KEC International Ltd

NSE:KEC

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, good day and welcome to Q1 FY '23 Earnings Conference Call of KEC International Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Vimal Kejriwal, Managing Director and CEO of KEC International. Thank you and over to you, Mr. Kejriwal.

[Vimal Kejriwal, executive]

Thank you, Nirav. Good morning. I welcome you all to the Q1 Earnings call of KEC. I hope that you and your family are safe and healthy. Let me start with an update on the overall performance for the quarter and thereafter talk about each of the respective businesses. We have achieved revenues of INR 3,318 crores for the quarter with a robust consolidated growth of 31% and the stand-alone growth of 22% vis-a-vis Q1 last year. The growth has been delivered by good performances in most of our businesses such as T&D, civil, railways, oil and gas and cables. We have delivered EBITDA margins of 8.2% at the stand-alone level and 5.1% at the consol level for the quarter. The consol margins have been impacted primarily due to the elevated commodity prices and logistic costs and SAE Brazil performance. While we have started witnessing softening of commodity prices in the latter half of Q1 FY '23, most of the cost during the quarter has been committed at the levels of Q4 FY '22.

We have delivered a PBT margin of 4.8% and the PAT margin of 3.5% at the stand-alone level. Our consol PBT margin stands at 1.1% and PAT margin at 0.9%. Our YTD order intake stands at INR 3,472 crores including the recently released orders of INR 1,233 crores. The largest contributors in the order intake has been our civil and T&D businesses followed by railways and cables. We have a well-diversified and strong order book of INR 23,720 crores as on 30 June '22. Additionally, we have large L1 positions of over INR 8,000 crores diversified across businesses. With this, our order book plus L1s position stands at a record level of over INR 30,000 crores. Tenders under evaluation and in the pipeline to be quoted in the next couple of months stands at over INR 1,10,000 crores. Our net debt as of 30th June '22 stands at INR 3,418 crores.

The debt level has increased during the quarter owing to loss and elevated borrowings in SAE Brazil and a few orders in stand-alone where the dependency component is much higher and the payments would come towards the end of the order. Our interest cost at the stand-alone level stands at 2.6% for the quarter as a percentage of sales, largely in line with last year. Higher debt level and increasing interest rates in SAE Brazil have increased our interest cost at the consol level, which stands at 3% for the quarter as a percentage of sales. Now we talk about the specific businesses. Our T&D business has achieved revenues of INR 1,645 crores with a strong growth of 17% vis-a-vis Q1 last year. The growth has been delivered by robust execution across India, Americas, SAR, Africa and Middle East. In Brazil, I'm pleased to share that we have physically completed 4 EPC projects this year, 3 of them have already been energized and the fourth one is awaiting energization by the client.

We have also secured a bonus for timely completion of 1 of the projects. With this, we now have 1 EPC project under execution, which is scheduled for completion by end of Q3. We are confident of a gradual revival in the performance of Brazil in H2. In terms of order intake, the T&D business has secured new orders of over INR 1,200 crores for T&D and cabling projects across India, Middle East and Americas. I'm pleased to share that we have secured a prestigious order for the building of India's first 765kV digital substation from Power Grid. The orders in India have strengthened our order book from PGCIL and state utilities and expanded our private clientele. With the cabling order in Middle East, we have reinforced our presence in the international cabling solutions segment. We have also significantly enhanced our order book in Americas to INR 1,138 crores for supply of towers, hardware and poles, a growth of 18% vis-a-vis last year.

With this, we now have a complete loading of the SAE Mexico factory for the balance quarters of this year. The overall tender pipeline in T&D continues to be strong both in domestic and international markets. Additionally, the business has a large L1 pipeline of over INR 2,000 crores contributed equally by the domestic and international markets. Our railway business has clocked a revenue of INR 700 crores for the quarter with a stellar growth of 19% vis-a-vis Q1 last year. The business delivered a double-digit margin despite a challenging environment. The business has also secured orders over INR 400 crores comprising of orders in conventional OHE as well as orders in new areas of speed upgradation and OHE for metro. We continue to focus on opportunities in emerging areas such as TCAS, train collision avoidance system under Kavach, which aims to enhance safety of Indian Railways with world-class technology.

