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Strong Q2; non-T&D margin revival in focus

Quick Pointers:

* Management has reaffirmed its guidance of ~15% YoY revenue growth with EBITDA margin inching up to ~8.0% in FY26.

* Tender pipeline stands at ~Rs1.8trn with ~Rs650bn in the T&D, ~Rs600bn in Civil and rest divided among renewables and railways.

KEC International (KEC) reported a 19.1% YoY revenue growth with EBITDA margin expanding 80bps YoY to 7.1%. The T&D business continues to exhibit strong momentum, supported by a healthy pipeline of ~Rs200–250bn in India and ~Rs400–450bn across international markets such as the Middle East, Africa, and CIS. Execution in the Civil segment was impacted by extended monsoons, labor shortages, and delayed collections in the Water business. Despite these challenges, management expects 10-15% growth in Civil business in FY26. The Cables segment is witnessing steady improvement in profitability, with capacity expansions on track to become operational by Q1FY27. Working capital is expected to improve from 138 days, supported by cash inflows in Q4FY26, aiding debt normalization to ~Rs50bn by end-FY26. Management reiterated its guidance of ~15% revenue growth and ~8% EBITDA margin for FY26.

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 15.2x/12.8x on FY27/28E earnings. We roll forward to Sep’27E and upgrade our rating from ‘Accumulate’ to ‘Buy’ given the likely margin revival in non-T&D business and recent correction in the stock price. We value the business at a PE of 17x Sep’27E (18x Mar’27E earlier) arriving at a TP of Rs932 (Rs911 earlier). Upgrade to ‘Buy’.

Healthy execution led to improvement in margins: Consolidated revenue rose 19.1% YoY to Rs60.9bn (PLe: Rs56.3bn) driven by strong execution in standalone T&D (+45.2% YoY to Rs36.5bn),SAE towers (+35.3% YoY to Rs4.3bn), Cables (+18.8% YoY to Rs5.2bn) and Solar/Renewables (+5.0% YoY to Rs1.9bn) partially offset by Railways (-15.5% YoY to Rs4.3bn), Civil (-16.0% YoY to Rs9.7bn and O&G pipelines (-43.5% YoY to Rs520mn). EBITDA increased by 34.4% YoY to Rs4.3bn (Ple: Rs4.0bn) while EBITDA margin expanded by 80bps YoY to 7.1% driven by better operating leverage. PBT came in at Rs2.1bn an increase of 87.7% YoY (Ple: Rs1.9bn; consensus: Rs2.4bn) driven by better operating performance. PAT increased by 88.2% YoY to Rs1.6bn (PLe: Rs1.5bn).

Robust order book stands at Rs393.3bn (1.7x TTM Revenue): Q2FY26 order inflows increased by 81% YoY to Rs105.3bn driven by doubling of order intake in standalone T&D (+101% YoY to Rs83.1bn), SAE Towers (+59% YoY to Rs3.1bn), Civil (+364% YoY to Rs10.1bn) and Cables (+27% YoY to Rs6.4bn) partially offset by decline in Railways (-80% YoY to Rs1.6bn). Meanwhile, Order book stands at Rs393.3bn. Tenders under evaluation and in pipeline stand at ~Rs1.8trn.

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