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We maintain BUY on Kalpataru Projects International (KPIL) and nudge up our TP by ~5% to Rs1,525 from Rs1,450 (implying ~29% upside), raising estimates by 3% on average for FY26-28E. KPIL’s standalone Q1FY26 results came ahead of estimates, with 35%/36%/72% YoY growth in revenue/EBITDA/PAT to Rs50.4/Rs4.3bn/Rs2bn, led by robust execution and healthy opening order backlog due to a well-diversified and healthy mix. The T&D and Building & Factories (B&F) segments were the primary growth contributors, while the Railways and Water segments faced execution challenges due to a weak order book and intense competition. Order inflows stood at ~Rs99bn, taking the order backlog to an all-time high of Rs655bn (~3x), which provides strong revenue visibility. With robust Q1FY26 performance, the management upped its revenue growth guidance, from 20% to 22-25%. It maintained order inflow guidance of Rs260-280bn, which we believe is achievable given the promising tender pipeline. Despite the strong revenue growth, NWC was well under control at 106 days (increased QoQ due to seasonality), which is commendable.

T&D and B&F growth momentum sustains

KPIL’s T&D and B&F maintained their strong momentum on the revenue growth and order inflow fronts. Q1FY26 standalone revenue growth of 35% YoY was mainly led by T&D/B&F registering 56%/13% YoY growth. On the order inflow front too, performance has been resilient, leading to 14% YoY growth in the order backlog at Rs655bn (BB ratio: ~3x). Going ahead, the tender pipeline remains strong—order inflow momentum in T&D (Rs500-600bn over the next 6 months), along with growth in the B&F segment on the back of commercial, residential, data center, and infrastructure projects, is expected to sustain. Order inflows and execution are expected to remain weak for the water and railways segments. The management expects a swift recovery in the water segment, provided collections continue to improve in FY26. The railways business continues to see headwinds amid increased competition.

NWC well under control; net debt lower by 33% YoY

Number of net working capital days stood at 106 compared to 124/94 at the end of Q1FY25/FY25. We believe the sequential increase is seasonal in nature. Standalone net debt decreased 33% YoY to Rs19bn, supported by better working capital management and prudent capital allocation.

View and valuation

We remain positive on KPIL in the long run owing to focus on securing large high-margin orders, improving execution, maintaining effective working capital control, and exiting non-core businesses – the management’s key focus areas. Given the strong Q1 execution, we raise EPS estimate by 3% on average for FY26/27/28E. The stock is trading at P/E of 16x/14x on FY27/28E core-EPS. We maintain BUY on the stock with revised up SOTP-based TP of Rs1,525, valuing the Core business at 20x Jun-27E.

Concall KTAs

Q1FY26 Result Highlights

• KPIL reported a strong set of results for Q1FY26, with revenue/EBITDA/PAT were up 35%/36%/72% YoY, to Rs50.4/4.3/2bn. This was led by T&D (up 56% YoY), B&F (up 13% YoY), Oil & Gas (up 132% YoY) and Urban Infra (up 42% YoY). Performance of the Railways and Water segments was muted.
• EBITDA margin was stable at 8.5% compared with 8.4% in Q1FY25 and Q4FY25.
• Interest-to-sales came in at 1.7% vs 2.3% in Q1FY25, due to reduction in debt by Rs9.7bn YoY and better NWC management, which improved by 18 days YoY to 106 days. Standalone net debt stands at Rs19bn (Consolidated at Rs27.7bn).
• Order inflows of Rs99bn YTD FY26; mainly driven by the B&F and T&D businesses, leading to order book of Rs655bn as on 30-Jun-2025, providing good visibility for future growth.

Regarding margins

• Q1FY26 saw consolidated EBITDA margin of 8.5% with a 20bps improvement, and standalone EBITDA margin of 8.5% with 10bps improvement.
• T&D, B&F, and Oil & Gas businesses achieved EBITDA margin of 9-10%, while other segments have lower margins.
• The water business is currently operating at breakeven margins.

Labor issues

• Labor availability is one of the company's biggest challenges, particularly for domestic projects.
• The company faces fewer labor challenges internationally vs domestically, because it can source workers from multiple countries.
• The company is addressing labor challenges through increased automation and mechanization across their projects.

Commodity price risks

• 65% of the order book is under fixed price contracts, with the remaining 35% with variable pricing components.
• For commodity price risk, the company is significantly hedged on aluminium, copper, and zinc prices, though the substantial rise in steel prices (ie doubling) could impact margins.

LMG (Sweden)

• LMG reported revenue of Rs7.74bn in Q1FY26 (up 72% YoY). It received orders worth ~Rs8.5bn in FY26 to date, and has order backlog of ~Rs35bn.
• KPIL is evaluating various strategic options, including a potential IPO, and has appointed merchant bankers and advisors to assist with this evaluation.

Guidance

• The company expects 20-25% revenue growth for FY26 at both, the standalone and consolidated levels, with performance likely to log closer to 25%.
• All segments except water and railways are expected to grow 20-25%.
• The current order book has better margin visibility compared to the past two years which will lead to margin improvements.
• The management expects PBT margin for FY26 to clock in the 5-5.5% range at standalone level.
• The company plans capex spend of Rs6-7bn in FY26 and of Rs5bn in FY27.
• The company targets total order inflows of Rs260-280bn for FY26.

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