The railways tender pipeline continues to remain healthy across conventional, technologically enabled emerging areas as well as international opportunities. We are witnessing a gradual pickup in the tendering activities and are confident of securing a large share of orders in the coming months. With the continued thrust on execution, strong tender pipeline and an order book plus L1 of over INR 6,500 crores; we remain confident that railways will continue to grow. Our civil business has delivered an exemplary performance with revenues up over INR 600 crores for the quarter with an impressive growth of 4x vis-a-vis Q1 last year. The business continues to deliver consistently on the order intake front and has secured orders of over INR 1,200 crores across industrial, residential, hydrocarbon, defense and data center segments. Additionally, the business also has a large L1 pipeline across water pipelines, industrial and residential segments.

The uptick in order intake has significantly enhanced the order book plus L1 to an all-time high of over INR 10,000 crores comprising of turnkey EPC projects across segments from marquee clients. The government spending across segments continues to lead the way for growth with a special emphasis on urban infrastructure and water pipelines. We are also witnessing a gradual revival in the private CapEx in the industrial and the realty sector. We are confident that this business will be the key growth driver for us going forward. In oil and gas pipelines, the business has delivered revenues of INR 92 crores and secured an order of INR 105 crores during the quarter. With concerted efforts, the team has successfully achieved completion of a targeted pipeline laying project, which will significantly enhance our PQs and pave way for us to secure similar orders in the future.

The business has a strong order book plus L1 of over INR 1,000 crores comprising government and private players. We are confident that this business will become a significant part of KEC's overall business portfolio in the coming years both in India as well as overseas. Our cables business has grown by 26% vis-a-vis Q1 last year and achieved revenues of INR 419 crores. During the quarter, we have formally inaugurated our state-of-art railway products manufacturing facility. Over the last couple of years we have developed and launched new products such as signaling cables and jumper, dropper wire through this facility and have also ramped up capacity to manufacture contact and catenary conductors. This strategy of backward integration is helping us make cables business a strategic enabler for our railways business and at the same time address the growing demand for railway products in the external market.

The business is also progressing well with the development of additional new products. It has received approvals for a few products during the quarter and is on track to commercialize them this year. Overall, we are pleased with our revenue growth and order intake despite significant challenges. We are making good progress in deploying several mechanization, automation and utilization initiatives across projects to improve productivity and the quality of execution. We have started seeing softening in the commodity prices of late and have commenced execution of projects, which had been secured on higher commodity and logistics costs. On a concluding note, I'd like to convey that our traction order intake, record order book plus L1 of over INR 30,000 crores and a strong tender pipeline; we are confident of delivering continued good growth in the balance 3 quarters of the financial year.

Thank you very much. I'm now open to take questions.

[Operator]

[Operator Instructions] First question is from the line of Ravi Swaminathan from Spark Capital.

[Ravi Swaminathan, analyst]

First, we would have seen a healthy order inflow growth of around 7%, 8% CAGR. Just wanted to check with you over the next 2 to 3 years, what kind of order inflow growth that we can think about and which are the segments which will drive? So will it be basically the civil and railways, which will be the key drivers? And if you can give the thought process on power T&D spends also would be great, sir.

[Vimal Kejriwal, executive]

So Ravi, on the order intake side, I think our targets are around the 15% to 20% growth year-on-year for the next few years. That's on the overall numbers. The drivers, the way it is happening today is going to be number one would be civil, number two would be T&D, and three would also be oil and gas, but the base is small so the percentage increase may be significantly higher, volume wise it may not be that much. Coming back to your question on T&D. We already announced a couple of orders from Power Grid in the last few years. We are L1 in some more of them. So Power Grid is slowly coming back into the fray as a larger client in India and I think yesterday or day before, we saw a news item where some INR 22,000 crores of funding for the Leh-Ladakh transmission line is under process or something.

