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Margin improvement led by T&D

FY25E EBITDA margin may increase 140bps YoY

KEC International (KECI IN) expects revenue from Transmission & Distribution (T&D contributed 47% to FY24 revenue) to grow >20% in FY25 (23% growth in FY24) – the domestic business is targeted to grow by 30-40%. Increasing power demand with T&D capex (to evacuate renewable capacity) may drive domestic growth. Expect the tender pipeline to rise to INR 600-700bn in FY25 from prior range of INR 500- 550bn. KECI also expects the upcoming High Voltage Direct Current (HVDC) transmission project at Bhadla, Rajasthan to be awarded in FY25E. It expects to touch double-digit margin in H2FY25. Since the T&D segment commands higher margin than non-T&D, overall margin may increase 140bps YoY in FY25 to 7.5%, as per management.

FY25 revenue growth guidance at 15%; rail to decline

KECI’s Q4 consolidated revenue rose 12% YoY to INR 61.6bn, broadly as estimated, led by T&D and Civil segments. Revenue from T&D rose 25% YoY to INR 23.8bn, led by robust execution in the domestic segment and the Middle East. Revenue from the Civil segment surged 11% to INR 12.6bn, aided by Metals & Mining, Residential & Commercial buildings, Cement, FMCG, and Data Centres. Revenue from SAE Towers rose 19% to INR 4.7bn, from cables 5% to INR 4.6bn, oil & gas 40% to INR 2.1bn, and from solar 10x to INR 1.6bn. Revenue from Railways fell 27% to INR 9.2bn, led by stiff competition from tier II/III EPC contractors. FY24 revenue stood at INR 199bn, up 15% YoY, meeting the annual guidance. KECI has guided for revenue to grow 15% in FY25E, led by T&D and civil. Contribution from the Rail segment may continue to decline in FY25 amid drop in fresh orders. Order inflows guidance is set at INR 250bn, 38% higher than in FY24.

Valuations: Reiterate Accumulate; TP raised to INR 810

We cut FY25E EPS by 1% given the decline in railway revenue and raise FY26E EPS by 1% on lower interest cost. We raise TP by 16% to INR 810 (from INR 700) as we roll forward to 18x March 2026E P/E (from 17x; led by improved ROE in FY25E-26E). Reiterate Accumulate on strong order pipeline in T&D and non-T&D. Expect 55% earnings CAGR in FY24-26E, with average ROE/ROCE of 22%/15% in FY25E-26E (12%/13% in FY24).

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