KEC International under pressure since Q2 earnings; management outlook and brokerages' views 

Shares of KEC International Ltd are under pressure since Q2 earnings. The infra major reported earnings that came below estimates. Subsequently, the KEC International stock ended over 9% lower at Rs 316.40 on November 3. In the current session, KEC International slipped below the Rs 300 mark. The stock fell over 5% to Rs 299 against the previous close of Rs 316.40. Market cap of the firm slipped to Rs 8036 crore.

Brokerage Nuvama Institutional Equities downgraded the stock to ‘REDUCE’ with a target price of Rs 318 (from Rs 455) at 11 times FY28E EPS. The stock trades at 12.5 times on FY28E EPS.

The brokerage said, "With murky execution visibility and a history of margin slippage versus guidance warrants a 28%/3% EPS cut for FY27E/28E."

According to MOFSL, KEC International's results were sharply lower than its estimates due to supply chain disruptions in the Middle East & RoW and land acquisition-related challenges across segments.

"We cut our estimates by 28%/29%/25% for FY27/FY28/FY29 to factor in higher costs associated with civil projects as well as higher debt. We arrive at a revised TP of Rs 365 based on 14x two-year forward earnings, at a 20% discount to KPIL. The current stock price has already corrected by 39% since April 26, while our earnings are cut by 47%/40% for FY27/28, over the same period."

The brokerage maintained its BUY call as it expects KEC’s margins and NWC to improve from FY28. However, in the near term, it expect its performance to remain affected by legacy projects, the Middle East-related disruptions, and higher debt.

Concall raises hopes

In its earnings concall, the company said management expects improved performance in coming quarters, supported by a tender pipeline exceeding Rs 2 lakh crore.

Net debt is expected to decline to Rs 6,000 crore by year-end.

Record order book, L1 position and tender pipeline are likely to support revenue visibility and improved performance in coming quarters.

Global T&D investment, India renewable evacuation and HVDC corridors, grid modernisation, renewables, storage and data-centre demand offer growth opportunities.

The management expects FY27 revenue growth of 8-10%, since about Rs 600 crore of revenue was lost to the Middle East, supply chain and land acquisition issues. The growth is expected to come mainly from India TND, with a strong Q4 uptake anticipated. This implies a steep second-half ramp, which an analyst flagged as challenging.

Weak Q2 performance

The Mumbai-based EPC major reported a 82 per cent Y-o-Y fall in its consolidated net profit to Rs 30 crore in Q2FY27 compared with a net profit of Rs 161 crore posted in the same quarter of the last fiscal year.
 
PAT margin fell sharply to 0.5 per cent in Q2 against 2.6 per cent in the corresponding quarter a year ago.

Revenue slipped 10.5 per cent Y-o-Y to Rs 5,468 crore in Q2FY27, compared with a topline of Rs 6,092 crore posted in a year-ago period. Revenue declined Y-o-Y across segments barring Cables.

Middle East and legacy costs weigh on 2Q

MOFSL said KEC’s 2QFY27 performance remained under pressure from Middle East disruptions, Right of Way (RoW) and land acquisition issues in India T&D, and closure costs on legacy projects, resulting in a 10% YoY dip in revenue.  Disruptions in the Middle East, the region which accounts for 22% of the order book ( Rs 9000 crore), resulted in a revenue impact of Rs 300 crore-Rs 350 crore and a margin impact of 1.25-1.5% during the quarter.

This is because high freight & fuel costs and supply delays led the company to defer certain supplies until commercial alignment with clients. In India, three substation projects remained stalled as developers had not secured land, while a construction-heavy mix further diluted standalone profitability. The brokerage believes the timing of cost recovery from clients and normalisation of logistics will remain the key swing factors in the near term.