KEC International: On a solid growth trajectory

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26 Aug, 2025 12:21

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Jitendra Kumar GuptaMoneycontrol Research

KEC International reported strong 104 percent growth in net profit to Rs 63 crore led by significant savings in the interest cost and impact of operating leverage resulting in higher operating margins. During the quarter, the company reported almost 100 basis points improvement in operating margin to 9.3 percent. Importantly, interest cost declined 12 percent to Rs 63 crore, which is a sign of improving cash in the books and better receivable management.

Improvement in Balance Sheet

The company reported decline in debtor days by about 16 days in the June quarter to 230 days. It also recovered part of the money with one of its large client in Saudi Arabia. This is also reflected in the reduction of net debt to Rs 2212 crore as against Rs 3109 crore in the corresponding quarter of last year.

Moreover, KEC intends to bring down its receivable days further to around 200-180 days and reduce working capital. Importantly, with the incremental recovery of retention money from the Saudi Client, accounting for about 25 percent of the total receivables, the company intends to bring down its debt further, thus reducing interest cost and financial leverage.

New businesses gaining traction

Meanwhile, amongst the businesses, while on a small base, railways and solar grew on a year-on-year basis (YoY) at a higher rate of 129 percent and 51 percent, respectively. This was far better than the combined revenue growth of 6 percent to Rs 1895 crore. Its core T&D segment revenue grew by 13 percent to Rs 1334 crore.

Strong order intake

The company expect the momentum to continue particularly in the T&D (transmission & distribution) and railways. Cable business, which is 12 percent of the revenue is also expected see traction with the large Rs 100 crore PGCIL order getting executed in the current financial year. In cables, KEC is improving the product mix, getting into copper-based cables for international markets and high-end cables for the domestic transmission market.

It continues to see traction in most of the segments, which is also reflected in the strong order intake. During the quarter, the company saw strong order inflows of Rs 2790 crore, thereby taking its total order book to Rs 13,532 crore (in Q4FY17 Rs 12,600 crore). This is about 1.6 times its annual sales thereby providing strong revenue visibility. That apart, the company is also L1 (lowest bidder) in projects worth Rs 4,500 crore. A strong order book and improving margins should translate into strong earnings growth. Over the next two financial years, the company is expected to witness 20-25 percent earnings growth.

Reasonable valuation

In light of improving financials and better earnings visibility, the valuation, too, seems to be reasonable. The stock at the current market price of Rs 298 is trading at 14 times its estimated earnings of FY19.
Reasonable valuation.