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Cables business value unlocking on the cards

KEC’s robust order inflows (FY25 YTD: +80%YoY at ~Rs100bn; +L1 position of Rs80bn) provide a strong base for attaining management’s FY25 inflow guidance of Rs250bn (~40% target already accomplished). With an all-time high order backlog, coupled with a substantial tender pipeline of ~Rs1.5trn, KEC is well-positioned to log sustained growth in coming years. BoD-approved fundraise of ~Rs60bn (QIP/NCD: Rs45bn/Rs15bn) toward exploring organic/inorganic growth prospects within existing/new verticals remains the key monitorable. We roll forward to Sep-26E which raises our TP to Rs1,050/sh (upside: >13%). KEC’s Cables business has witnessed a strong growth trajectory recently, with the outlook looking promising due to energy transition and urbanization. Management has decided to transfer this segment to a subsidiary, thus enabling optimal capital allocation and unlocking stockholder value. Potentially, on a bull case basis, with 27% revenue CAGR (FY24-27E) and 8-9% EBITDAM, the cables business is valued at Rs54bn (35x Sep-26E; 20% holdco discount); the indicative timeline for the Cables demerger is 3-6 months

Order inflow remains robust

Strong order inflow of ~Rs100bn (+80% YoY) till date provides assurance on KEC achieving its FY25 inflow target of Rs250bn during FY25 (~40% target already achieved). Order backlog+L1 at the end of Q1FY25 stood at Rs420bn (BB ratio: 1.6x), with T&D (including SAE)/Civil contributing the lion’s share of ~51%/31% to the backlog. The company has secured significant orders, especially in the UAE and Africa. Its tendering pipeline remains strong, at ~Rs1.5trn (40-45% share of which pertains to T&D; balance comprises of renewable, civil, and railways tendering opportunities).

Cables – In transition mode for value unlocking

The Cables industry is on the cusp of an elongated growth story and is projected to clock 10% CAGR ahead, mainly led by government infrastructure investments, green-energy initiatives, and rising demand in the real estate and industrial sectors. KEC management believes that at current capacity, the cables segment can register 20-25% revenue CAGR for the next 2-3 years. Nevertheless, during FY25, KEC plans capex of ~Rs800-900mn in the cables segment, over & above the Rs600mn invested in the aluminum conductor unit (expected to be commissioned by Q3FY25); Management is confident of registering revenue in the Rs28-29bn range during FY26 (FY24-26: ~31% CAGR). Additionally, the management intends to demerge this business by transferring it to a subsidiary. Potentially, on a bull case basis, we build in cables business to grow at 27% revenue CAGR (FY24-27E) and 8-9% EBITDAM, arriving at a valuation of Rs54bn (35x Sep-26E; 20% holdco discount).

Fund-raise – The key monitorable

The favorable business landscape has enabled the management to explore organic and inorganic growth opportunities within KEC’s current operations as well as in adjacent new verticals. To capitalize on such opportunities, the management intends to raise sufficient liquidity. Accordingly, the BoD has proposed to raise capital of ~Rs60bn (QIP/NCDs: Rs45bn/Rs15bn).

Valuation

Our revenue/EBITDA/PAT CAGRs for FY24-27E remain intact at 14%/31%/64%, resp. We roll forward valuations to Sep-26E at 20x PER, and arrive at TP of Rs1,050/sh (13% upside); we maintain our ADD rating on the stock. We believe bifurcating the cables business will lead to value unlocking and optimal capital allocation, potentially leading to a re-rating of the segment post-demerger within the next 3-6 months.

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