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Strong demand; margins the key monitorable

KEC’s management in its analyst meet highlighted a strong opportunity pipeline across transmission projects, both domestically and internationally. The company’s projects in the West Asia region are progressing well currently, and it has seen improved inquiries on reconstruction-led demand from the Middle East post-war. Demand is also strong for towers in the US market, catering to data centers. The company also highlighted that ordering is improving from private sector projects too, with better payment terms, and the civil segment is now witnessing demand recovery. However, in light of the current West Asia crisis, uncertainty pertains to margins as overall costs have increased related to RM, freight costs, etc. The labor shortage, too, will also need to be monitored closely for its impact on execution progress. We maintain our estimates and reiterate our BUY rating with an unchanged TP of INR630.

Key takeaways from the analyst meet Strong T&D demand across domestic and international markets

KECI’s T&D business witnessed growth in the order intake from INR74b in FY22 to INR253b in FY26, while FY27 order intake is expected at ~INR300b, supported by a strong tender pipeline of ~INR1.8t. Domestic demand remains strong, driven by renewable energy expansion, grid strengthening, and rising transmission investments, supported by India’s 900GW renewable energy target by 2035. Management highlighted a pipeline of seven to eight HVDC projects, with at least two likely to be tendered in FY27. Internationally, opportunities remain strong across the Middle East, Africa, CIS, and the US, with rising inquiries for transmission projects, redundancies, and rehabilitation work. In the US, KECI is witnessing strong traction for 765kV tower supply projects, driven by data center expansion. Management highlighted that the T&D business continues to generate an RoCE of 20-25% with an EBITDA margin of ~10-12%, supported by better payment terms, healthy private sector demand, and a favorable competitive environment.

Financial outlook

We maintain our estimates, and we expect a CAGR of 16%/15%/19% in revenue/ EBITDA/PAT over FY26-28. This will be driven by

1) Order inflow growth of 21% on a strong prospect pipeline;

2) Stable EBITDA margin at ~7% for FY27E/28E

3) Stable NWC.

Valuation and view

KECI is currently trading at 17.6x/14.3x on FY27E/28E EPS. We maintain BUY with an unchanged TP of INR630 based on 18x P/E Mar’28E earnings.

Key risks and concerns

A slowdown in order inflows, higher commodity prices, an increase in receivables and working capital, and heightened competition are some of the key risks that could potentially affect our estimates.

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