KEC International shares fall 5% after CARE Ratings downgrade

Shares of KEC International took a sharp dip on Friday, slipping as much as 5% on the NSE, reaching an intraday low of ₹939.3 per share. By 11:54 AM, the shares were down by 4.48%, trading at ₹942 per share. 

This decline followed a significant downgrade by CARE Ratings, a leading credit rating agency in India, which lowered the company's rating on both its long-term and short-term bank facilities.

CARE Ratings downgrade triggers decline

The downgrade came as CARE Ratings cited concerns over KEC International’s financial health, especially its heavy reliance on working capital borrowings. The credit rating agency downgraded the company’s long-term bank facilities of ₹3,000 crores from "CARE AA-" to "Negative". Additionally, a rating of "CARE A+; Stable" was assigned to ₹500 crores worth of non-convertible debentures issued by the company.

The downgrade by CARE Ratings is based on the company's prolonged elongation of gross current asset days, which saw a lower-than-expected recovery in FY24 and Q1FY25. This issue has led to continued reliance on short-term debt and contributed to a leveraged capital structure, making the decision to invest in stocks like KEC International riskier for some investors.

Deterioration in debt indicators

A major factor that impacted the rating downgrade is KEC International's rising debt levels. The company has seen a steady decline in its debt coverage indicators, with its interest coverage ratio falling from 3.44x in FY21 to 1.71x in FY24. The company’s adjusted total outside liabilities to tangible net worth (TOL/TNW) ratio also worsened from 3.57x as of March 31, 2022, to 4.27x as of March 31, 2024.

This deterioration in financial indicators could be concerning for those looking to invest in stocks within the infrastructure sector. KEC International’s weakening debt coverage and profitability measures make it a more volatile choice for investors at present.

NSE performance vs. Nifty surge

Interestingly, while KEC International’s shares took a nosedive, the broader market showed a strong performance. At the same time, the NSE Nifty was trading 275.35 points higher, standing at 25,691.15. The contrast between KEC International's performance and Nifty's overall upward momentum further highlights the company-specific nature of this decline.

A cautious approach to investment

For those looking to invest in stocks, especially in the infrastructure sector, KEC International’s recent performance and financial downgrades serve as a reminder of the risks involved. With the company facing challenges in managing its debt and profitability, potential investors should remain cautious. Though it remains a prominent player, current conditions suggest that its stock may face increased volatility in the near future.