Recently, the company secured orders worth ₹1,040 crore in the T&D segment, bringing its total order inflow for the year to ₹17,300 crore.
KEC International, headquartered in Mumbai, is an Indian multinational manufacturer of power transmission towers, also specialising in engineering, procurement, and construction (EPC) services.
With a market capitalisation of ₹30,775.38 crore, the company’s stock has surged over 95% in the past year.
Below is the verbatim transcript of the interview.
Q: In the last conversation, you were telling us how the ordering trends are strong indeed, and you are seeing a big pickup ahead. Is this likely to continue into the last quarter of the year as well? And where do you see the maximum traction when we talk about your order book growth target and your revenue targets, we have been talking about 15-20% growth. Which sectors will give you the biggest kicker?
A: The answer is clear. It’s transmission and distribution. For this year, our order intake, we got orders of roughly ₹17,500 crore or so, and more than 70% is from the transmission business. So, we are seeing huge traction in the transmission business, obviously on account of the thrust of the government on renewables. It’s both in India, surprisingly, what it’s in India as well as for us in the Middle East. So, if you look at our transmission order intake for the year, it’s only 40% in India. 60% is from the international market.
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Q: I want to quote the previous sentences we got from you. You said, have never seen such strong ordering activity in this sector and see further requirements. So, at that time, you gave us a forecast, or rather a guidance, of 15% revenue growth and 7.5% EBITDA margin. Would you want to improve upon that looking at the optimism in the sector?
A: On the revenue guidance, we are still where we are at 15% and we will also stick to 15% for the next year. Revenue and margin, we should be there. I am not very sure because there has been a slight delay in some executions on the newer projects. But we should be there.
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But we have also said that next year we should be above 9%. So, we are happy with what we are seeing. And one question was, there was on the January-March quarter (Q4FY25), there will be a lot of orders which will come in Q4; we already have L1 of more than ₹5,000 crore. So, this trend will continue in Q4 as well as in Q1.
(L1 stands for “lowest bidder” and refers to awarding projects to the bidder offering the lowest price.)
Q: Execution is slow in some areas, you said. Is this government-related when you look at the fiscal numbers, the capex has not been as strong as the budget estimates gave us. Is that the reason why things are not as fast as you would like them to be?
A: That is a reason more for the order intake not picking up in our civil business. We were targeting around ₹5,000 crore of order intake in civil; we are around ₹4,000 or so because there is hardly any public capex, except on the T&D side, which is not as much government dependent as what Power Grid does and other people do.
In the public space, I have not seen much spending happening in any area. So that is one reason for the order intake slowdown on the civil side, which is compensated by the T&D order intake. However, on the execution side, the biggest challenge we are still seeing is a shortage of manpower; we are still short of 4,000-5,000 people across our businesses. So, when I say manpower, it’s basically at the technician level, the fitters, carpenters, masons and all those people.
Q: Returning to the more micro point of your Rooppur plant, change of government in Bangladesh. How is that progressing? Is it progressing at all? Any worries? Would it be cancelled?
A: We are not directly associated with the plant. We are doing two transmission lines there, and work is going on. As far as we are concerned, we have not been impacted on the transmission side.
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Coming back to your earlier point, it is not a question of skill deficiency. It is a question of people not wanting to leave their houses and come and work. It is an issue and we have been seeing this from the day COVID happened, when people walk on the roads that fear is still there in people and with the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA) etc, people feel why to go out and work somewhere else when they are getting, at least a part of it, sitting at home or doing farm work, etc. So, it is a question of how we motivate people to leave their homes and come and work on these projects.
Q: The last time we met, the numbers we had with the order book at around ₹34,088 crore and you were L1 and over ₹8,000 crore of orders. So now, as we are almost closing out the year, where does the order book stand, the actual one and the one where you were already L1?
A: The order book remains as it is because, after the last, when we spoke, we had execution for two months. Unfortunately, we have not had too many order conversions from that day, but we are expecting some more to come in. So, the order book plus L1 right now is at ₹40,000 crore. We expect that the order intake for the year, which is around ₹17,400 till now, will touch the projected ₹25,000 crore by March end.
Q: What about railways because in the earlier part of the year that was where you had a bit of a concern, things were not moving. But that is also a segment that you have been looking at and what do you expect in the coming Q4?
A: Railway remains a concern. Execution is still a problem on the conventional railway side, where blocks, etc are becoming a big issue. However, what has changed since last time is that there have been many Kavach tenders which have been issued, and the government has started awarding them, especially on the Loco side and the infra side. So, that part, which is right now not there in our order book, beyond what we were already doing, those orders will start coming in either this month or next month. So that is the good part of railways, where the Kavach orders and some more technology-related projects are coming up.
(Kavach is an automatic train protection system developed in India to enhance rail safety.)
Q: How would the margins be on Kavach, as and when these orders come?
A: Kavach would be slightly higher than the conventional margins because it’s a technology product. It would surely be around double digits or so. The challenge remains on the conventional and some part on the cash flows. Railways have been having some cash flow issues, and that is a challenge which is also slowing down some execution.
For the entire interview, watch the accompanying video
