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Strong order pipeline aid outlook...

KEC International Ltd. (KEC) is a global infrastructure Engineering, Procurement and Construction major. It has presence in the verticals of Power T&D (Transmission & Distribution), Cables, Railways and Water & Renewable.

• In Q1FY25, KEC’s order inflow grew by 70% YoY, aided by robust orders from domestic T&D (194% YoY) and SAE (70% YoY) business.

• The order book + L1 remains healthy at Rs.42,000cr, and KEC expects Rs.25,000cr of new orders in FY25, providing revenue visibility for coming quarters.

• Q1FY25 revenue grew by 6.3% YoY, which is below our estimate owing to migration of labour due to election. While T&D revenue grew by 18% YoY.

• EBITDA margin expanded by 23bps YoY to 6% in Q1FY25 owing to reduction in sub-contracting expenses and higher execution in T&D business.

• We expect traction in T&D orders and civil business will be the growth drivers for the company. We maintain our Accumulate rating and value KEC at a P/E of 22x on FY26 EPS with a revised TP of Rs.1,019.

Order book +L1 at all time high...

In Q1FY25, the total order book + L1 orders stood robust at Rs 42,000cr, which is 2.1x TTM revenue. The order inflow during the quarter increased by 70% YoY to Rs 7,664cr, largely led by robust traction in domestic T&D orders by 194% YoY and SAE segment by 70% YoY. While cable, railway and civil orders witnessed a decline of 43%/30%/26%, respectively. The company stated that the cable orders do well on setting up the fully integrated manufacturing line for aluminium conductors. KEC also obtained UL approvals for cable export to US, which is expected to drive future growth. The company expects Rs 25,000cr of new orders in FY25, aided by robust order pipeline of Rs 1,50,000cr in the domestic and international segments

Execution to pick up...

KEC reported a revenue growth of 6.3% YoY to Rs4,512cr in Q1FY24, which is below our estimate owing to migration of labour due to election impacted the execution. While the healthy execution in T&D segment (18% YoY), SAE (12% YoY) and civil business (11% YoY) supported the revenue mix. The management expects revenue to grow by 15% in FY25, aided by civil, SAE tower, T&D businesses, and cable business. EBITDA margin improved by 23bps YoY to 6% (incl. Rs24cr of arbitration claim) during the quarter due to a better mix and a reduction in subcontracting expenses. The company expects the margin to improve to 7.5% in FY25 and 8.5 to 9% in FY26

Valuations

A strong order pipeline and pickup in T&D and civil execution will drive the business going forward. We expect the company to benefit from the government's focus on thermal and renewable energy projects in FY25. We maintain our Accumulate rating and value the stock at a P/E of 22x on FY26 EPS with a TP of Rs. 1,019.

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