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T&D segment aided top-line and margins...

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.

* KEC reported the highest ever revenue in Q4FY24 with a growth of 11.6% YoY, led by strong execution in the T&D business by 25% YoY and SAE segment by 19% YoY.

* EBITDA margin expanded by 116bps YoY to 6.3% in Q4FY24 owing to reduction in sub-contracting expenses and higher execution in T&D business.

* The order book + L1 remains healthy at Rs.37,000cr, and KEC expects Rs.25,000cr of new orders in FY25, provide revenue visibility for coming quarters.

* The company achieved 15% revenue growth in FY24 and guided for 15% YoY growth in FY25 with 7.5-8% margin.

* 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 18x on FY26 EPS with a TP of Rs.833.

Healthy execution in T&D segment...

KEC reported a revenue growth of 11.6% YoY to Rs6,165cr in Q4FY24, led by healthy execution in T&D business by 25% YoY to Rs 2,918cr and SAE business by 19% YoY to Rs 466cr. In FY24, the top-line grew by 15.2% YoY to Rs22,682cr, supported by superior execution in Civil (32% YoY), T&D (27% YoY), SAE (21% YoY). The management expects revenue to grow by 15% in FY25, aided by civil, SAE tower, and T&D businesses. EBITDA margin improved by 116bps YoY to 6.3% during the quarter due to a better mix and a reduction in subcontracting expenses. The company expects the FY25 margin to improve to 7.5–8%. Given the pressure on margins due to higher competition and delays in non-T&D margins, it is slightly lower than T&D margins. On the other hand, logistics costs were emerging as a concern due to the ongoing issues on the Red Sea route.

Order book provides visibility...

In FY24, the total order book + L1 orders stood robust at Rs 37,000cr, which is 2x TTM revenue. Despite an increase in T&D orders by 13% YoY to Rs6,116cr in FY24, the total order inflow declined by 19% YoY to Rs18,102cr, due to a decline in Railway orders by 63% YoY to Rs 1,086cr and water & civil business by –38% YoY to Rs4,163cr. The management is very selective on railway tenders due to margin pressure on account of higher competition. The company expects Rs 25,000cr of new orders in FY25, aided by robust opportunities in the domestic and international T&D order pipeline and civil business.

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. The reduction in net debt by Rs 95cr to Rs509cr in Q4FY24 augurs well for earnings. We maintain our Accumulate rating and value the stock at a P/E of 18x on FY26 EPS with a TP of Rs. 833.

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SEBI Registration Number: INH200000345