Those orders -- those tenders should come out quickly as per our discussions with PGCIL. Also we expect that the decision on the GIB should also come in the near future, which would again sort of release the entire Green Energy Corridor orders which are -- the TBCB bidding, which is on hold. That should get released in I think the very close future. So I think on the India side, we are pretty hopeful of a large tender pipeline and order intake in the coming quarters. Internationally, I think the major orders or tenders are coming in from Middle East driven by the oil price of $100 plus. 2 countries stand out, which is Abu Dhabi and Saudi, and the other country where we see orders coming in is Bangladesh so these are the areas where -- and sorry and Americas, both North America and South America we are seeing. I already mentioned that our Mexico plant is full. Brazil also we have got lot of orders now on the power supply and hardware and we are expecting some more orders.

[Ravi Swaminathan, analyst]

Got it, sir. And my second question is with respect to the losses in SAE. So what was the absolute loss at a PAT level in SAE or at an EBITDA level this quarter? And what is the [indiscernible].

[Vimal Kejriwal, executive]

So at PBT level, it was around INR 100 crores and EBITDA was around INR 70 crores.

[Ravi Swaminathan, analyst]

Okay, sir. At EBITDA is around INR 70 crores. And how do you see this improving and what is the key reason behind it? Is it because of currency and the combination of execution or any other factors related to that?

[Vimal Kejriwal, executive]

So one reason when you see the difference between EBITDA and PBT is the interest cost whereas there's a loss funding loan and also the interest cost there has gone up from 7%, 8% to 17%, 18%. So one reason has been the highly elevated interest cost I'll say. And the second has been the delays which we are having in project completion and contractual issues on COVID and all that. So our view, Ravi, is that by end of this quarter or max maybe a month behind that we'll finish all our EPC projects. We have got large claims which are getting under discussion and I think by Q2 or max Q3 those claims will also get settled and so by that time, we'll be completely out of our losses on our EPC projects in Brazil. So Q2 and maybe a little bit spillover in Q3 I'm not sure. We'll see if the claims can be closed in Q2, then the whole piece should get closed in Q2. If not, there could be a minor spillover in Q3.

[Ravi Swaminathan, analyst]

Got it, sir. And third question with respect to working capital so basically from 130, 135 days range, this quarter it has jumped up to around 150. So you had mentioned railways in the PPT so is it like -- so the mix itself is like that or some payment delays which will get restored over the next 2 to 3 quarters?

[Vimal Kejriwal, executive]

So Ravi, there are few reasons. We mentioned railways, but one is starting with the fact that we grew by 31%. So the fact that we are growing by 31% means your absolute working capital days will definitely go up. So that's one reason. Second is we have been losing money in SAE Brazil, that requires some funding to be done. So that's the second piece. And third piece is what we are talking about is we have got a few projects both in railways as well as in T&D where a significant portion is back-ended especially on price variation and some other items. So those projects are slowly coming to a close so we do expect that by Q2 or Q3, that funding will get released. So we expect that by Q3 onwards, we'll start seeing a reasonably good improvement in the working capital. Q2 may still remain at stretched levels, maybe these levels, maybe they may come down little bit; honestly difficult to predict. But Q3 onwards, I think we are very confident that the working capital will start showing improvement.

[Operator]

The next question is from the line of Parikshit Kandpal from HDFC Securities.

[Parikshit Kandpal, analyst]

So my first question is on this increase in the debt so that has been increasing and it's almost doubled from the levels of FY '21 if I see from INR 3,200 crores to almost INR 6,000 crores now including acceptances. So if you can -- I remember in June '21 you had an Analyst Meet and you had highlighted that you have about INR 200 crores of capital employed in civil business and INR 1,200 in railway business and total was -- about INR 1,450 crores was the total capital employed in these 2 businesses. So if you can just give a breakup of this debt level, how it is split across businesses T&D, civil, railways and SAE? So that would be helpful for our understanding.

