The brokerage firm Nomura has revised its target price on KEC International lower to Rs 970 from Rs 1,030.
The revision in the target price comes after the company reported slower than expected non-Transmission and Distribution execution and higher interest costs in its recent quarter.
Nomura has also cut KEC International’s earnings per share forecast for FY26-FY27 by 7%.
Let’s take a look at the key reasons why the brokerage firm has maintained the buy rating but has cut the target price.
Nomura on KEC International
Nomura: Q3FY25 performance below expectations
As per the brokerage, the company reported a net sales of Rs 53.5 billion, a 7% YoY growth, but falling short of both Nomura’s and Bloomberg consensus estimates by 1% and 5%, respectively.
Furthermore, the civil and railway segments underperformed, with civil showing no growth YoY and railway falling by 30% YoY.
It was still below the brokerage’s estimates by 2% and 6%. The company’s PAT came in at Rs 1.3 billion, up 34% YoY and 52% QoQ, though it also missed expectations by 15% and 20% respectively.
Nomura: Higher interest costs and working capital challenges
The brokerage pointed out that the higher than expected interest cost, which stood at Rs 1.7 billion, was a key factor in the missed earnings.
As per the brokerage, “This higher interest cost (3.2% of sales) was 40 basis points above our forecast.”
Furthermore, the firm noted that despite the challenges in execution and interest costs, KEC International’s order inflows are on track. The brokerage anticipates that KEC will surpass its FY25 target of Rs 250 billion in order inflows with a healthy pipeline of Rs 1.5 trillion.
Nomura: Focus on margin improvement and future growth
The brokerage firm highlighted of key strategies in place to drive this improvement, including a shift in the company’s execution mix towards T&D.
According to the firm, T&D revenue is expected to contribute 60% to overall revenue by FY27, up from 45% in FY20-24. In addition to this, KEC is targeting completion of unprofitable legacy railway orders by FY25 end and will selectively participate in new bids like KAVACH.
According to the brokerage, “We maintain our Buy with a lower target price of Rs 970, valuing the stock at 20x Mar’27 EPS (previously 22x Sept’26 EPS; 20x P/E is largely in line with the five-year average one-year forward P/E).”
KEC International Q3FY25 earnings
KEC International reported a 7% YoY increase in revenue, reaching Rs 5,349 crore. The company’s PAT also saw a jump, rising by 34% YoY to Rs 130 crore, compared to Rs 97 crore in the same quarter last year. For the nine-month period, PAT surged by 55%, reaching Rs 303 crore.
In terms of operational performance, KEC International’s EBITDA grew by 22% YoY in Q3FY25, totalling Rs 374.4 crore. The company saw an improvement in its EBITDA margin, which increased by 80 basis points to 7.0%, up from 6.2% in Q3FY24.
KEC International stock performance
The share price of KEC International closed at Rs 815.50 on Thursday, down by 3.47%.
Over a longer period, the share price of KEC International has shown a slight increase of 0.07% over the past five days. However, in the last month, KEC International’s share price saw a significant decline of 31.79%. In the past six months, the shares have reported a 1.74% drop. On a one-year basis, the stock has gained 23.73%.