The Mumbai-based infrastructure major, with a market capitalisation of ₹19,576 crores, delivered net sales of ₹6,091.56 crores in Q2 FY26, representing a healthy 19.13% year-on-year growth and a sequential expansion of 21.28% from Q1 FY26. The company's operating margin improved to 7.07%, up from 6.26% in the year-ago quarter, driven by better project execution and operational efficiencies. However, the narrative is complicated by a concerning rise in interest costs, which hit a record ₹171.49 crores during the quarter, casting a shadow over the otherwise positive operational performance.
Despite the impressive profit growth, KEC International's stock has been under severe pressure, declining 26.24% over the past year and underperforming both the Sensex (which gained 4.74%) and the broader construction sector (which rose 1.07%) by significant margins. The stock's year-to-date performance has been particularly dismal, with a 39.07% decline, raising questions about whether the current valuation of 32 times trailing twelve-month earnings adequately reflects the company's risk-reward profile.
| Quarter | Sep'25 | Jun'25 | Mar'25 | Dec'24 | Sep'24 | Jun'24 |
|---|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 6,091.56 | 5,022.88 | 6,872.12 | 5,349.38 | 5,113.31 | 4,511.89 |
| QoQ Growth | +21.28% | -26.91% | +28.47% | +4.62% | +13.33% | -26.81% |
| YoY Growth | +19.13% | +11.33% | +11.47% | — | — | — |
| Net Profit (₹ Cr) | 160.75 | 124.60 | 268.20 | 129.56 | 85.41 | 87.58 |
| QoQ Growth | +29.01% | -53.54% | +107.01% | +51.69% | -2.48% | -42.29% |
| YoY Growth | +88.21% | +42.27% | +76.74% | — | — | — |
| Operating Margin % | 7.07% | 6.97% | 7.84% | 7.00% | 6.26% | 5.99% |
| PAT Margin % | 2.64% | 2.48% | 3.90% | 2.42% | 1.67% | 1.94% |
Financial Performance: Margin Expansion Amid Revenue Growth
KEC International's Q2 FY26 financial performance demonstrates strong operational momentum, with net sales climbing to ₹6,091.56 crores, up 21.28% sequentially from ₹5,022.88 crores in Q1 FY26. The year-on-year comparison is equally impressive, showing 19.13% growth over the ₹5,113.31 crores reported in Q2 FY25. This robust top-line expansion reflects healthy order execution across the company's power transmission and infrastructure verticals.
Operating profit before depreciation, interest and tax (excluding other income) stood at ₹430.41 crores in Q2 FY26, translating to a margin of 7.07%, a notable improvement of 81 basis points from the 6.26% recorded in the corresponding quarter last year. This margin expansion is particularly commendable given the competitive intensity in the EPC sector and inflationary pressures on raw materials. The sequential improvement from 6.97% in Q1 FY26, whilst modest, indicates sustained operational discipline.
Net profit after tax reached ₹160.75 crores, marking an 88.21% surge from ₹85.41 crores in Q2 FY25 and a 29.01% sequential increase from ₹124.60 crores in Q1 FY26. However, the PAT margin of 2.64%, whilst improved from 1.67% a year ago, remains relatively thin for a capital-intensive business, highlighting the pressure from elevated interest costs. The company's half-yearly performance for H1 FY26 shows combined net profit of ₹285.35 crores on revenues of ₹11,114.44 crores, representing a PAT margin of 2.57%.
Employee costs increased to ₹425.83 crores in Q2 FY26 from ₹404.38 crores in the year-ago period, reflecting a 5.30% rise that appears manageable relative to the 19.13% revenue growth. This suggests improving labour productivity and better absorption of fixed costs as the company scales operations. Depreciation remained relatively stable at ₹50.57 crores compared to ₹45.32 crores a year earlier.
The Interest Cost Challenge: A Growing Concern
The most significant concern emerging from KEC International's Q2 FY26 results is the escalating interest burden, which reached a record ₹171.49 crores during the quarter. This represents a 2.01% increase from ₹168.08 crores in Q2 FY25 and a substantial 13.49% sequential jump from ₹151.12 crores in Q1 FY26. The rising interest costs are eating into the company's profitability despite strong operational performance, with interest coverage (EBIT to interest) remaining weak at an average of 2.16 times over recent periods.
The company's debt metrics paint a concerning picture. The average debt-to-EBITDA ratio stands at 3.35 times, indicating moderate but elevated leverage levels. Net debt to equity averages 0.62 times, suggesting that whilst the balance sheet isn't overleveraged, the cost of servicing this debt is becoming increasingly burdensome. Long-term debt stood at ₹358.46 crores as of March 2025, up from ₹236.01 crores the previous year, though this remains a relatively small component of the overall liability structure.