[Vimal Kejriwal, executive]

Parikshit, I don't have that break-up now. You can talk to Abhishek later on. But broadly I can tell you that civil, we are pretty okay with our numbers in terms of debt and our net working capital. I think the problem is still with lying one is railways, as I mentioned, a couple of projects are on a different mode last year. Railways earlier always used to have BoQ based projects. Of late, I'll say a 1, 1.5 year back they shifted to in a way LSTK sort of what we call EPC where payments are made on achieving certain milestones, et cetera, which is a new concept both for our railway team as well as for the railway team itself -- for the railway client also. So that has taken some time for people to understand how to implement and close it. So that is happening.

Then on the T&D side, we have got some very large profitable projects where contractually all the price variations are payable at the end of the year and you know that last 1 year, there have been large price increases. So there are substantial amounts which are to be received from the clients, which we'll start getting now that the projects are going towards an end so to me -- and also obviously SAE losses were there. So these were the reasons why the numbers have gone up. But as I said earlier to Ravi, I think we are pretty okay. We are pretty confident that the numbers will start improving next quarter onwards.

[Parikshit Kandpal, analyst]

Because, sir, if I see last 3 years cash profit if I add up, it's about INR 2,000 crores of cash profit you have generated and if I see the working capital -- the growth in the revenues, your working capital should have increased by INR 800 crores to INR 900 crores. You have done some CapEx of INR 700 crores, INR 800 crores over last few years, but your debt has gone up by INR 2,700 crores. So I'm not able to reconcile why there is such a huge debt built up because typically EPC companies we don't see debt coming down. Once debt reaches this level, we've hardly seen this diversion happening. So how do you see the INR 6,000 crores number spanning out over this year-end because you said a significant part of that is also into SAE? So if you can quantify at least what is the debt sitting in SAE and how will be the year-end looking in terms of overall debt?

[Vimal Kejriwal, executive]

So Parikshit, one is I don't agree with you that once it goes up, doesn't come down. If you look at our history also, our debt has been coming down consistently except when the COVID hit us. So I think we are pretty confident between our teams that I know debt will go back to our normalized levels and we have been talking about debt minus acceptances going back to INR 2,500. Whether it will go down at Q4 or whenever it is, but the target is very clear and I think we are also doing lot of things on that front. So I think as a team, we are pretty confident on it. We are worried because see I'll tell you what has happened is we have got an Afghanistan issue. So we have got net of INR 250 crores stuck there, which we were expecting that some part would start coming in. It has not come in, but lot of discussions with World Bank and ADB is going on. So maybe the money may come in Q2 or maybe the money may come in Q3. Then what we talked about back-ended payments, those payments will start coming in Q3. So I think Q3 onwards, you will definitely start seeing an improvement in the numbers.

[Parikshit Kandpal, analyst]

Just last thing, sir, on SAE debt. How much is the debt and how much is the claims which you're looking to file because you did mention about some claims and realization of claims by Q3? If you can just quantify these 2 numbers.

[Vimal Kejriwal, executive]

So the debt is around INR 400 crores there. And claims very difficult to give numbers, but we're talking about I think INR 5,200 crores of claims coming in, but let's see what happens. Unfortunately, Brazil has got a very peculiar contractual system and President there has not declared COVID as a force majeure and all that. So all the contracts are becoming pure commercial discussions so let's see. I think as I said earlier that by end of Q2 or early Q3, Brazil it should be behind us.

[Parikshit Kandpal, analyst]

So this INR 400 crores is built up only in this quarter or like last quarter because you said there has been?

[Vimal Kejriwal, executive]

It's over a period, I think last 3, 4 quarters it has built up. I think what has exacerbated the whole issue is the rise in the interest rate from 7%, 8% to 18%, 20%. The interest cost of INR 30 crores, which has gone up there, is partly because of the debt increase and partly because of the rate increase.

[Operator]

[Operator Instructions] The next question is from the line of Swarnim Maheshwari from Edelweiss.

