Shubh Nivesh – KEC International
KEC International (KEC) is one of the EPC majors in key infrastructure sectors such as power T&D, railways, civil, urban infrastructure, solar, smart infrastructure, oil & gas pipelines and cables.
A strategic mix in portfolio of T&D (57%) and non-T&D (43%)
Strong T&D prospects in domestic and international markets (33% of backlog from international markets)
Investment Rationale:
Domestic T&D to drive revenue growth: The company believes domestic T&D and civil to grow in the range of 30-40% and 25% in FY26E on back of robust order book (~₹34,000 crore), bidding pipeline and sectoral tailwind. Overall T&D business is expected to grow by 20% whereas railways business is expected to see revival by FY27E (this is a deliberate attempt given strong competitive intensity and higher working capital requirement). In our view other segments like civil will grow in double digits. Hence, we expect revenues to grow by 14.4% CAGR over FY25-FY27E. The company currently has ₹180000 crore of bidding pipeline and the management expects order inflows of ₹30,000 crore, with 70% from T&D business for FY26E.
Margins to inch up to 9% by FY27E: We build in a margin of 8.2% and 8.7% for FY26E and FY27E. The recovery in margins will emanate from factors like a) strong growth in T&D business which earns double digit margins, b) positive contribution from SAE business, c) run down of low margin railway order and other legacy orders. The management expects run rate of margins to be at 8-8.5% in FY26E.
Interest cost to improve meaningfully: Through efficient working capital management, net working capital days improved by 12 days to 122 days in FY25. KEC further aims to improve working capital cycle to 110 days in FY26E. KEC reduced net debt in FY25 by ₹500 crore YoY resulting in net debt to equity ratio of 0.9 from 1.2 previously. This led to a 70 bps decline in interest cost to 2.5% of revenue. KEC continues to aim to improve debt position which will further meaningfully reduce interest cost to driving profitability upward.
For details, click on the link below
https://www.icicidirect.com/mailcontent/idirect_kecintl_shubhnivesh_june25.pdf
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