Critical Alert: Interest Cost Pressure
Interest expense of ₹171.49 crores in Q2 FY26 represents the highest quarterly interest cost on record, consuming approximately 40% of operating profit (excluding other income). This rising financial burden threatens margin sustainability and limits the company's ability to generate free cash flow, particularly in an environment of elevated interest rates. The weak interest coverage ratio of 2.16x leaves limited buffer for any operational setbacks.
Working capital management remains a persistent challenge for KEC International, typical for EPC companies operating in the infrastructure sector. Current assets stood at ₹19,386.64 crores as of March 2025, whilst current liabilities reached ₹16,226.88 crores, resulting in a current ratio of approximately 1.19. Trade payables of ₹10,503.48 crores dominate the liability side, reflecting the capital-intensive nature of project execution and extended payment cycles common in government and utility contracts.
Return Metrics: Quality Concerns Persist
KEC International's return on equity (ROE) stands at 10.08% on average, with the latest reading at 10.67%, which lags behind sector leaders and indicates relatively weak capital efficiency. For context, an ROE above 15% is generally considered healthy for infrastructure companies, suggesting that KEC is generating suboptimal returns on shareholder capital. The return on capital employed (ROCE) averages 13.36%, with the latest figure at 15.26%, showing some improvement but still indicating that the company is not earning substantially above its cost of capital.
These modest return metrics become particularly concerning when viewed against the company's elevated debt levels and rising interest costs. The sales-to-capital-employed ratio of 2.22 times suggests reasonable asset turnover, but the overall profitability conversion remains constrained by thin margins and high financial leverage. The company's five-year sales growth of 13.71% demonstrates decent top-line momentum, but EBIT growth of just 6.38% over the same period highlights margin compression and operational challenges.
| Company | P/E Ratio | P/BV Ratio | ROE % | Debt/Equity | Div Yield % |
|---|---|---|---|---|---|
| K E C Intl. | 31.63 | 3.60 | 10.08% | 0.62 | 0.74% |
| NBCC | 47.79 | 12.32 | 20.01% | -2.41 | 0.78% |
| IRB Infra. Devl. | 31.44 | 1.32 | 3.65% | 0.86 | 0.39% |
| Kalpataru Proj. | 26.48 | 0.31 | 8.40% | 0.38 | 0.71% |
| Afcons Infrastr. | 27.39 | 3.33 | 13.96% | 0.33 | — |
| Ircon Intl. | 22.94 | 2.42 | 12.72% | -0.14 | 1.62% |
In peer comparison, KEC International's ROE of 10.08% trails the peer average of approximately 12%, positioning it in the lower half of the competitive set. NBCC leads with a robust 20.01% ROE, whilst Afcons Infrastructure and Ircon International also demonstrate superior capital efficiency at 13.96% and 12.72% respectively. KEC's price-to-book ratio of 3.60 times appears reasonable relative to its ROE, suggesting the market isn't assigning a significant premium for quality, unlike NBCC which trades at 12.32 times book value justified by its superior returns.
Valuation Analysis: Fair but Not Compelling
At the current price of ₹735.40, KEC International trades at a price-to-earnings ratio of 31.63 times trailing twelve-month earnings, broadly in line with the peer average of approximately 31 times but below the broader construction sector P/E of 40 times. This valuation appears fair given the company's average quality profile and modest return metrics, neither demanding a premium nor offering a significant discount. The price-to-book ratio of 3.60 times, whilst elevated in absolute terms, aligns reasonably with the company's ROE profile.
The enterprise value to EBITDA multiple of 14.23 times and EV to EBIT of 16.08 times suggest the market is pricing in moderate growth expectations, though these multiples leave limited room for disappointment. The PEG ratio of 0.64 indicates the stock may offer some value relative to its growth trajectory, though this metric should be viewed cautiously given the quality concerns and elevated debt levels. The dividend yield of 0.74% provides minimal income support, with the company maintaining a conservative payout ratio of 25.65%.
The stock's dramatic decline from its 52-week high of ₹1,312.00 to the current level represents a 43.95% correction, bringing valuations down from expensive to fair territory. The company's valuation grade changed to "Fair" from "Expensive" on March 24, 2025, reflecting this adjustment. However, "fair" valuation doesn't necessarily equate to a buying opportunity, particularly when quality concerns and technical weakness persist. The stock's position 21.54% above its 52-week low of ₹605.05 suggests some support has been established, but downside risks remain if operational challenges intensify.
