KEC International: Analysts up target price but stay cautious post Q4 show

Brokerage on KEC International: Brokerages remain divided on construction and engineering giant KEC International's outlook following its March quarter (Q4FY25) results. While both Nomura and Nuvama Institutional Equities have raised their target prices on the stock, they are cautious in the near-term.

 

KEC reported a consolidated revenue of ₹6,870 crore in Q4FY25, up 11.5 per cent year-on-year (Y-o-Y), but marginally below Street estimates. Ebitda stood at ₹540 crore (up from Rs 388 crore Y-o-Y), with a margin of 7.8 per cent (expanding 150 bps from 6.3 per cent a year ago), broadly in line with the consensus. Profit after tax rose 77 per cent Y-o-Y to ₹270 crore, aided by higher other income. However, analysts noted that execution in civil and railway segments remained soft, dragging performance.

 

Following the results, the stock surged 8 per cent in intraday trade on May 27, before settling 0.12 per cent higher at ₹862.30.

 

Mixed performance prompts re-rating

 

Domestic brokerage Nuvama raised its target price to ₹994 from ₹884, citing improved visibility from India's T&D capex cycle but retained a 'Hold' rating due to limited near-term upside. "We believe the worst may be behind in terms of margin pressure," said Nuvama. "Yet, even after raising our FY26–27 estimates and TP, we find limited headroom for further upside".

 

Execution during the quarter was a mixed bag. While T&D grew 28 per cent Y-o-Y, other verticals such as civil and railways posted declines of 7 per cent and 26 per cent, respectively. "Execution in the water segment picked up slightly in some states, but the transportation business was subdued due to competition, cash flow constraints, and margin pressure," Nuvama added.

 

Net working capital days improved to 122 from 134 in Q3, and net debt declined to ₹3,050 crore versus ₹3,550 crore a year ago. 

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Nomura maintains 'Buy' but lowers estimates

 

Global brokerage Nomura echoed confidence in the long-term outlook but flagged short-term operational challenges. "Q4 performance was below expectations, mainly due to weak execution in railways and civil," it said, in a note.

 

However, the brokerage maintained its 'Buy' rating, revising the target price to ₹985 from ₹970, and valuing the stock at 20x Jun’27 EPS. "KEC International's ordering prospects remain robust, with ₹1.8 trillion worth of tenders in the pipeline, over 50 per cent of which are in the T&D segment. Management expects order inflows of ₹30,000 crore in FY26, with T&D comprising 70 per cent,” it added.

 

KEC reported strong order inflows of ₹24,700 crore in FY25, close to its ₹25,000 crore guidance, with the order book now at ₹33,400 crore.

 

Despite optimism on top-line growth, Nomura has cut its FY26 and FY27 Ebitda estimates by 1 per cent and 3 per cent, respectively, citing lower margin guidance from management. KEC International now expects FY26 Ebitda margins in the range of 8.0–8.5 per cent, down from earlier guidance of 9 per cent, due to persistent labour shortages in its civil division.

 

Margin recovery a key trigger

 

Both brokerages agreed that KEC International margin improvement hinges on a shift toward higher-margin T&D projects. "We stay positive on India's renewable energy transition-driven T&D capex—envisaged at ₹9.2 trillion over FY22–32," said Nuvama. With T&D contributing 59 per cent to the FY25 order book and 72 per cent to order inflows, the segment is expected to drive a gradual margin recovery to 9 per cent by FY27.

 

Nomura concurred, stating, "The shift in execution mix to T&D and the phasing out of low-margin legacy projects should support Ebitda margin expansion going forward."