Diwali Muhurat Picks : KEC International Ltd for Target Rs.1,030 by Axis Securities Ltd
Investment Rationale
A. Healthy Order Backlog Ensuring Revenue Visibility: As of 30th June, 2025, the company’s order book stands at Rs 34,409 Cr. This, combined with an order inflow of Rs 6,514 Cr in Q2FY26, provides strong revenue growth visibility for the next 18-24 months. Additionally, KEC holds orderbook plus L1 position in projects valued at over Rs 40,000 Cr, primarily in the T&D business. With its established execution track record and the government's increasing focus on infrastructure development, the company is well-positioned for steady revenue growth, projecting a 15% CAGR from FY25 to FY27E.
B. The Encouraging Pipeline of Tenders Enhances Order Inflow Prospects: A substantial tender pipeline of Rs 1,80,000 Cr ensures a healthy order intake for the company in the foreseeable future. Out of the Rs 1,80,000 Cr bid pipeline, Rs 30,000 Cr is from domestic T&D, Rs 60,000 Cr is from international T&D, and the balance is from non-T&D. For FY26, KEC has set a target of Rs 30,000 Cr in order inflow, out of which Rs 12,800 Cr has already been achieved, maintaining its growth momentum.
C. Strengthening in Margins Leading to Better Bottom-line Performance: Despite labour shortage and delay in receivables from the water segment, EBITDA margins have improved, primarily driven by the execution of international T&D projects and high-margin assignments. We expect margins to improve to 9% in FY27. Interest expense has lowered due to a debt reduction, which has further increased profitability. We pencil in EPS CAGR of 55% over FY25-27E.
D. Outlook: KEC has a well-diversified and robust order book and an L1 position, providing healthy revenue visibility for the next 18-24 months. Moreover, the government’s emphasis on T&D (Transmission & Distribution), focus on Civil and Urban Infrastructure, bodes well for the company moving forward.
E. Valuation & Recommendation: The stock is currently trading at 24x/17x FY26E/27E EPS, and we value it at 20x FY27E EPS. We recommend a BUY rating on the stock with a TP of Rs 1,030/share, implying an upside of 20% from the CMP.
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