Accumulate KEC International Ltd For the Target Rs. 930 By PL Capital- Prabhudas Lilladher
In-line Q3; Execution in focus amid strong inflows
Quick Pointers:
* Tender pipeline stands at ~Rs1.5trn, with T&D being the primary driver
* Management downward revised its FY25 guidance of ~15% revenue growth to 12-14% while it has maintained its order intake guidance of Rs250bn.
We revise our EPS estimates by -8.3%/-5.2% factoring in slower margin recovery amid higher revenue mix of non-T&D and upgrade the rating to ‘Accumulate’ from Hold due to recent sharp correction in the stock with a revised TP of Rs930 (Rs997 earlier). KEC International (KEC) reported a revenue growth of 6.8% YoY, while EBITDA margin expanded by 85bps YoY to 7.0%. The domestic T&D opportunity pipeline remains strong, driven by increasing momentum in the power sector. Internationally, T&D prospects are expanding across key regions, including the Middle East, Africa, CIS, and the Americas, with Saudi Arabia leading investments in energy transition and T&D infrastructure. SAE Towers continues to witness healthy demand; however, the depreciation of the Brazilian currency against the USD has tempered growth in this segment. Meanwhile, the Oil & Gas sector continues to face challenges due to tendering delays from Oil PSUs. Persistent labor shortages and collection delays in Water projects and Railways have prompted management to revise its topline growth guidance downward from ~15% to 12-14% YoY. In response, the company remains selective in Civil and Railway order bookings, prioritizing cash flow certainty and shorter execution cycles.
We remain positive on KEC for the long term given its 1) strong order book, 2) healthy execution momentum, 3) robust T&D outlook, especially in renewable energy, and 4) expansion of Cables business. The stock is currently trading at a P/E of 17.7x/13.8x on FY26/27E earnings. We value the stock at a PE of 18x on Sep’26E EPS (same as earlier). Upgrade to ‘Accumulate’.
Decent execution drives topline & margins; Sales mix aids PAT: Consolidated revenue rose 6.8% YoY to Rs53.5bn (PLe: Rs53.5bn), led by healthy execution in standalone T&D (+20.3% YoY to Rs28.7bn), Cables (+6.0% YoY to Rs4.1bn), Renewables (+51.6% YoY to Rs2.4bn) and Civil (+0.3% YoY to Rs11.0bn). Meanwhile, Railways revenue was down 30.2% YoY to Rs4.6bn, SAE Towers fell 9.1% YoY to Rs3.1bn, and Oil & Gas fell 58.2% YoY to Rs760mn. Gross margin increased by 212bps YoY to 22.8% (PLe: 22.5%). EBITDA grew 21.6% YoY to Rs3.7bn (PLe: Rs3.7bn). EBITDA margin increased by 85bps YoY to 7.0% (PLe: 6.9%) as improved gross margins were partially offset by relatively higher other expenses (+140bps YoY % of sales). Adj PAT jumped 33.7% YoY to Rs1.3bn (PLe: Rs1.5bn), driven by improved operating performance and lower effective tax rate (18.9% vs 19.8% in Q3Fy24) which was partially offset by lower other income(- 96.5% YoY to Rs9mn).
Robust order book including L1 position stands at Rs410bn: Q3FY25 order intake grew 121.2% YoY to Rs85.2bn, with SAE Towers’ intake growing ~3x YoY to Rs8.5bn (vs Rs1.9bn in Q3FY24) and Railways inflow growing ~4x YoY to Rs8.6bn (vs Rs1.8bn in Q3FY24), while standalone T&D bagged orders worth ~Rs52.8bn. Order book stands at Rs374.4bn (1.8x TTM revenue). KEC also holds L1 positions worth ~Rs40bn, primarily in T&D.
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