[Swarnim Maheshwari, analyst]

Sir, the first question is now if you see the commodity prices have started receding and we also see the SAE levels maybe a quarter or 2, but that is likely to be behind us. So if you can just give us some sense of comfort on the margins trajectory going forward? I'm not asking for any kind of a guidance over here, but some sort of semblance on the margins part really. That will be helpful.

[Vimal Kejriwal, executive]

So Swarnim, what is going to happen is that I still feel Q2 we'll remain at the similar levels. I don't know with plus or minus 10 basis points, 20 basis points, 30 basis points here or there. Although you didn't ask for a number, I'm giving you a number. But from Q3 onwards definitely we will start seeing improvement in margins driven by 3 things. One is SAE numbers, we should not see any large loss or even if there is something very nominal, but hopefully there should not be much. Second is the commodity prices are coming down so some of our fixed orders which are right now under execution and which will spillover to Q2, Q3, there the losses will come down.

And the third one is that we have an order book plus L1 of INR 31,000 crores and many of the orders are now started executing and these orders are taken at the current prices or in some cases even at the higher prices. So with a combination of all these 3, we'll definitely see the Q3 margins going up. And so to me, I can see an upward trajectory from Q3, then still better in Q4. So that's the way we are looking at the margin trajectory. And also, as I was telling Parikshit earlier, that we do expect the working capital to start improving. So hopefully in Q3 onwards, we may start seeing some decline in the interest rates also. So from EBITDA to PBT, the differentials may start coming down.

[Rajeev Aggarwal, executive]

But it will also be driven by the growth factor so the top line will also grow significantly.

[Swarnim Maheshwari, analyst]

So are you guys targeting double-digit margins by FY '24?

[Vimal Kejriwal, executive]

100%.

[Swarnim Maheshwari, analyst]

So back to our 10% levels?

[Vimal Kejriwal, executive]

Yes. We are clearly targeting to reach that. There is no question about it.

[Swarnim Maheshwari, analyst]

Fair enough. Sir, my second question is on the civil business so we are ramping up quite nicely over there. How is the margin trajectory? Are we now kind of converging with some high single-digit margins or where are we in civil actually?

[Vimal Kejriwal, executive]

So actually this quarter we were almost at double digit. So I think it will take us couple of more quarters. I think by the end of this year we should be ending the year with around double-digit margins. The order intake is at a fairly good margin. So maybe next couple of quarters, we will still try to consolidate. But I think by next year onwards, we should start showing double-digit from Q1 onwards, but that's the expectation.

[Swarnim Maheshwari, analyst]

So railways and civil are kind of double-digit margins because railways, you are also doing double digits, right?

[Vimal Kejriwal, executive]

Railways right now is double digit. The issue what we are having in railways is that we are shifting to more technological metros and other things so some of them there is a learning curve. We expect to continue at double digit, but I don't see a major improvement or anything happening in the railway. Railway I think our problem is not as much as EBITDA as PBT. We have seen blockage of working capital et cetera so we are -- let me put it this way. In a way we are going a little bit slow until we consolidate and get all our monies out of the railways and get our working capital back on track. But railways is also having decent margins, but the margins will go up in civil.

[Operator]

Next question is from the line of Ashish Shah from Centrum Broking.

[Ashish Shah, analyst]

So sir, first question is on again a little bit on the commodity side. So we were at a position in Q4 where some of our orders, the implied commodity price was higher -- sorry, implied commodity price in the contract was far lower than the prevailing prices. So have we -- are we done with those contracts? Is much of that pressure behind us or there is still some to come on the commodity side?

[Vimal Kejriwal, executive]

So Ashish, there is definitely pressure to come, which is why we are talking about improving of margins coming from Q3 onwards and not Q2 onwards. There is still pressure to come. We are fully executing all the orders. I think the good part of it is that with the commodity prices coming down, we have hedged a lot of our open exposures. Those exposures will get into revenues hopefully in Q2 and maximum in Q3. So the open position on commodities has come down significantly. Most of it whatever is hedgeable, we have hedged. There is some small quantum of hedging left out, which we are slowly doing it.