Shareholding Dynamics: Institutional Confidence Waning
The shareholding pattern reveals subtle but concerning shifts in institutional confidence. Promoter holding has remained rock-solid at 50.10% across the last five quarters, with zero pledging of shares—a positive indicator of management confidence. However, mutual fund holdings have declined from 24.26% in September 2024 to 20.21% in September 2025, representing a 404 basis point reduction over the year. This gradual exit by domestic institutional investors suggests growing concerns about the company's near-term prospects.
| Shareholder Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoters | 50.10% | 50.10% | 50.10% | No Change |
| FII | 15.92% | 16.02% | 15.42% | -0.10% |
| Mutual Funds | 20.21% | 20.00% | 22.07% | +0.21% |
| Insurance | 1.67% | 1.94% | 1.50% | -0.27% |
| Other DII | 0.66% | 0.62% | 0.61% | +0.04% |
| Non-Institutional | 11.44% | 11.32% | 10.30% | +0.12% |
Foreign institutional investors (FIIs) have shown mixed behaviour, with holdings increasing from 13.60% in September 2024 to 15.92% in September 2025, though the most recent quarter saw a marginal 10 basis point decline to 15.92% from 16.02% in June 2025. Insurance company holdings also retreated by 27 basis points quarter-on-quarter to 1.67%. The gradual increase in non-institutional holdings from 9.97% to 11.44% over the year suggests retail interest, though this could also reflect institutional distribution to weaker hands.
Overall institutional holding stands at 38.46%, which whilst substantial, has been trending lower. The presence of 222 FIIs and 27 mutual funds indicates reasonably broad institutional coverage, but the declining participation from domestic funds—typically more informed about local business dynamics—warrants attention. The key promoter entities include Swallow Associates LLP (25.45%), Summit Securities Limited (10.58%), and Instant Holdings Limited (8.38%), with the Goenka family maintaining significant personal stakes.
Stock Performance: Severe Underperformance Across Timeframes
KEC International's stock performance has been dismal across most meaningful timeframes, significantly underperforming both the broader market and its sector peers. Over the past year, the stock has declined 26.24%, generating negative alpha of 30.98 percentage points relative to the Sensex, which gained 4.74%. The underperformance versus the construction sector has been equally stark, with the sector posting a modest 1.07% gain whilst KEC languished with substantial losses.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Week | -9.06% | -0.24% | -8.82% |
| 1 Month | -13.88% | +0.92% | -14.80% |
| 3 Months | -8.03% | +3.30% | -11.33% |
| 6 Months | +5.31% | +4.79% | +0.52% |
| YTD | -39.07% | +6.56% | -45.63% |
| 1 Year | -26.24% | +4.74% | -30.98% |
| 3 Years | +79.37% | +34.74% | +44.63% |
| 5 Years | +120.11% | +91.00% | +29.11% |
The year-to-date performance is particularly concerning, with the stock down 39.07% whilst the Sensex has gained 6.56%, resulting in negative alpha of 45.63 percentage points. Recent momentum has been equally weak, with one-month returns of -13.88% and three-month returns of -8.03%, both substantially underperforming the market. The only bright spot appears in the six-month timeframe, where the stock has managed a modest 5.31% gain, marginally outperforming the Sensex's 4.79% return.
Longer-term performance tells a more encouraging story, with three-year returns of 79.37% (alpha of +44.63%) and five-year returns of 120.11% (alpha of +29.11%) demonstrating that the stock has historically rewarded patient investors. However, the dramatic reversal in recent quarters suggests that the favourable conditions that drove those gains may have changed materially. The stock's high beta of 1.35 indicates significantly higher volatility than the market, with annualised volatility of 43.77% over the past year—more than three times the Sensex's 12.38% volatility.
From a technical perspective, KEC International is in a "Mildly Bearish" trend that commenced on October 28, 2025, at ₹833. The stock trades below all key moving averages—5-day (₹777.52), 20-day (₹827.38), 50-day (₹846.96), 100-day (₹855.01), and 200-day (₹816.60)—a classic bearish configuration. Technical indicators across weekly and monthly timeframes show predominantly bearish or mildly bearish signals, with MACD, Bollinger Bands, KST, and Dow Theory all pointing to weakness. The immediate support lies at the 52-week low of ₹605.05, whilst resistance is clustered around the 20-day moving average zone of ₹827.38.
"Whilst operational metrics show improvement, the combination of elevated debt servicing costs, weak return ratios, declining institutional participation, and severe technical weakness raises serious questions about near-term prospects."
Investment Thesis: Quality and Technical Concerns Dominate
The investment case for KEC International presents a complex picture where improving operational performance is overshadowed by structural concerns about capital efficiency, debt servicing capacity, and market sentiment. The company's "Average" quality grade reflects long-term financial performance that, whilst not poor, fails to inspire confidence. The proprietary Mojo score of 48 out of 100 places the stock firmly in "SELL" territory, downgraded from "HOLD" on October 29, 2025.
