KEC International has tailwinds of order wins, financial leverage

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Subscribe to enjoy similar stories. KEC International Ltd appears well-positioned to meet its FY25 order inflow guidance of around ₹25,000 crore. Last week, the company secured three big orders totalling nearly ₹4,000 crore, bringing its FY25 order intake to ₹17,500 crore so far.

Additionally, its lowest bidder (L1) portfolio stands at ₹8,400 crore, further supporting its order pipeline. These order wins are expected to drive robust revenue growth in FY25 and FY26, given the typical order execution cycle of 18-24 months. The management has set an ambitious Ebitda margin guidance of 7.5% for FY25.

To achieve this, KEC’s Ebitda margin in the second half of FY25 would need to reach 8.3%, assuming a full-year revenue growth of 15%. However, this target may be challenging, as the highest Ebitda margin the company has recorded in the past 14 quarters was 7.2% in Q3FY22. Nonetheless, KEC can be a potential beneficiary of financial leverage.

The company’s Ebit/pre-tax-profit ratio for FY25 was 2.5x indicating that the interest cost relative to its Ebit is high. In such cases, even a small growth in Ebit with stagnant or marginal drop in interest costs can significantly boost pre-tax profits. For instance, interest cost in absolute terms fell marginally in H1FY25, accounting for 59% of Ebit, compared to 75% in the previous year.

Consequently, H1FY25 pre-tax-profit doubled year-on-year even as Ebit growth was much slower at 22%. Read this | Froth clears from Bharat Forge’s valuation, but it lags on a crucial metric KEC’s net debt, including acceptances, as of 30 September stood at ₹5,265 crore and the management expects to reduce this to ₹4,000-4,500 crore by the end of FY25. While brokerage estimates for KEC’s FY25 and FY26