[Ashish Shah, analyst]

Okay. Sir, secondly, I know you said -- you did explain a few things on the working capital side. But do you see any chance that -- let's say if it takes us a quarter or more for the working capital to reduce, it starts impacting our execution. We tend to slow down on the execution because the payments are taking longer. Do you see that sort of a scenario probably happen?

[Vimal Kejriwal, executive]

I'll let Rajeev answer it. I've talked enough on working capital.

[Rajeev Aggarwal, executive]

So I think Ashish, as Vimal rightly said, that some of the reasons he very much explained. We are not too much concerned on the working capital. We have adequately funded all the projects. So our view is that execution will not come under any pressure because there is adequate amount of working capital, which has been pumping in and which has been provided to all the projects which will take care of their execution. And some -- things like which are projects having back-end payment and price variation which will start accruing to us towards the closure of the project. So all those monies will start coming to us. Already in fact there has been some improvement, but obviously in quarter 1 you should appreciate that there is a 30% growth in the business so that has taken some additional working capital. But definitely from Q3 onwards -- Q2 also there will be some improvement, but Q3 onwards I expect that things will be more visible.

There is one more aspect that you should look at that last couple of years our business in civil and railways grew quite well and there most of the projects are carrying the Inverted Duty Structure. So what happens is that all my inputs were carrying 18% GST whereas the output was only 12% so that was adding a substantial amount to my tax balances. So if you look at my balance sheet, there is a substantial increase over the last 2 years on the tax balances that has been added. Also that has also taken a lot of working capital. Fortunately on 18th July, the Government of India has corrected that anomaly and they have increased our GST rate from 12% to 18%. So that will be a very positive result for our working capital and for most of the EPC companies for that matter, which are doing railway project and metro projects, government tenders and all that. So there itself, I expect the release of working capital will be roughly about INR 250 crores to INR 300 crores per year.

So next 2 years probably whatever we have accumulated almost INR 500 crore on account of the Inverted Duty Structure on the tax balances, that will get released. So that's a very positive thing. And last 1 year, 1.5 years because of the elevated price level, all the tenders where we have the price variation also which are funded by multilateral banks, there the clause is that price variation will be settled towards the end of the project. So we have accumulated a large amount of price variation in those projects, that will get settled. So now with the projects getting to a closure from Q3, Q4 onwards then probably we will start realizing those payments also. So we know there is some bit of elevated working capital that we are having, but we are quite sure that amount is going to be recovered shortly. So that's the reason we are not worried on that.

[Operator]

Next question is from the line of Bhoomika Nair from DAM Capital Advisors.

[Bhoomika Nair, analyst]

I wanted to understand this working capital a little more, sorry to harp about it. We've seen the debt go up in SAE. So you said that the losses will come down as these projects get completed into Q2, Q3. But how will the debt reduce out there? And with this reduction in India from both railways and these T&D projects which get completed and the variations come back, then how do we see the working capital days come down to what level? Because we've seen over the last 2 to 3 years the working capital days increasing from 120 to about 148 days and intermittently we even had something much lower than that. So where do we see this settling by the end of the year?

[Vimal Kejriwal, executive]

So Bhoomika, as far as SAE is concerned, the debt will not come down immediately, I don't think. If I gave that impression, my apologies. But I don't think we said that SAE debt will come down because SAE debt has gone up because of the loss funding. So as and when they start now making money and all that, slowly, slowly the debt will start coming down or I put in some more equity from India. Obviously the arbitrage is very high because we're paying 18%, 20% interest there and the cost here are 4% to 5%. But SAE debt will only start coming down when they start making money or I remit more cash from here, equity from here. Overall, I think as Rajeev was talking earlier, we are very clearly -- you know that our targets have always been 100 days. That's the way we have always been. Our aspiration target is always on how do we reach 100 days. We are working upon it. I think difficult to give a number, but I think maybe 10,15 days is what we should be looking at by the end of the year.

