KEC International · risk themes across the available quarters.
Bear-case history
RO issues persist in transmission line completion despite Ministry of Power's revised higher compensation guidelines (voluntary for states). Gujarat and Rajasthan solar corridors particularly affected. MD acknowledged 'not good' situation despite some state adoption improving.
~$30 million ADB payment from Afghanistan projects delayed from Q2/Q3 to Q4 FY26 despite ADB written confirmation. World Bank and US Aid portions already received (Rs 450 crore recovered); total receivables at risk if further delays occur.
Water segment dues remain elevated at Rs 875 crore (flat vs March 2025) with payments on cash-and-carry basis. Madhya Pradesh improving but Odisha remains slow. Management adopted calibrated execution approach, directly impacting civil revenue growth.
NWC elevated at 138 days vs industry peers. Drivers: 20% retention in Saudi projects being released now, steel inventory buildup (Rs 250-300 crore conscious decision due to benign prices), AR overflow from September to October (Rs 400 crore), and Q4 payables reduction due to high Q4 revenues.
Non-T&D segments (civil, railways, cables, renewables, oil & gas) collectively delivering only ~1.5% EBITDA margin in H1 despite management's stated goal of reaching 8-9% EBITDA. Railways specifically underperformed with flattish/declining trajectory for 3-4 years.
MD admitted 'wrong calls' and execution delays in railways; expects flattish or downward trajectory next year with full recovery in FY27+. Competition from road players entering rail, lower order intake, and focus on technology segments (ETCS, signaling) yet to offset legacy project losses.
Water segment has Rs 1,400 crore order book exposure and Rs 900 crore receivables. Collections of ~Rs 600 crore in 9M against ~Rs 600 crore revenue. Management adopts cash-and-carry approach with only two state exposures (UP and MP). Civil revenues may decline ~15% this year due to water business slowdown.
Three metro projects with ready MARS and commissioning equipment stalled due to client-side issues (zone changes, design parameter changes, plot acquisition delays). Monthly maintenance costs of Rs 15-20 crore per project with claims pending. Some transmission projects stuck due to RoW issues for 8-9 months. Newer higher-margin projects delayed in startup.
Labor headcount down from 18,000 to 24,000 despite order book expansion. Estimated Rs 500-600 crore quarterly revenue impact from labor shortages in civil business. Management uncertain about normalization timeline despite various steps being taken.
While T&D margins are double-digit on new orders, the mix of lower-margin legacy projects and delays in higher-margin claims settlement is compressing overall margins. Analyst question on normalized margins revealed management's acknowledgment that excluding headwinds, margins would be closer to 9-10%.