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Limited Middle East exposure

Kalpataru Projects International (KPIL), during its analyst meet, highlighted a strong addressable market for both its T&D and B&F segments over the next 2-3 years, providing clear visibility for order inflows as well as execution. KPIL’s exposure in the Middle East is also limited to ~10% of its order book, and so far, projects are progressing normally, with only minor delays seen in dispatches within the region. The recent shortage of gas, too, has not hit its domestic manufacturing plants, which are currently operating at 80-85% utilization levels. The payment situation across its water projects has begun to improve. With an order book of nearly INR633b, we expect its revenue/EBITDA/PAT to clock 18%/20%/27% CAGR over FY25-28. We marginally tweak our estimates to bake in a strong order book and slightly lower margins. We reiterate our BUY rating with an SoTP-based TP of INR1,500, based on Mar’28 estimates. Key risks to our estimates include prolonged disruptions in the Middle East region, gas supply shortages extending beyond 1-2 months, a slowdown in ordering, and a spike in commodity prices – especially steel – which cannot be hedged.

Strong order book provides a healthy revenue visibility

KPIL continues to maintain strong execution visibility, supported by 9MFY26 order inflows of INR195b, led by transmission, which reported ~35% growth, and B&F, which delivered double-digit growth. Execution momentum remains intact, with most projects progressing as planned, supported by a site inventory of around 6-8 weeks internationally and 15-30 days domestically, along with a well-diversified geographical mix. Near-term challenges from elevated gas prices have had only a marginal impact on revenues, with plant utilization still running at around 80-85% and limited production deferment that can be recovered over time. An adverse impact on production could occur if the current situation prolongs for 1-2 months.

Exposure to the Middle East at 10% of the order book

KPIL’s order book exposure to the Middle East is only to the extent of 10%, i.e., INR65b, and within this INR65b order book, the pending order book from the Saudi Aramco project is around INR45-50b. Work is progressing normally in the Saudi Aramco project, and the current disturbance in the Middle East has only resulted in a 10-15% lower execution. Though the raw material supply chain is intact, the company has seen some delays in dispatches to client locations due to the ongoing conflict. Thus, the impact so far on the project is not significant.

The addressable market continues to remain strong

Overall, the total addressable market (TAM) for the domestic T&D sector continues to remain strong, with nearly INR1t ordering expected every year for the next few years. Within this, KPIL continues to maintain its market share of 15-20% for the EPC portion of the projects. International demand, too, remains strong across LATAM, Europe, including Sweden, and Africa, and ordering from the Middle East will revive after the situation normalizes. For B&F, KPIL is working with the top reputed 4-5 residential and commercial builders, which constitute 80% of its B&F order book, and these clients have good visibility for the next few years. KPIL is also expecting the traction to remain healthy for industrial, data center, and airport. Among other segments, the pipeline remains strong for the oil and gas segment, too, while the company is cautiously targeting projects in the water and railways segments. We expect overall order inflows to post 13% CAGR over FY25-28.

Variable price clause in ~50% of OB hedges against commodity price rise

Out of the current order book, nearly 50% is on fixed price, and the remaining 50% has price variation clauses. Most of the transmission and oil & gas projects are on a fixed-price basis, while the remaining projects have a PV clause. KPIL is adequately hedged for aluminum, zinc, and copper against commodity price volatility so far. Though steel prices were fairly stable during most of the year, prices have now started rising. KPIL has built in a sufficient buffer in its fixed- price contracts for volatility in steel prices. Any sharp movement in steel prices can impact its mediumto-long-term performance. We trim our estimates on margin and expect an EBITDA margin of 8.4%/8.6%/8.7% for FY26/27/28.

NWC to remain stable

KPIL’s working capital position remains steady, supported by prudent geographic exposure and limited dependence on high-risk regions, with international payment cycles remaining largely stable. On the domestic side, delays are primarily confined to the water segment, where receivables remain elevated, though collections have shown a clear improvement, with ~INR6b being received per quarter in recent months. Despite nearly 18 months of constrained cash flows, the water segment continues to remain EBITDA positive, reflecting underlying project viability. The company remains constructive on the segment and is selectively pursuing projects in states such as Uttar Pradesh and Madhya Pradesh, where payment visibility has improved, while Jharkhand has also started witnessing a gradual release of dues.

Financial Outlook and Valuation

We revise our estimates marginally to model improved execution in the coming years and slight moderation in margins to account for the current prevailing situation in the Middle East. We expect revenue/EBITDA/PAT to clock an 18%/ 20%/27% CAGR over FY25-28 with an EBITDA margin of around 8.4%/8.6%/ 8.7% for FY26/27/28. KPIL is currently trading at 16.8x/13.7x P/E on FY27/28 earnings. We reiterate our BUY rating with an SoTP-based TP of INR1,500, valuing core business at 18x P/E on Mar’28 estimates.

Key risks

A slowdown in execution, lower-than-expected order inflows, a spike in commodity prices, and an increase in promoter pledges are some of the key concerns that can weigh on the financials and valuations of the company.

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