KEC Q3 FY26 earnings call.

Guidance to track

• Downgraded from earlier 8-8.5% guidance due to slower water project closure, metro project cost overruns, and delayed claim settlements. 9-month margin stands at 7.1%.
• Originally targeted 9% for FY26 but now pushed back. Management expects margins to improve beyond current 7-7.5% level next year, with potential to reach 9-10% by FY28 as legacy project issues clear.
• With current order book of Rs 41,000+ crore (including L1) and robust tender pipeline, management targets ~Rs 35,000 crore order intake for next financial year.
• Net debt currently Rs 686 crore (including acceptances) as of December 31. Already reduced by Rs 300 crore in January 2026. Targeting Rs 5,500 crore by March 2026 with working capital days at 110-115.

Risks flagged

• 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%.

Key quotes

• We had to tell you that this is what is happening. So we had to downgrade our estimates. When we said 8% we were very confident that we'll achieve 8%. But now seeing what has happened and the delay in some of the projects, a double-digit margin project now if it's not executing, that's impacting some of the newer projects.
• I think what is happening is that we have been honestly very unhappy with the delays in the closure. We were expecting that gradually projects will get closed. What is happening is we take a project and we expect that the project will be closed because the client has agreed for de-scoping a part which is not executable now. The client comes back and says no no I want you to execute, so you are stuck there for another 6 months.
• If you're looking at 9 to 10% then I can always say FY28. I need to clean up that entire closure of all the projects of mainly more of railways and also some part of the metro projects which are there which are now getting commissioned. I think by FY28 will definitely be at whatever number we are talking about.
• In transmission we have been having a success ratio between 10 to 15%. Okay. And for other businesses it would actually be lower. Renewable would be much lower than that and civil is also so we would look at maybe somewhere around 30-35,000 crores should be our order intake target for next year.