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Earnings in line; capacity expansion to drive growth Healthy order book; reiterates margin guidance of ~11% in FY27

* KEI Industries’ (KEII) 2QFY27 revenue grew ~39% YoY to INR37.8b (~10 beat). EBITDA grew ~40% YoY to INR3.8b (in line; as lower-than-estimated margin in C&W segment offset revenue beat). OPM stood at 10% (flat YoY; 1.3pp below estimates). C&W margin was up 30bp YoY (down 2.3pp QoQ) at 11.3% (est. 12.0%). PAT (adj. for earlier year tax) grew 32% YoY to INR2.7b.

* Management guided for revenue growth of ~25% in FY27 and ~20% CAGR over the medium term. It reiterated annualized OPM guidance of ~11% in FY27, with expansion toward 11.5-12.0% in FY28 as Sanand capacity utilization ramps up. Sanand Phase II (EHV/HT facility) is schedule to be commissioned by Mar’27 end, adding revenue potential of INR15-17b. The pending order book in C&W stood at INR49.3b (including export orders of INR9.9b), with an execution cycle of 3-4 months. In export orders, the US accounts for 50%. Further, inventory build-up is primarily driven by initial stocking requirements at the Sanand facility as it ramps up operations.

* We reduce our EBITDA estimates by ~4%/6% for FY27/FY28 as we trim C&W margin/revenue estimates for FY27/FY28. We value KEII at 40x FY28E EPS to arrive at our revised TP of INR5,180 (earlier INR5,670). Reiterate BUY.

C&W revenue up 40% YoY; margin up 30bp YoY to 11.3% (est. 12.0%)

* KEII’s revenue/EBITDA/adj. PAT stood at INR37.8b/INR3.8b/INR2.7b (+39%/ +40%/+32% YoY and +10%/-3%/-1% vs. our estimates) in 2QFY27. OPM was flat YoY at ~10%. Depreciation/interest costs rose ~51%/22% YoY. Other income declined ~42% YoY.

* Segmental highlights:

a) C&W revenue rose 40% YoY to INR36.7b, EBIT grew ~44% YoY to INR4.1b, and EBIT margin expanded 30bp YoY to 11.3%.

b) EPC business revenue increased ~2% YoY to INR1.0b; segment loss stood at INR89m vs. EBIT of INR51m in 2QFY26.

c) Stainless steel wire (SSW) revenue increased ~16% YoY to INR627m, EBIT grew ~21% YoY to INR53m, and EBIT margin expanded 30bp YoY to 8.5%.

* In 1HFY27, revenue/EBITDA/adj. PAT grew 31%/46%/36% YoY to INR69.6b/ INR7.7b/INR5.4b. OPM surged 1.2pp YoY to 11.1%. Operating cash outflow stood at INR4.9b (led by increase in working capital) vs. OCF of INR3.8b in 1HFY26. Capex stood at INR4.2b vs. INR6.4b in 1HFY26. Net cash outflow stood at INR9.0b vs. INR2.6b in 1HFY26.

Valuation and view

* KEII’s 2QFY27 earnings were broadly in line with estimates; however, C&W segment margins came in below estimates, partly due to the carry-over impact of inventory largely from its Sanand plant. Management guided for revenue growth of ~25% in FY27 and ~20% CAGR in the medium term, with OPM expected to improve to 11% in FY27 and 11.5-12.0% in FY28 vs. the average of 10.3% over FY22-26. However, the sustainability of margin improvement amid competitive intensity and the timely execution and ramp-up of capacity expansion remain key monitorables.

* We estimate KEII’s total revenue CAGR at ~19% over FY26-28, led by ~21% growth in the C&W segment and ~7% growth in the SSW segment. However, EPC revenue is estimated to decline ~7% annually. We project its EBITDA/PAT CAGR of ~21%/16% over FY26-28. We estimate OPM at 10.6%/ 10.9% in FY27/FY28 vs. 10.6% in FY26. The stock is trading at 35x/30x on FY27E/FY28E EPS. We value KEII at 40x FY28E EPS to arrive at our revised TP of INR5,180 (earlier INR5,670). Reiterate BUY

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