/** Konstelec Engineers FY26: Margin recovery, a INR 550 crore order book, and the working capital question */

Konstelec Engineers FY26: Profitability turns up, cash conversion remains the key issue

Konstelec Engineers Limited closed FY26 with a clear improvement in profitability, even as investors continued to press management on cash conversion and working capital funding. The company, positioned as an integrated electrical EPC, instrumentation, automation and operations and maintenance (O&M) provider, reported FY26 revenue from operations of INR 210.38 crore, up from INR 193.71 crore in FY25. More importantly, EBITDA rose to INR 19.67 crore from INR 13.15 crore, and PAT from operations increased to INR 7.29 crore from INR 4.75 crore.

The second half of FY26 was the key pivot. H2 FY26 revenue from operations was INR 105.56 crore compared with INR 109.26 crore in H2 FY25. Despite the slight revenue decline, H2 EBITDA climbed to INR 12.41 crore from INR 5.13 crore and H2 PAT from operations rose to INR 5.75 crore from INR 1.04 crore. This combination of stable execution and stronger margins is at the center of management’s message: Konstelec believes its improved project mix and execution discipline can sustain higher profitability.

The FY26 profit story: execution and mix begin to show up

Konstelec’s reported numbers point to a business that is extracting more profitability from a similar scale of revenue. In H2 FY26, EBITDA margin expanded to 11.76% from 4.70% in H2 FY25. PAT margin improved to 5.45% from 0.95%. For the full year, EBITDA margin rose to 9.35% from 6.79%, and PAT margin increased to 3.56% from 2.21%.

Management attributed the improvement to better operational efficiency and profitability, and in its forward strategy it has stated an intent to move toward higher value and higher margin projects. The company also emphasized its end-to-end offering, spanning engineering, procurement, construction and commissioning, and O&M.

Financial summary (as presented)

Order book and positioning: INR 550 crore visibility and sector diversification

Konstelec’s investor presentation highlighted an order book of over INR 550 crore as of 22 May 2026, with execution timelines spanning 18 to 24 months. The company framed this as a key driver of revenue visibility.

The disclosed order book composition shows a strong skew toward refinery work, which accounts for 53.8% of the order book. Defence makes up 14.3%, transmission and distribution 12.5%, steel 6.8% and mining 6.7%. State-wise, the company highlighted concentration across Odisha (24.5%), Rajasthan (16.4%), Assam (15.0%), Uttar Pradesh (14.3%) and Gujarat (9.7%).

Management also stressed its historical footprint: 30 plus years in operation, 200 plus projects executed, and 900 plus manpower. The company cited an asset-light model and direct relationships with end clients as differentiators.

In the earnings call, management specifically discussed emerging verticals where it expects better margin structures, notably defence and data centre infrastructure. It stated that it is L1 on a defence project for an ordnance factory in Kanpur, with an order value of around INR 74 to 75 crore, and is awaiting the final order.

Working capital, borrowing and finance cost: investor focus remains on cash conversion

The most consistent thread in investor questioning was cash flow and the funding of growth. Management acknowledged the pressure and linked it primarily to client payment terms and milestone-based billing structures. It stated that in many projects the company receives only 60% to 70% during delivery or execution stages, with meaningful retention (including the last 10% to 20% in some cases) released only at later milestones or on completion. This creates a working capital gap during execution.

The balance sheet indicates the intensity of working capital deployment. For FY26, trade receivables were INR 72.12 crore (FY25: INR 66.84 crore). Other current assets were INR 135.65 crore (FY25: INR 116.88 crore), which management linked to differences between cost incurred and milestone billing. Short-term borrowings increased to INR 81.82 crore (FY25: INR 64.66 crore). Long-term borrowings rose to INR 8.51 crore (FY25: INR 4.33 crore). The company reported a FY26 debt to equity ratio of 0.85 and working capital cycle of 163 days.

On the call, management said negative operating cash flows over several years were driven by these payment structures rather than by a single period issue. It also said that as larger projects progress, cash profiles can turn positive in mid stages, but the overall picture can remain negative when multiple projects are simultaneously in early and mid execution phases.

Finance costs remain a near-term drag. For FY26, finance cost was INR 9.95 crore versus INR 7.31 crore in FY25. When asked about reducing finance costs, the CFO said it is not immediately possible, but could reduce over the next three to four years as the company seeks to reduce debt.

On the question of raising capital to ease working capital pressure, management stated it is currently not looking at it, but would wait and watch how the next quarter or so evolves.

Cost environment and bidding discipline: raw materials and logistics are cited risks

Management repeatedly referenced a challenging cost environment. It cited higher prices for copper, steel and aluminium, and also said logistics costs have increased. It further noted that vendors are not holding prices, adding pressure on project economics. While some contracts may have escalation clauses, management said it depends on the contract and in certain sectors escalation provisions may be limited or capped.

This cost context also shaped management’s stance on newer segments like data centres. The company said it is exploring data centre opportunities and has received inquiries, but is being cautious in taking exposure due to raw material price volatility and the potential impact on profitability.

The strategic direction: higher margin projects and profitability targets

In its presentation, Konstelec outlined a multi-year agenda under its Vision 2029 framing. The company stated it is exploring expansion into higher margin, value-added projects across data centres, defence, railways, renewable energy, water treatment (STP and WTP), exports, and O&M.

It also articulated profitability aspirations: targeting EBITDA margins to the mid-teens through operational excellence, backward integration and project mix optimization, and targeting a doubling of PAT margins through cost efficiency, execution improvements and higher return opportunities. In the concall, management reiterated a 2 to 3 year time horizon for meaningful improvement in top line and bottom line metrics.

The company also stated a focus on deleveraging and improving ROCE, though it did not provide a quantified ROCE target. When asked about capital efficiency, management linked prospective improvement to better margins and maintaining debt at manageable levels.

Takeaways

Konstelec’s FY26 results show a visible recovery in profitability, especially in the second half, supported by margin expansion in both EBITDA and PAT. The disclosed order book of over INR 550 crore provides revenue visibility over the next 18 to 24 months, and management is attempting to reposition the company toward higher value segments like defence and data centre infrastructure.

At the same time, the investment debate remains centered on cash conversion. Management acknowledged negative operating cash flows and attributed them to client payment terms, milestone retentions and the working capital requirements of scaling execution. Borrowings and finance costs have increased, and management does not expect immediate relief on interest costs.

The next phase of the story depends on whether the company can translate its order book into sustained margin improvement while gradually improving working capital efficiency. Management’s own timeframe for meaningful progress is two to three years, with a cautious stance on bidding in a volatile raw material and logistics cost environment.