KEI stock rallies 8%, hits new high on healthy outlook; up 117% in 1 year

In FY25 profitability is likely to improve led by likely enhanced geographical diversification, an improvement in operational efficiencies and increased contribution from high-margin, believes Ind-Ra.

Shares of KEI Industries hit a new high at Rs 4,560, as they rallied 8 per cent on the BSE in Monday’s intra-day trade in an otherwise subdued market on healthy outlook. At 02:46 pm; the stock was trading 7 per cent higher at Rs 4,511.40, as compared to 0.16 per cent decline in the BSE Sensex.

The stock of cable manufacturer surpassed its previous high of Rs 4,346.25 touched on May 24. It bounced back 35 per cent from Rs 3,384.05 touched on Tuesday, June 4. In the past one year, it has zoomed 117 per cent, as against 22 per cent rise in the benchmark index.

KEI Industries manufactures and markets power cables - low tension, high tension and EHV, house wire, stainless steel wire catering sectors such as power, oil refineries, railways, automobiles, cement, steel, fertilizers, textile and real estate, among others.

On Friday, June 7, rating agency India Ratings and Research Private Limited (Ind-Ra) affirmed the ratings with a positive outlook for the company's debt instruments.

Ind-Re believes the company's large ongoing capex, which is being funded through a mix of debt and internal accruals, along with its recently completed capex, is likely to lead to better than its five-year CAGR revenue growth over the next three-to-four years. In FY25, the company's profitability is likely to improve, driven by likely enhanced geographical diversification for exports, an improvement in operational efficiencies and increased contribution from high-margin segments.

The ratings reflect sustained healthy credit metrics, supported by an improvement in the scale of operations and profitability in FY24, and Ind-Ra expects the metrics to moderate slightly over FY25-FY26 but remain comfortable despite the ongoing debt-funded capex for increasing its capacities of different cable segments.

Ind-Re expects its already completed brownfield capex and those which are to be completed in 1QFY25 towards capacity additions of house wires and low voltage (LV) cables to improve profitability over FY25-FY26, with a gradual shift in the sales mix to high margin exports, where the major products are low voltage, medium voltage, and extra high voltage cables. KEI is also incurring capex to increase the capacities of the export products, which would be completed in FY26, would improve its overall profitability in the medium term, the rating agency said in its rationale.

A healthy order book, higher capex, robust demand in real estate and infrastructure and strong dealer expansion augur well for the company’s future performance. However, margins might be impacted due to changes in the input costs, brokerage firm Geojit Financial Services said.

The company has a positive outlook in the long run, supported by strong demand in the Indian markets, particularly in solar power projects, power distribution projects and reforms in the government power distribution utility. It also has notable investments in transmission, distribution, thermal power generation and storage power projects across the country. However, an increase in costs of materials might impact the margins in the short term. Therefore, we cautiously upgrade our rating on the stock to HOLD, the brokerage firm had said in March quarter (Q4FY24) result update. The stock, however, is trading above the brokerage firm’s target price of Rs 4,085 per share.