KEC International shares experienced significant pressure, slipping below the Rs 300 mark, following the release of its Q2FY27 earnings report. The infrastructure engineering, procurement, and construction (EPC) major reported results that fell below market estimates, leading to a sharp decline in its stock value.
Weak Q2 Performance Drives Stock Decline
On November 3, KEC International’s stock closed over 9% lower at Rs 316.40, and further fell over 5% to Rs 299 in the subsequent trading session. This downturn was triggered by a substantial year-on-year fall in consolidated net profit, which plunged 82% to Rs 30 crore in Q2FY27, compared to Rs 161 crore in the same quarter last fiscal year. The company's PAT margin sharply decreased to 0.5% from 2.6%.
Revenue also saw a decline, slipping 10.5% year-on-year to Rs 5,468 crore in Q2FY27, down from Rs 6,092 crore in the prior-year period. This revenue contraction was observed across most segments, with the exception of its Cables business.
Challenges in the Middle East and Domestic Market
The company attributed its Q2 performance struggles to a confluence of factors, including supply chain disruptions in the Middle East and issues related to land acquisition and Right of Way (RoW) in India. Additionally, closure costs associated with legacy projects weighed on profitability. The Middle East, which constitutes 22% of KEC’s order book (approximately Rs 9,000 crore), alone accounted for a revenue impact of Rs 300-350 crore and a margin impact of 1.25-1.5% during the quarter. High freight and fuel costs, coupled with supply delays, forced the company to defer certain supplies pending commercial alignment with clients. Domestically, three substation projects remained stalled due to developers not securing necessary land.
Brokerage Houses Adjust Outlook
In response to the disappointing results, several brokerage firms revised their views on KEC International shares.
- Nuvama Institutional Equities downgraded the stock to ‘REDUCE’ and lowered its target price to Rs 318 from Rs 455, citing "murky execution visibility and a history of margin slippage versus guidance." The brokerage also implemented a significant EPS cut for FY27E/28E.
- Motilal Oswal Financial Services (MOFSL) noted that KEC's results were sharply below its estimates. MOFSL cut its earnings estimates by 28%/29%/25% for FY27/FY28/FY29 to account for higher costs in civil projects and increased debt. Despite revising its target price to Rs 365, MOFSL maintained a ‘BUY’ rating, anticipating an improvement in KEC’s margins and Net Working Capital (NWC) from FY28. However, it acknowledged that near-term performance would remain affected by legacy projects, Middle East disruptions, and elevated debt levels.
Management Foresees Future Improvement
During its earnings concall, KEC International's management expressed optimism for improved performance in the coming quarters. This outlook is supported by a robust tender pipeline exceeding Rs 2 lakh crore and expectations for net debt to decline to Rs 6,000 crore by year-end. A record order book, strong L1 (lowest bidder) positions, and the tender pipeline are expected to bolster revenue visibility. Management also highlighted significant growth opportunities in global T&D investments, India's renewable energy evacuation projects, HVDC corridors, grid modernization, new renewables, energy storage, and data center demands. For FY27, KEC anticipates an 8-10% revenue growth, primarily driven by India's Transmission & Distribution (T&D) sector, with a strong uptake projected for Q4, though analysts flagged a steep second-half ramp-up as potentially challenging.