Prabhudas Lilladher has revised its rating for KEC International from ‘Hold’ to ‘Accumulate’, citing strong execution, a robust order book, and growth in core business segments such as Transmission & Distribution (T&D) and Cables. The brokerage has set a target price of Rs 930, down from Rs 997 previously, reflecting slower-than-expected recovery in margins. Despite this adjustment, KEC's ongoing infrastructure expansion, particularly in the power sector, positions it favorably for long-term growth.

Strong Revenue Growth and Margin Expansion

Revenue Performance:
KEC International reported a 6.8% year-on-year (YoY) increase in consolidated revenue for Q3FY25, reaching Rs 53.5 billion. The growth was driven by healthy execution in segments such as T&D (+20.3% YoY), Renewables (+51.6% YoY), and Cables (+6% YoY).

EBITDA Margin Expansion:
The company's EBITDA margin improved by 85 basis points (bps) to 7.0%, supported by higher gross margins, which increased by 212 bps to 22.8%. EBITDA grew 21.6% YoY to Rs 3.7 billion, though higher other expenses partially offset these gains.

Order Book and Pipeline Strength

Robust Order Intake:
KEC’s order intake surged 121.2% YoY to Rs 85.2 billion during the quarter. The T&D business alone secured orders worth Rs 52.8 billion, while SAE Towers and the Railways segment witnessed significant order inflows of Rs 8.5 billion and Rs 8.6 billion, respectively.

Total Order Book:
The consolidated order book, including L1 positions, stands at Rs 410 billion, representing 1.8 times the company's trailing twelve-month revenue. This provides strong visibility for future growth.

Business Segment Highlights

T&D Segment:
Domestic T&D operations recorded 17% YoY growth. The company secured multiple contracts from Power Grid Corporation of India Limited (PGCIL) and other key players in the HVDC space. International demand remains robust, particularly from Saudi Arabia, the Middle East, and Africa.

Renewables and Solar Projects:
KEC successfully commissioned phases of large solar projects in Karnataka and Rajasthan, contributing to a 51.6% YoY increase in revenue from the renewables segment. The company continues to secure contracts without relying on module supply agreements.

Challenges in Railways and Oil & Gas:
Revenue from Railways declined 30.2% YoY, hindered by delays in government tenders and payments. Similarly, the Oil & Gas segment experienced a 58.2% drop, affected by reduced tender activity from public sector undertakings (PSUs).

Management Guidance and Outlook

Revenue Growth Revision:
Management has lowered its FY25 revenue growth forecast from 15% to a range of 12-14%, citing delays in certain projects. However, strong execution in T&D and robust order inflows are expected to drive growth in the medium term.

Focus on Working Capital:
KEC’s net working capital days rose to 134, with efforts underway to reduce it to 110 days by FY25-end. The company aims to realize Rs 5-6 billion in receivables from key segments such as Water and Railways in Q4FY25.

Debt Reduction Targets:
Net debt, including acceptances, stands at Rs 55.7 billion, reflecting a YoY reduction of Rs 4.7 billion. The management plans to lower this further, which will contribute to lower interest expenses and improved cash flows.

Technical and Valuation Analysis

Stock Price Levels:
KEC International is currently trading at Rs 813, with a 52-week high of Rs 1,313 and a low of Rs 636. The stock's performance reflects market concerns about slower margin recovery, but recent improvements in execution and order inflows have renewed investor confidence.

Valuation Metrics:

Price-to-Earnings (P/E) Ratio: The stock trades at 17.7x FY26E and 13.8x FY27E earnings.
Return on Equity (RoE): Projected to increase to 20.1% in FY26 and 21.5% in FY27.
Dividend Yield: Estimated at 1.1% for FY26, with further improvements expected.
Fibonacci Levels:
Using Fibonacci retracement from the 52-week high to the low, key levels to watch are:

23.6% Level: Rs 861
38.2% Level: Rs 912
50% Level: Rs 975
These levels provide potential support and resistance zones for technical traders.

Analyst Recommendation

Prabhudas Lilladher has upgraded KEC International to ‘Accumulate’, driven by improved execution and order inflows. The target price of Rs 930 reflects a balanced view of near-term challenges and long-term growth prospects. Investors are encouraged to monitor the company's progress in reducing working capital days and expanding its T&D operations.

Conclusion

KEC International is well-positioned to capitalize on India's infrastructure growth, particularly in the power and renewable energy sectors. While short-term challenges persist, strong execution and a robust order pipeline provide a foundation for sustained growth. Investors may find opportunities in the stock at current levels, especially as the company focuses on margin improvement and debt reduction.