KEI Industries Limited is preparing to meet its increased capital expenditure (capex) guidance. The cable and wire company recently completed a fundraising Rs 2,000 crore through Qualified Institutional Placement (QIP) 3,800 per share. These funds are expected to help its balance sheet and fund greenfield expansion in Sanand, Gujarat, where it is planned Capital expenditure of Rs 1,800-1,900 crore (in phases) to increase its cable capacity. This increased capacity is expected to generate additional revenue 5,000 crore by FY28.
In the half year to September (H1FY25), the company meaningfully expanded its cable and wire capabilities across multiple facilities. “Its cable capacity grew by about 36% and wires capacity by 27% in H1FY25 compared to end-FY24 capacity,” Motilal Oswal Financial Services said in a December 27 report.
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KEI commissioned brownfield facilities at Chinchpada and Pathreddy in H1FY25, which it believes will help drive revenue growth of 16-17% for FY25. This is in keeping with its 17% year-on-year revenue growth in FY24.
Motilal Oswal expects KEI’s cumulative capital expenditure to exceed its cumulative operating cash flows during FY 2025-27 and estimates that free cash outflows will 630 crore more ₹21.6 crore in FY15 and FY26 respectively, with free cash flow 170 crore in FY27.
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Meanwhile, volatile copper prices adversely impacted Ebitda margin in Q2FY25, which declined by nearly 70 basis points year-on-year to 9.7%. Ebitda is earnings before interest, taxes, depreciation and amortization. Nevertheless, the management retained its EBITDA margin guidance of around 10.5-11% for FY25 in the Q2 earnings call.
Strong long-term outlook
Thus, the long-term outlook is strong due to public and private capital expenditure on overall infrastructure development. The company’s retail business appears promising, contributing about 54% of sales in H1FY25 with the help of a strong distribution network.
Meanwhile, KEI shares are up 33% so far in 2024. The stock is trading at 46 times estimated FY2026 earnings, leaving little room for near-term upside, Bloomberg data shows. While strong demand in the sector bodes well, sharp volatility in copper prices and delays in capital expenditure are major threats.
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“Revival in extra-high-voltage cables and exports (Q2 revenue down 51% and up 7% year-on-year, respectively) are key monitorables in H2FY25,” said a December 24 report by Systematics Institutional Equities. Are.” Equity share capital (about 6% dilution) and revised capex plan, Systematics expects 18% and 20% compound annual growth rate (CAGR) in revenues and FY24-27E (FY19-24: 14% and 14% CAGR ) over EBITDA.
