KEC International order book supports recovery despite Q1 margin and execution pressures

Investment View and Valuation

In its August 12, 2026 Q1FY27 result update, PL Research retained its ACCUMULATE rating on KEC International but reduced its target price to Rs 523 from Rs 558. The broker cut FY27E and FY28E EPS estimates by 1.8 per cent and 6.3 per cent, respectively, reflecting sustained margin pressure and slower-than-expected working-capital normalisation caused by Middle East disruptions and legacy-project headwinds.

The target price is based on a 14 times P/E multiple of March 2028E earnings, unchanged from the earlier valuation multiple. At the report CMP of Rs 451, the stock traded at 16.7 times FY27E and 12.1 times FY28E earnings.

Weak Q1FY27 Operating Performance

KEC International reported weak Q1FY27 operating performance. Consolidated revenue was broadly flat year on year at Rs 5,023.5 crore, slightly above PL Research's estimate of Rs 4,981.8 crore. EBITDA declined 16.9 per cent year on year to Rs 290.8 crore, 9 per cent below the broker estimate, while EBITDA margin contracted 118 basis points year on year to 5.8 per cent, versus PL Research's 6.4 per cent estimate. Adjusted PAT fell 41.7 per cent year on year to Rs 72.6 crore, 14 per cent below estimate.

Higher employee costs and other expenses offset gross-margin expansion, while higher interest cost weighed on profitability. Execution was affected by Middle East supply-chain disruption, labour shortages, calibrated water-project execution, and delays in transportation and metro claims.

Order Book Supports Medium-Term Recovery

The central support for PL Research's medium-term view is KEC International's Rs 37,700 crore order book, equivalent to 1.6 times trailing-twelve-month revenue. Q1FY27 order inflow rose 14.2 per cent year on year to Rs 6,600 crore.

The order book mix was led by T&D at 52 per cent and Civil at 26 per cent, followed by SAE Towers at 10 per cent, Transportation at 6 per cent and Cables at 3 per cent. PL Research sees T&D as resilient, supported by renewable-energy transmission, HVDC and data-centre opportunities, while Cables growth and renewables order traction provide diversification.

Management Guidance and Execution Outlook

Management retained FY27 revenue-growth guidance of 12-15 per cent year on year and an order-inflow target of around Rs 30,000 crore, including around Rs 20,000 crore from T&D. Execution is expected to be weighted towards Q3FY27 and Q4FY27 as West Asia conditions normalise.

Management targets working-capital days of around 110 by FY27-end and expects net debt to decline by around Rs 1,200 crore to approximately Rs 5,500 crore by March 2027. The expected reduction is to be aided by working-capital release, Afghanistan and Jal Jeevan Mission collections, Saudi project closures and retention-money release.

Management expects T&D to retain double-digit margins, while overall standalone EBITDA margin should improve modestly in FY27 and could reach high single digits in FY28.

Specific Growth Drivers

• SAE Towers: Secured more than Rs 1,650 crore of international orders and has an approximately Rs 3,800 crore order book.
• Cables: Elastomeric production is scheduled for Q2FY27 and E-Beam commissioning for Q3FY27. New products are expected to add Rs 300-400 crore of revenue.
• Renewables: Secured an approximately Rs 800 crore order and is executing more than 600MW of solar and wind projects.

Key Risks and Monitorables

• Elevated freight and logistics costs.
• Continued Middle East disruption and labour-availability challenges.
• Weak Civil and Transportation execution.
• Jal Jeevan Mission receivables and delayed claims.
• A slower recovery in margins and working capital.