Power Transmission Titans: Transrail Lighting vs. KEC International – Who Reigns Supreme?

The power transmission and distribution (T&D) sector is brimming with opportunities as nations worldwide ramp up investments in grid modernization and renewable energy projects. With a staggering US$ 1 trillion expected to flow into T&D infrastructure over the next decade, companies like Transrail Lighting and KEC International are poised to play pivotal roles.

But which of these two companies holds the upper hand? Let’s delve into their strengths, challenges, and growth strategies to uncover the better investment option in the power transmission business.

Business Overview

Transrail Lighting

Transrail Lighting is a comprehensive T&D player with diversified offerings that span power transmission, railway electrification, and pole manufacturing. With a robust presence in over 58 countries, its portfolio includes street poles, solar street lights, and infrastructure construction projects. Four state-of-the-art manufacturing facilities in India form the backbone of its operations, boasting significant annual capacities for transmission structures, conductors, and poles.

KEC International

KEC International is a global infrastructure engineering, procurement, and construction (EPC) giant. Its footprint extends to over 110 countries, supported by a diverse portfolio that includes power transmission, railways, solar, oil & gas pipelines, and civil infrastructure. The company operates six tower manufacturing facilities worldwide and specializes in cables and solar components.

Market Standing and Financial Metrics

Market Capitalization and Order Book

KEC International stands tall with a market capitalization of Rs 253.3 billion, dwarfing Transrail Lighting’s Rs 84.9 billion. Its substantial order book of Rs 340.9 billion further underscores its dominance, with 67% of orders domestic and 33% international.

In contrast, Transrail Lighting boasts a smaller but internationally diversified order book, with 61% of its orders coming from global markets. The company’s domestic focus leans heavily on government-driven T&D projects.

Revenue Growth

• Transrail Lighting: With a five-year revenue CAGR of 16.7%, the company has demonstrated resilience and agility in capturing growth opportunities.

• KEC International: While also growing, KEC’s revenue CAGR of 10.7% reflects a steadier pace, bolstered by its broader product and geographic diversification.

Profitability

Transrail Lighting

Transrail Lighting’s profitability metrics shine brighter, with a five-year EBITDA CAGR of 15.4% and a net profit CAGR of 17.8%. Its margins—12.8% EBITDA and 4% net—outperform its larger competitor, signaling efficient operations and strong project execution.

KEC International

KEC International’s profitability story is less robust, with an EBITDA CAGR of 1% and a declining net profit CAGR of -9.3%. While the company doubled its net profits last year due to improved order inflow, its average margins of 6.7% EBITDA and 1.7% net lag behind.

Debt and Financial Health

Both companies maintain prudent debt levels, with a debt-to-equity ratio of 0.1.

• Transrail Lighting plans Rs 450 million in capex for 2025, supported by a recent Rs 4 billion IPO.

• KEC International has larger repayment obligations but sufficient cash flows and a capex budget of Rs 3.6 billion, aimed at product portfolio expansion and capacity augmentation in India and Dubai.

Efficiency and Returns

Transrail Lighting

With five-year averages of 40.1% RoCE and 17% RoE, Transrail Lighting demonstrates superior financial efficiency, driven by consistent revenue and profit growth.

KEC International

Although KEC International’s return ratios (27.8% RoCE and 11.8% RoE) are commendable, they’ve seen a decline over the years, reflecting the impact of reduced profitability.

Dividends

KEC International’s commitment to shareholders is evident in its steady dividend payouts, with a five-year CAGR of 3.4% and an average payout ratio of 36.7%. Transrail Lighting, as a newcomer to the stock market, has yet to declare dividends but may do so as its financials mature.

Valuation

At a PE ratio of 39.5 and PB ratio of 4.3, Transrail Lighting’s valuation appears more attractive than KEC International’s PE of 60 and PB of 4.9. Both stocks are slightly overvalued compared to industry averages, but their growth potential might justify the premium.

A Tough Call

In the battle between Transrail Lighting and KEC International, both companies bring unique strengths to the table:

• Transrail Lighting excels in profitability, financial efficiency, and growth prospects, making it a compelling choice for high-growth investors.

• KEC International offers stability, a larger revenue base, and steady dividend payouts, appealing to risk-averse investors.

As global energy needs evolve, both companies are well-positioned to capitalize on the surge in T&D investments. However, potential investors should conduct thorough due diligence, considering factors like corporate governance and market dynamics, before making an investment decision.

Disclaimer: This article is for informational purposes only and should not be considered financial advice. Always consult a professional before making investment decisions.