KEC International sees T&D-led recovery as legacy exits support FY28 margin improvement

Investment View and Valuation

Motilal Oswal Financial Services maintained its Buy rating on KEC International in its November 3, 2026 report, despite 2QFY27 performance being significantly below its estimates. The broker expects margins and net working capital to improve from FY28 as the business mix shifts towards transmission and distribution (T&D) and manufactured products, while loss-making legacy projects are closed.

Near-term performance remains exposed to Middle East disruption, legacy-project costs and elevated debt. Motilal Oswal cut its FY27, FY28 and FY29 earnings estimates by 28 per cent, 29 per cent and 25 per cent, respectively, due to higher civil-project costs and debt. Its revised target price of Rs 365 is based on 14 times two-year forward earnings, at a 20 per cent discount to KPIL.

2QFY27 Financial Performance

KEC International reported 2QFY27 revenue of Rs 5,500 crore, down 10 per cent YoY and 8 per cent below Motilal Oswal's estimate. Revenue declined across segments except cables, although T&D improved sequentially. Gross margin contracted 60 basis points YoY to 21.3 per cent, while EBITDA margin was 5 per cent, 100 basis points below the broker's estimate, as employee costs and other expenses were higher than expected.

PAT reflected weak execution, lower margins, higher interest costs and a higher tax rate. In 1HFY27, revenue, EBITDA and PAT declined 6 per cent, 28 per cent and 64 per cent YoY, respectively, while EBITDA margin contracted 160 basis points YoY to 5.4 per cent.

Execution Headwinds

Middle East supply-chain disruption, high freight and fuel costs, and supply delays hurt quarterly execution. The Middle East represented around 22 per cent of KEC's order book, or approximately Rs 9,000 crore, and caused a quarterly revenue impact of Rs 300 crore to Rs 350 crore and a margin impact of around 1.25 per cent to 1.5 per cent.

India T&D execution was also affected by right-of-way and land-acquisition issues, with three substation projects stalled because developers had not secured land. A construction-heavy project mix and closure costs on legacy projects further diluted profitability.

Order Book and Business Outlook

Order inflow in 2QFY27 was Rs 7,230 crore, taking the closing order book to around Rs 40,000 crore. Year-to-date inflows exceeded Rs 13,500 crore, of which 70 per cent came from T&D. KEC subsequently secured more than Rs 3,000 crore of PGCIL orders after a 15-month gap, with execution due to begin in December 2026.

Motilal Oswal expects resumption of PGCIL ordering and Ministry of Power right-of-way reforms to improve India T&D execution from 4QFY27. It forecasts T&D to contribute 67 per cent of overall revenue.

Management Guidance and Growth Drivers

Management reduced FY27 revenue-growth guidance to 8 per cent to 10 per cent, citing around Rs 600 crore of Middle East revenue that may not be recovered. It expects a stronger 4QFY27, led by India T&D, and decent FY28 margins from the Rs 40,000 crore order book and a better product mix.

Management expects cables revenue of around Rs 2,500 crore to Rs 2,600 crore in FY27 and Rs 3,500 crore to Rs 4,000 crore by the end of FY28. SAE Towers won over Rs 1,900 crore of orders across the US, Mexico and Brazil, while renewables secured orders exceeding Rs 1,150 crore.

Debt and Working Capital

Net debt including acceptances rose to Rs 8,000 crore at September 30, 2026, from Rs 6,500 crore a year earlier. Net working capital increased to 155 days from 138 days.

Management targeted net debt of around Rs 6,000 crore by FY27-end, supported by collections, order advances, Saudi retention releases, PGCIL-project collections and railway cash flow. Motilal Oswal estimates FY27-end net debt of Rs 6,200 crore.

Earnings Forecasts and Key Risks

Key risks are slower order inflows, higher commodity prices, rising receivables and working capital, and heightened competition.