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K E C International Ltd

| Q2 & FY26 Results Conference Call

NEUTRAL SENTIMENT

Report Source

⬤11th Nov 25

Summary : KEC International reported strong Q2/H1 results driven by T&D, with record order intake and profit growth, but faces challenges with elevated debt, delayed payments, and labor shortages in non-T&D segments.

Management Perspective positive : Management consistently highlights record revenues, strong order intake, and significant profit growth. They express confidence in future growth, margin improvement, and debt normalization, despite acknowledging challenges.

Concall Report Analysis & Insights

Business Overview

  1. Achieved record Q2 revenues of INR6,092 crores, up 19% year-on-year, driven by T&D.
  2. H1 revenue grew 15%, with T&D contributing 65% of overall revenues.
  3. EBITDA grew 34% in Q2, with margins improving to 7.1% from 6.3%.
  4. PBT and PAT saw remarkable growth of 88% in Q2 and H1, outpacing revenue.
  5. Secured record YTD order intake of over INR16,000 crores, up 20% year-on-year.

Future Growth Prospects

  1. T&D business is a key growth engine with strong execution and double-digit EBITDA margins.
  2. Expanding geographical footprint in T&D, securing landmark orders in Middle East and CIS.
  3. Increasing share of private sector orders in India T&D and strengthening HVDC presence.
  4. Civil business expects 15-20% growth next year with higher single-digit margins.
  5. Cables business expects INR500-600 crores revenue from new conductor plant.

Management Insights

  1. Focused on profitable growth, not just top-line expansion, with PBT/PAT outpacing revenue.
  2. Expect debt levels to normalize with upcoming large advances and project commissioning.
  3. Civil business is adopting a calibrated approach to water projects due to payment scenario.
  4. Railways business is relooking at its structure, focusing on technology and higher margins.
  5. Addressing labor shortages through increased mechanization and direct material procurement.

Signs of Skepticism

  1. Net working capital remains elevated despite international orders typically having lower working capital.
  2. Non-T&D segments (Civil, Railways) still have significantly lower single-digit margins, impacting overall profitability.
  3. Delayed payments in water projects and metro projects continue to tie up cash flows.
  4. Management expects debt to be at peak but has seen delays in expected Q2/Q3 payments pushing to Q4.
  5. Labor shortage has been a concern for 2-3 years, still impacting project execution capacity.

Risk Factors

  1. Net debt increased to INR6,480 crores due to revenue growth, inventory, and payment delays.
  2. Civil revenues impacted by prolonged monsoon, labor shortages, and delayed water project payments.
  3. Persistent labor shortages, especially for erection work, affecting project execution.
  4. Right-of-Way (ROW) issues in domestic T&D projects, particularly in solar development areas.
  5. Competitive intensity in renewable tenders due to many players seeking IPOs.

Good To Know

  1. SAE acquisition celebrates 15 years, contributing INR429 crores revenue with 35% growth.
  2. Butibori facility expansion for tower manufacturing is expected to be completed by year-end.
  3. New robotic equipment installed in Brazil manufacturing facility to enhance capacity and efficiency.
  4. E-Beam and Elastomeric cables commercial production expected by year-end, catering to high-performance applications.
  5. Oil and gas pipeline business secured prequalification from a leading Middle East utility.

Key Drivers

  1. Record order intake drives future revenue.
  2. T&D business shows strong growth.
  3. Civil margins expected to improve.
  4. Debt normalization anticipated in H2.

Key Analyst Discussions

Competitive Environment

  1. Domestic T&D order prospects remain strong, with TBCB and intrastate projects creating opportunities.
  2. Competitive intensity in Saudi T&D has reduced for critical projects due to client invitation-based bidding.
  3. Renewable sector sees increased competition from players seeking IPOs, leading to margin pressure.
  4. Railways business faces major competition from road players in pure play civil segments.
  5. US tariffs on steel have opened up the US market for Mexico-produced towers using US steel.

Market Trends & Consumer Behavior

  1. Government thrust on renewable evacuation corridors and green energy transmission drives T&D pipeline.
  2. Shift of intrastate projects to TBCB route is opening new market for the company.
  3. Middle East remains a key growth engine for international T&D with major transmission initiatives.
  4. Data center inquiries are improving after a slowdown in Q4 last year and Q1.
  5. Mexican demand for T&D is increasing due to focus on renewable energy by the new President.

Financial Highlights

  1. Net debt increased to INR6,480 crores, with management expecting normalization to INR5,000 crores.
  2. Water segment dues are around INR875 crores, with payments from Madhya Pradesh improving.
  3. Capex for FY'26 is expected around INR400 crores, higher due to cable and factory expansions.
  4. Interest costs are projected to reduce by INR20-30 crores in H2, maintaining 2.5% of revenue guidance.
  5. Net working capital is expected to normalize to 118-120 days by year-end.

Product Composition

  1. T&D segment's contribution to overall revenues increased to 65% in H1 from 55% last year.
  2. Civil business is targeting residential, factories, data centers, and water pipelines outside India.
  3. Renewable business aims for INR3,000-4,000 crores revenue in 2-3 years, currently 4-5% of total.
  4. Cables business profitability improving due to better product mix and cost optimization.
  5. Railways business is shifting focus to technology-side projects like TCAS signaling and Metro.

Strategic Considerations

  1. Management aims for 8% overall margin for the year, requiring 8.5%+ in H2.
  2. Civil business is increasing minimum order size to improve overheads and margins.
  3. Company is pursuing international opportunities in solar, wind, and BESS segments.
  4. Focus on completing existing railway projects, optimizing working capital, and selectively bidding for high-margin opportunities.
  5. Increasing mechanization and direct procurement to mitigate labor shortage impact.
K E C International Ltd (KEC) Concall Report Analysis & Insights | Dhanarthi