Infrastructure Sector Update : Diversified EPC companies to post strong earnings By JM Financial Services
Diversified EPC companies to post strong earnings
Execution is likely to be a mixed bag, with diversified EPC companies such as L&T, KPIL, KEC International and Ahluwalia Contracts are expected to deliver strong performance, while highway companies like KNR Constructions, GR Infra and Ashoka Buildcon may face headwinds due to lower executable order backlogs. We expect KNR/GR’s revenue to decline by 21%/8% YoY while KPIL/Ahluwalia Contracts likely to post 20%/14% YoY revenue growth led by strong order backlog. Order inflows have been robust for diversified companies but weaker for highway developers in 1Q26. Despite this, order backlogs remain moderate to strong across companies, with book-to-bill ratios ranging from 2x to 4x for most players. EBITDA margins are likely to remain stable or improve YoY for diversified companies while it is likely to decline for Highway companies amid diversifications. We expect strong PAT growth of 102%/97%/39% for Ahluwalia/KEC/PNC in 1Q26E. Asset monetization remains work in progress for Highway companies. Ahluwalia Contracts and PNC Infratech are our top picks in the sector.
* Execution to be a mixed bag: Execution is likely to be a mixed bag with diversified players like L&T, KPIL, and Ahluwalia Contracts likely to report strong performance with YoY revenue growth of 14%/20%/14% led by strong order backlogs. However, highway companies like KNR Constructions and GR Infra are likely to see YoY revenue decline of 21%/8% due to lower executable order backlogs.
* EBITDA margins likely to improve or remain stable YoY for diversified companies; to moderate for highway companies: EBITDA margins are likely to improve or remain stable YoY for diversified companies. For Highway companies, we expect margins to decline YoY in most cases given the adverse revenue mix amid diversifications. Among the Highways pack, we expect EBITDA margins of KNR Constructions/Ceigall India to contract sharply by 250bps/150bps YoY due to operating deleverage and adverse revenue mix (share of irrigation revenue likely to fall materially for KNR Constructions in 1Q26E). We expect EBITDA margins for KEC International to expand by 100bps YoY mainly driven by improved margins in the Power T&D vertical. Debt and working capital is likely to rise on a QoQ basis in most cases amid seasonality.
* Tendering activity sees sharp growth YoY on low base while ordering activity declines on high base of PY in 1Q26: Tendering activity grew by 150% YoY to INR 3.2tn in 1Q26 on low base of PY (impacted by general elections in 1Q25). Ordering activity declined sharply by 30% YoY to INR 1.8tn in 1Q26 on high base (significant awarding from MSRDC in 1Q25). Among our coverage companies, order inflows for diversified companies like KEC, KPIL and Ahluwalia Contracts have been strong while being weak for highway players like GR Infra, Ceigall India and PNC Infratech. Having said that, order backlogs remain moderate to strong for most companies with order backlog to bill ratio in range of 2x-4x.
* Highways bid pipeline moderates MoM in July-25: Highways bid pipeline has moderated to INR 664bn in July-25 from INR 691bn in June-25 (July-24: INR 1.13tn). Of this, NHAI’s bid pipeline stands at INR 526bn with HAM/EPC/BOT projects accounting for 39%/40%/ 21% share. We expect the pipeline to improve over the next couple of months.
* L&T 1Q26 preview – Order announcements weak; Adjusted PAT likely to grow by 24% YoY: Order announcements by L&T were weak at c.INR 148bn (average of range) in 1Q26 so far. We expect L&T’s P&M (Projects and Manufacturing) order inflows to decline sharply by 31% YoY to INR 378bn. Consolidated order inflows are likely to decline sharply by 21% YoY to INR 558bn. We expect 17%/19% YoY growth in P&M revenue/EBITDA with P&M margins expanding by only 10bps YoY to 7.7% as Infrastructure segment margins yet to see meaningful recovery. Consolidated revenue/EBITDA is likely to grow by 14%/13% YoY to INR 629bn/INR 63bn, with EBITDA margin at 10.1% (down 10bps YoY). We expect adjusted PAT to grow by 24% YoY to INR 34.5bn driven by better execution, higher other income and lower interest costs.
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