since most of the contracts are bagged against global tenders. It has a presence in 19 countries besides joint ventures in Vietnam, Malaysia and Saudi Arabia.
KECIL has been a pioneer in design and research. It has been the first in India to design and test 400-KV single circuit and double circuit towers, 500-KV direct circuit towers with quadruple bundled conductors, 500-KV single circuit rectangle-based towers and river crossing towers weighing over 270 tonnes. The company has an ISO 9001 certification. Recently, its Butibori plant was awarded the ISO 14001 certification, thus becoming the only transmission factory in the world to achieve this certification.
KECIL has launched various initiatives following McKinsey's recommendations for a business process re-engineering (BPR). It expects significant improvements in operations and profitability in the coming years.
Order book
KECIL has recently been awarded four major projects in Syria, Saudi Arabia, Abu Dhabi and Indonesia for a total value of Rs 925 crore facing stiff international competition. In the domestic market, it achieved an important breakthrough by securing a prestigious project worth $ 167 million ( approx Rs 710 crore) from the Madhya pradesh Electricity Board.
Most of the projects are funded by multilateral agencies like the World Bank, Asian Development Bank, Islamic Development Bank, AFSE and OECF among others. Many large overseas projects are backed by letters of credit. Of the current order book position of Rs 1746 crore, over 90 per cent is denominated in US dollars. Expenditure is largely in local currency, leading to KECIL benefitting from rupee depreciation.
Operations
KECIL has two manufacturing plants in India, one in North (Jaipur) and the other in Central India (Nagpur) with a capacity of 33,600 million tpa and 24,000 million tpa respectively. The Nagpur plant, commissioned in March '96 is a state-of-the-art plant while the Jaipur plant has kept pace by continuously modernising through the installation of CNC machines, revising layouts to suit needs. The company has a 600-strong, trained, experienced and mobile workforce, capable of working across difficult terrain like deserts, mountains and rivers. The project management team's ability to offer comprehensive solutions has resulted in successful commissioning of several challenging projects around the globe ahead of schedule.
It owns 18 mechanised tension stringing equipment, capable of executing 20 large projects of 400KV and above at a time. Quality is ensured through extensive use of CNC technology, microprocessors, galvanising plant control, and training of its employees. KECIL has a unique process research centre in addition to R&D for designs. It has two tower testing stations, one at Vashi and the other at Jaipur, having centralised control and monitoring of all test inputs.
Industry
TRANSMISSION lines act as a vital link between power generating stations and consumers. However, the transmission and distribution (T&D) facilities have not been built up commensurate with the requirements of such facilities due to resource constraints. The T&D outlays in India is just 28 per cent for outlays in the power sector, whereas ideally it should be 50 per cent. Due to the past backlog of setting up transmission lines and additional power generation capacity, growth of the industry is likely to continue.
There is an estimated business of Rs 7500 crore for tower manufacturers over the next 7 years. Many electricity boards in India are upgrading their transmission lines to 400 KVA, 800 KVA and above. KECIL is one of the few companies internationally capable of executing such projects.
Privatisation of transmission lines will provide further impetus to growth. Major growth in recent times has been achieved primarily from overseas markets, with a strong presence in South East Asia, Middle East and Africa. The competitive advantage for Indian players lies in the availability of cheap and skilled manpower in the country. Transmission lines for voltages ranging from 500 KV to 660 KV and HVDC are being considered in several countries. Many countries are in need of additional investments to reduce technical losses and to improve supply quality and reliability. With the power sector gaining more priority in these countries, the export market for Indian players in power transmission lines is quite promising.
Outlook
OF the Rs 32.38 crore equity, 42.62 per cent is controlled by the promoter groups, 2.75 per cent by FIIs, 22.15 per cent by FIs, banks and mutual funds, 5.59 per cent by NRIs and the balance 26.89 per cent is held by the public.
In the current fiscal, turnover is expected to cross Rs 1050 crore while the operating profit will report a sharp growth. The bottomline is estimated at over Rs 66 crore, leading to an EPS of Rs 20.38. The merger with RPG Transmission, a group company is pending approval with FIs since '97. The approval, if accorded, will only be at fresh valuations. The overhang of earlier swap ratio is likely to recede.
The company aspires to be the top shot in the field of power transmission projects in the world by expanding its operations from 19 countries now to over 25 countries, creating operation bases in Latin America, Europe and the continent of Africa and by setting up five to six joint-ventures with atleast one having a turnover in excess of $ 100 million.
At Rs 41, the scrip is available at a PE multiple of just 2 and enjoys a book value per share of over Rs 95.20. A good pick for the short to medium term.
economictimes.com |
