Accumulate KEC International Ltd For Target Rs.558 by Prabhudas Liladhar Capital Ltd
Execution remain key focus amid ME disruption
We attended the annual investor meet of KEC International, where the management discussed the company’s FY26 business performance and growth outlook across key segments. Management highlighted a healthy growth outlook supported by strong domestic T&D demand, improving international traction and diversified infrastructure opportunities. Domestic T&D momentum remains robust driven by renewable integration, rising power demand and increasing HVDC opportunities, with ~7 HVDC projects under discussion and at least two projects expected to be awarded during FY27. International execution remains stable despite geopolitical disruptions in West Asia, while opportunities across Africa, CIS and Middle East energy diversification projects continue to improve. The Civil segment is witnessing healthy traction across large EPC projects, buildings & factories, renewable-linked infrastructure and data centres, while improving project mix and completion of legacy metro projects are expected to support better cash flows and return ratios. Renewables and cables businesses also continue to witness healthy traction supported by capacity additions, renewable investments and rising data-centre opportunities. Additionally, management remains constructive on the long-term data-centre opportunity, aided by expanding MEP capabilities and faster execution timelines. With a robust order book of ~Rs400bn providing better revenue visibility in near term management reiterated FY27 revenue growth guidance of ~12–15% and targeted order inflow of ~Rs300bn. The stock is currently trading at a P/E of 18.2x/12.5x on FY27/28E earnings. We maintain our ‘Accumulate’ rating, valuing the business at a PE of 14x Mar’28E (same as earlier) arriving at a TP of Rs558 (same as earlier).
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.
Robust order book provides strong visibility:
Management highlighted a robust order book of ~Rs400bn, providing visibility for the next 7–8 quarters, supported by a strong tender pipeline across T&D, civil and renewable businesses. The order book mix comprises T&D ~62% (~Rs245bn), SAE ~8% (~Rs32bn), Civil ~20% (~Rs100bn), Transportation ~2% (~Rs8bn), Cables ~7% (~Rs28bn) and Others ~1% (~Rs4bn). Management also indicated that the broader tender pipeline remains healthy, particularly in the T&D segment driven by renewable integration and HVDC opportunities.
Return ratios to improve gradually:
Management highlighted that the T&D business continues to generate superior return ratios with 20%+ ROCE, while non-T&D segments such as railways, metro and water projects have remained relatively weaker. With 3 out of 4 metro projects completed and the final project expected to conclude by year-end, alongside expected improvement in metro and JJM cash flows and increasing focus on better-quality civil EPC projects, management expects gradual improvement in overall ROCE going forward.
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