KEI Industries gains 8%, hits new high on hopes of margin improvement

The improved operating environment, combined with pent-up demand, should boost the market growth for wires and cables, analysts believe

Shares of KEI Industries hit a new high of Rs 834.85 after they rallied 8 per cent on the BSE in the intra-day trade on Wednesday on expectation of margins improvement going forward. Besides, hopes that improved operating environment, combined with pent-up demand, could boost the market growth for wires and cables industry also aided the sentiment.

In the past two weeks, the stock of the company, engaged in the manufacturing of cables and wires, has rallied 17 per cent after CARE Ratings upgraded the long term & short term bank facilities/ debt instruments ratings of the company with stable outlook.

"The revision in the ratings assigned to the bank facilities and debt instruments of KEI takes into account improvement in the company’s profitability margins during the financial year 2020-21 (FY21) which has sustained during April-June quarter (Q1FY22), which coupled with sizable reduction in finance costs have resulted in healthier cash accruals. The revision in the ratings also factor in sustained reduction in the company’s debt levels thereby leading to improvement in the capital structure and debt metrics and a better liquidity position," rating agency said.

Going forward, CARE Ratings believes that KEI will report gradual improvement in margins and return ratios on the back of greater focus on high margin and less working capital-intensive retail business and descaling of highly working capital-intensive turnkey projects business.

Moreover, leverage levels are expected to improve further on the back expectations of healthy profitability and cash flow generation and funding of capex through internal accruals, it added.

KEI, in the financial year 2020-21 (FY21) annual report, had said that it witnessed capacity expansion and upgradation in various state-owned oil refineries. The Production-Linked Incentive (PLI) Scheme announced by the Government will encourage private players to enhance their domestic manufacturing capabilities. Smart city projects are underway while the expected pick-up in demand for real estate will aid the recovery of the construction sector, it added.

"Further, the Company is planning to invest in scaling up its LT, HT and EHV cables capacity. The Company remains committed to expanding its global footprint across newer geographies and deepening its penetration in existing markets. To further improve its working capital management and margins, the Company has strategically decided to reduce its revenue contribution from the EPC projects," KEI said.