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Dismal Q1; execution hold key amid ME disruption

We revised our EPS estimates by -1.8%/-6.3% for FY27E/28E factoring in sustained margin pressure and slower-than-expected working-capital normalisation amid Middle East-related disruptions and legacy project headwinds. KEC International (KECI) reported a weak Q1FY27 performance, with revenue broadly flat YoY and EBITDA margin declining 118bps YoY, impacted by Middle East disruptions, labour shortages and calibrated water execution. Despite a strong ~Rs377bn order book, near-term execution remains challenging amid elevated logistics and freight costs. T&D remained resilient, supported by a healthy pipeline, HVDC and data-centre opportunities, while Cables delivered robust 57% YoY revenue growth, with specialty cables providing scope for further mix and margin improvement. Renewables also witnessed healthy order traction, supporting business diversification. However, Civil, Transportation and Water remain near-term drags due to legacy project closures and elevated receivables. Management retained FY27 revenue growth guidance of 12–15%, with recovery skewed towards H2 as West Asia conditions normalise. Working capital remains a key monitorable, with a ~110-day target by FY27-end, while net debt of ~Rs65.7bn is targeted to decline to ~Rs55bn by Mar’27. Overall, strong order visibility provides medium-term support, but weak margins, elevated working capital and execution/geopolitical headwinds are likely to keep earnings recovery gradual. The stock is currently trading at a P/E of 16.7x/12.1x on FY27/28E earnings. We maintain our ‘Accumulate’ valuing the business at a PE of 14x Mar’28E (same as earlier) arriving at a TP of Rs523 (Rs558earlier).

In the near term, normalization in supply chain disruptions and labour shortages, along with turnaround in Civil business execution will remain key monitorable, however we remain constructive on KEC in the long term given its

1) strong order book

2) healthy execution momentum

3) robust T&D outlook, especially in renewable energy

4) expansion of Cables business.

Lower execution impacted the profitability:

Consolidated revenue remain flattish YoY to Rs50.2bn (PLe: Rs49.8bn) due to flattish YoY growth in standalone T&D business at Rs27.8bn and sharp decline across Railways (-45% YoY to Rs2.6bn) and solar (-58.8% YoY to Rs560mn), offset by growth in SAE (+25.3% YoY to Rs4.5bn), Cables (+57% YoY to Rs6bn), O&G (+95% YoY to Rs1.2bn) and Civil (+5.6% YoY to Rs9.9bn). EBITDA decreased by 16.9% YoY to Rs2.9bn (Ple: Rs3.2bn) while EBITDA margin contracted by 118bps YoY to 5.8% (Ple: 6.4%) due to higher employee cost (+10% YoY to Rs4.3bn) and other expenses (+19.6% YoY to Rs4.8bn) despite expansion in gross margin (+116bps YoY to 24%). Adj. PBT came in at Rs899mn (-43% YoY) (Ple: Rs1.1bn) despite of increase in other income (+159% YoY to Rs139mn) due to higher interest cost (+8.5% YoY to Rs1.6bn). Adj. PAT decreased by 41.7% YoY to Rs726mn (PLe: Rs846mn) due to lower operating performance despite lower effective tax rate 19.2% (vs 21.4% in Q1FY26)

Robust order book stands at Rs377bn (1.6x TTM Revenue):

Q1FY27 order inflows increased by 14.2% YoY to Rs66bn with T&D/SAE/Civil/Transportation/Cables/Renewables mix of 30%/27%/15%/4%/12%/12%. Order book stood at Rs377bn with T&D/SAE/Civil/Transportation/Cables/Others mix of 52%/10%/26%/6%/3%/3%.

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