The company's near-term drivers present a mixed picture. Whilst the quarterly financial trend is classified as "Positive" based on strong profit growth, technical indicators remain "Mildly Bearish," creating conflicting signals. The valuation at current levels appears "Attractive" relative to historical norms and peer comparisons, but attractive valuations alone don't justify investment when quality and momentum are questionable. The high institutional holding of 38.46% provides some comfort, though the declining trend in mutual fund participation is concerning.
Key Strengths & Risk Factors
KEY STRENGTHS
- Market Leadership: World's largest power transmission EPC company with established global presence and execution capabilities
- Revenue Momentum: Strong 19.13% YoY growth in Q2 FY26 demonstrates healthy order book execution and demand environment
- Margin Expansion: Operating margins improved to 7.07% from 6.26% YoY, showing operational efficiency gains
- Profit Growth: Net profit surged 88.21% YoY to ₹160.75 crores, significantly outpacing revenue growth
- Zero Pledging: No promoter share pledging with stable 50.10% holding indicates management confidence
- Diversified Portfolio: Presence across power transmission, railways, and infrastructure reduces concentration risk
- Long-term Track Record: Five-year returns of 120.11% demonstrate ability to create shareholder value over extended periods
KEY CONCERNS
- Elevated Interest Costs: Record interest expense of ₹171.49 crores in Q2 FY26 consuming 40% of operating profit threatens margin sustainability
- Weak Return Metrics: ROE of 10.08% and ROCE of 13.36% lag sector leaders, indicating poor capital efficiency
- High Leverage: Debt-to-EBITDA of 3.35x and weak interest coverage of 2.16x leave limited financial flexibility
- Thin Margins: PAT margin of just 2.64% provides minimal buffer against operational or financial shocks
- Working Capital Intensity: Large current assets and payables reflect extended cash conversion cycles typical of EPC business
- Declining Institutional Support: Mutual fund holdings decreased 404 bps over the past year, signalling waning confidence
- Technical Weakness: Stock in bearish trend, trading below all key moving averages with negative momentum indicators
Outlook: What to Watch
POSITIVE CATALYSTS
- Sustained margin expansion above 7.5% for multiple quarters demonstrating pricing power and cost control
- Meaningful reduction in interest costs through debt repayment or refinancing at lower rates
- Improvement in ROE towards 15%+ levels indicating better capital allocation and profitability
- Strong order inflows supporting revenue visibility and reducing execution risk
- Renewed institutional buying, particularly from domestic mutual funds signalling confidence restoration
RED FLAGS TO MONITOR
- Further increase in interest costs above ₹175 crores quarterly would severely pressure profitability
- Margin compression below 6.5% indicating competitive pressures or cost inflation
- Additional decline in institutional holdings, particularly if FIIs join mutual funds in reducing exposure
- Technical breakdown below ₹605 support level would signal potential for further downside
- Deterioration in working capital metrics or cash flow from operations turning negative
The forward outlook for KEC International hinges critically on the company's ability to manage its debt burden whilst maintaining operational momentum. The infrastructure sector in India remains structurally attractive, with government emphasis on power transmission and railway modernisation providing a supportive demand environment. However, elevated interest rates and competitive intensity in the EPC space create headwinds that could limit margin expansion potential.
Management's ability to improve return ratios through better project selection, pricing discipline, and working capital management will be crucial in determining whether the stock can regain investor confidence. The company's established market position and execution track record provide a foundation, but the financial metrics suggest that significant improvement is needed before the stock becomes compelling from a risk-reward perspective.
The Verdict: Sell on Weakness
Score: 48/100
For Fresh Investors: Avoid initiating positions at current levels. Whilst the stock has corrected significantly from its highs and valuations appear fair, the combination of weak return metrics, elevated debt servicing costs, declining institutional participation, and bearish technical setup presents an unfavourable risk-reward profile. Better entry opportunities may emerge if the stock tests the ₹605 support level and demonstrates stabilisation in fundamentals, particularly interest costs and margins.
For Existing Holders: Consider using any technical bounce towards the ₹780-₹800 zone (near 5-day and 20-day moving averages) as an opportunity to reduce exposure or exit positions. The stock's classification as "High Risk Low Return" with negative risk-adjusted returns of -0.60 and high volatility of 43.77% makes it unsuitable for conservative portfolios. Long-term investors with high risk tolerance may hold with strict stop-loss at ₹605, but should reassess if interest costs continue rising or margins compress below 6.5%.
Fair Value Estimate: ₹650-₹700 (11.58% downside from current levels), based on sustainable earnings power assuming normalised interest costs and 7% operating margins. Current price of ₹735 offers limited margin of safety given execution risks and financial leverage.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results, and all investments carry risk of loss.
