Buy KEC International; target of Rs 920: Motilal Oswal

Motilal Oswal's research report on KEC International

KEC posted good execution growth of 19% YoY and margin improvement of 80bp YoY in 2QFY26. The slight miss in PAT was attributed to higher interest expenses, which moved up due to higher debt and higher working capital. Going ahead, we expect KEC to benefit from 1) a strong prospect pipeline in T&D, 2) a strong order book of INR393b leading to a healthy 17% CAGR in execution, 3) margin improvement over a low base of last year, and 4) the easing of its working capital cycle on improved customer advances and the release of retention money. We cut our estimates by 11%/9%/5% for FY26/27/28 to bake in higher debt and slightly higher NWC. The stock has corrected from its recent highs and is now available at attractive valuations of 19.1x/15.1x on FY27/28 estimates. We upgrade KEC to BUY from Neutral earlier with a revised TP of INR920 (from INR950 earlier).

Outlook

KEC is currently trading at 24.7x/19.1x/15.1x on FY26E/27E/28E earnings. Our estimates bake in a revenue CAGR of ~17% and an EBITDA margin of 7.7% for FY26E and 8% for FY27E/28E. We upgrade KEC to BUY from Neutral earlier with a revised TP of INR920 (from INR950 earlier) based on 20x Dec’27E EPS.