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T&D momentum intact; upgrade to BUY on attractive valuation

We upgrade KEC International (KECI) to BUY from Add, on the back of the recent correction in the stock price; TP is unchanged at Rs950. Q2FY26 results were broadly in line with our estimates. Revenue/EBITDA/PAT grew 19%/34%/88% YoY to Rs60.9bn/Rs4.3bn/Rs1.6bn, respectively. This was primarily led by T&D—which grew 44% YoY (including SAE Tower), and the cable business—which posted a 19% YoY increase. Performance in other businesses was weak, with decline in the Civil (-16%YoY), Railways (-15.5% YoY), and Oil and Gas (down 44% YoY) segments. EBITDA margin improved by 80bps YoY to 7.1%. Interest cost as a percentage of sales declined by 50bps YoY to 2.8%, with the management targeting 2.5% by FY26-end. The domestic T&D opportunity pipeline remains strong, led by increasing momentum in the power sector. Internationally, T&D prospects are expanding across key regions, including the Middle East, Africa, CIS, and the Americas, with Saudi Arabia leading investments in energy transition and T&D infrastructure. While NWC rose during the quarter, KECI expects Afghanistan payments at ~Rs2.6bn in Q4FY26 and gradual release of water-related payments (now at Rs16bn).

T&D remains the key growth driver

T&D remains one of the key growth drivers, with revenue growing 44% YoY to Rs40.8bn during the quarter. This was led by a strong opening order back-log and pickup in execution across geographies. Moreover, T&D order inflow also remained robust, contributing 75% to the 1HFY26 order inflow of Rs160bn. This was led by strong domestic demand and expanded geographical presence in the Middle East, CIS, and Americas.

Targeting net debt of Rs50bn by end-FY26

Net debt (including acceptances) at the end of 1HFY26 stood at ~Rs64.8bn (vs Q1FY26/Q2FY25 net debt of Rs53.5bn/Rs52.7bn, respectively). The increase was on account of strong revenue growth, stocking of inventory due to benign commodity prices, delay in releasing payments for water projects, and spillover of some large collections in Q3. The number of NWC days at 138 came in higher than the 128/130 days at the end of Q1FY26/Q2FY25. The management continues to prioritize cash flows by avoiding tenders with adverse payment terms and focusing on commercial closure of projects to release retention money. For FY26, NWC guidance stands at ~100-110 days, interest/sales at 2.5% of revenue, and net debt at Rs50bn.

View and Valuation

KECI continued to benefit from the strong ordering momentum in the global T&D opportunity. We expect the Civil segment to see pick up in ordering, with visible improvement in water tendering and awarding. The stock has underperformed the broader markets and is currently trading at an attractive valuation of 17x/13x P/E on FY27/28E earnings. We upgrade the stock to BUY from Add with unchanged TP of Rs950 (18x Sep-27E EPS of Rs53).

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