Revenue growth:

The company has reported revenues at Rs.1,841m during the quarter with an impressive growth of ~85% as against Rs.993m in Q1FY07 driven by strong growth in cable demand and stainless steel wire segment. The HT cables revenues stood at Rs.390m in Q1FY08. The management has guided the full year sales for FY08 to be in the region of Rs.10,000m which is a healthy growth of 47% on a YoY basis compared to FY07. The wire and cable industry size is made out to be Rs.100,000m at this point in time.

Decline in EBITDA and net margins:

The operating margins (EBITDA margins) for KEI for Q1FY08 declined significantly to 13.0%, which is around 240bps lower as compared to Q1FY07. The margin drop has been principally due to rise in raw material prices and the due to the rising Rupee. The net margins contracted to 6.48% from 7.70% in Q1FY07. Raw material expense, higher taxes have contributed to lower net margins during the quarter. The company expects to maintain its EBITDA margins at 13-14% levels in the current year FY08 with copper prices seeming to have peaked out.

Capacity expansion of LT power cable facility:

KEI has raised its capital expenditure for its Chaupanki LT power cable facility from Rs. ~100m to Rs.460m. The facility is expected to come on stream by October 2007. At the end of this current year another medium and high tension cables unit will get commissioned taking the total investment to roughly Rs.600m. With 49,000 Kms of LT power cable capacity, this plant is expected to generate revenues of Rs.2,000m in its first year of operations on an annual basis. After the capacity addition the HT power cables capacity is expected to add up to 33,000Kms and the retail house wire cables capacity is to become 250,000Kms.

Healthy order book position:

The company’s current order book position stands at Rs.2,000m. The product wise break-up of the order book is like: HT power cables Rs.390m, LT power cables at Rs.1,350m and stainless steel wires at Rs.310m.

Valuation:

The stock is currently trading at 8.6x and 5.9x for FY08E and FY09E EPS of Rs.9.6 and Rs.14 respectively. We retain our ‘Buy’ recommendation at the current levels with a target price of Rs. 95.