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Revenue growth strong, but margins weak

Targets a 20%+ revenue CAGR to reach INR250b by FY30

* KEI Industries (KEII)’s 3QFY25 revenue grew 20% YoY (in line, as strong revenue growth in the C&W/SSW segment offset lower-than-estimated EPC revenue). Its EBITDA grew ~12% YoY to INR2.4b (3% miss). OPM contracted 70bp YoY to 9.8% (-70bp vs. our estimate) due to a lower margin in the C&W segment. KEII’s PAT grew ~9% YoY to INR1.6b (-6% vs. our estimates).

* Management remains optimistic about the demand outlook both in the domestic and export markets. KEI estimates a revenue growth of 19-20% YoY in FY26 and an EBITDA margin of ~11%. The company aims to clock a revenue CAGR of 20%+ over FY26-30E to reach INR250b by FY30. EBITDA margin is likely to improve to 12.5% by FY28E (vs. ~10% in FY25E).

* We cut our FY25-27 EPS estimates by ~6-7% as we factor in lower EPC revenue and reduced margin in the C&W/EPC segment. We estimate an EPS CAGR of ~21% over FY25-27. We value KEII at 50x Dec’26E EPS to arrive at our revised TP of INR4,780 (vs. INR5,150 earlier). Reiterate BUY.

Revenue/EBITDA up 20%/12% YoY; OPM down 70bp YoY to 9.8%

* KEII’s revenue/EBITDA/Adj. PAT stood at INR24.7b/INR2.4b/INR1.6b (+20%/ +12%/+9% YoY and +3%/-3%/-6% vs. our est.) in 3QFY25. Gross margin contracted 1.0pp YoY (flat QoQ) to 22.7%. OPM was down 70bp YoY to 9.8%.

* Segmental highlights: 1) C&W’s revenue was up ~26% YoY to INR23.5b, EBIT rose ~20% YoY to INR2.4b, while EBIT margin dipped 50bp YoY to 10.1% (90bp below our estimate). 2) EPC’s revenue declined ~80% YoY to INR759m, EBIT declined 96% YoY to INR19m, and EBIT margin contracted 9.2pp YoY to 2.5%. 3) Stainless Steel Wires (SSW)’s revenue grew 19% YoY to INR551m, EBIT dipped 15% YoY to INR30m, and EBIT margin was down 2.3pp YoY at 5.5%.

* In 9MFY25, KEII’s revenue/EBITDA/PAT grew 18%/13%/14% YoY. EBITDA margin was down 40bp YoY to 9.9%. C&W’s revenue/EBIT grew 21%/26% YoY, and EBIT margin surged 40bp YoY to 10.5%. We estimate a revenue/ EBITDA/PAT growth of 9%/5%/6% YoY considering the high base.

Key highlights from the management commentary

* Volume growth for cables & wires was 16-17% in 3Q. Domestic institutional sales of C&W stood at INR8.1b; up 45% YoY. Domestic institutional EHV sales stood at INR410m; down 78% due to non-receipt of ROW permissions and clearances for undertaking the works. Management expects a 50bp margin improvement in 4QFY25.

* Capacity utilization stood at 85% for cable, 70% for housing wire, and 91% for stainless steel wire during 9MFY25.

* The company has reduced RM purchases through LCs due to surplus funds, which will help save interest expenses.

Valuation and view

* We estimate KEII’s overall revenue CAGR at ~17% over FY25-27, driven by ~18% growth in the C&W segment and ~8% growth in the SSW segment, while EPC’s revenue is projected to decline ~10% annually. EBITDA is estimated to clock a CAGR of ~24%, with margins expanding 120bp to 11.2% by FY27. Margin expansion is likely to be led by higher revenue, better operating leverage, and improved gross margin from the retail, exports, and product mix. Adjusted PAT is estimated to post ~21% CAGR.

* KEII has delivered strong revenue growth led by a strong demand environment, a diversified customer base, and a significant presence across domestic and international markets. Its growing focus on the retail segment and capacity expansion would continue to drive growth for the company. The stock is trading at 50x/41x FY26E/FY27E EPS. We value KEII at 50x Dec’26E EPS to arrive at our revised TP of INR4,780 (vs. earlier TP of INR5,150). Reiterate BUY.

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