So maybe 130, 135 is something which we should look at reaching by the end of the year. And as Rajeev said, which I had missed out earlier, was GST could be one thing that INR 250 crores or something should come back from that. Many of our railway projects where there is EPC project where the payments are milestone linked and little bit back-ended, those are getting over. So large releases will happen from the railways and some monies will come in from our transmission. And hopefully I think Afghanistan, we are seeing a lot of discussions happening between ADB, World Bank. In fact yesterday also I saw [indiscernible] saying that we are working with Afghan government on restarting our projects, et cetera. So if that starts, then that could be an additional bonus for us in terms of reduction of the debt. Are we worried? Yes, we are a bit worried slightly. We didn't want it to go ahead, but I don't think it's something which is impacting the operations or anything else. I hope I've answered your question.

[Bhoomika Nair, analyst]

Yes, sir. Sir, just on SAE basically what we're saying is while the EBITDA loss might come off, but until and unless the internal accruals help in terms of paying out debt or we remit money, the PBT loss because of the interest cost might continue. Would that be the fair understanding?

[Vimal Kejriwal, executive]

I'm not sure about it. See what is happening is that the EPC revenues will come to an end by this quarter, Q3 -- Q2 sorry, maybe a little bit may spillover to Q3. But I think hopefully by Q2 the projects will all get over. Then what will remain there is going to be the revenues from our -- right now we are not -- we have not taken any EPC orders and we are not taking anything in the very near future at least. So our order book there is a large order book and we are expecting some more orders now in SAE in terms of power supplies and hardware. So it would depend upon how the steel and zinc prices behave like zinc has now come down significantly. So it would depend upon the profitability of these orders. Some of these orders are pretty decent and are at current prices, current interest costs are baked in. So if commodity prices remain at the current levels, maybe we may turn even PBT positive also. So that's the way I look at it. It's I'll say a borderline risk case.

[Bhoomika Nair, analyst]

Got it. Sir, my second question is on the railways business. We've been fairly -- because of the elongated payment cycle and receivable cycle et cetera, we've been quite cautious on the order inflows per se because we've come off to less than INR 2,000 crores kind of a number. Now what are we seeing this kind of as you move ahead in terms of order inflows and likely growth because so far the order book has been healthy and we've been able to manage the revenues et cetera. But as we move ahead, what are we seeing out there?

[Vimal Kejriwal, executive]

So Bhoomika, railway business is changing in many aspects. One is the way we have been bidding. So we were earlier doing only electrification, then we got into civil, then we got into signaling and telecommunication. Now today if I want to divide my railway business, there are 3 components. One is on the metro side where we are doing signaling telecommunication OHE, we announced a few orders on the metro segment in the railway business. The second piece is on the railway on the technology side as we call it, which is on Kavach, which is also on speed upgradation, is on signaling and telecommunication. That is becoming a large part for us. Third piece is that what we are now seeing is -- and we were actually [indiscernible] earlier that although tendering was moving in from the PSUs into the zonal railways and we thought that zonal railways are prone to break down the tenders into INR 50 crore, INR 100 crore.

What we have seen is actually the reverse of it. In fact in August we have quote 2 tenders, which are close to INR 1,000 crores, from the zonal railways and what they have done is that they have started combining the tenders of composite with track laying and electrification and signaling and all that, which is where our core strength is. If it was a pure and plain civil tender, then all the road players used to come in and bid. Now that we have clearly seeing stopping. Second piece is that with our bid bonds and all coming back, the competitiveness is sort of number of players have come down and all that. So I think slowly we will start seeing the railway order book building up in various places. We are very conscious of the working capital and I will not say working capital is stuck because of slow payment of the railways.

I don't think that is the right statement which I'll make. It's stuck up because of the nature of the contracting and I think the railways have also realized it so some of the newer contracts they have changed the payment terms. Earlier EPC payment terms were very different from the current EPC payment terms. So we are waiting and looking at each of our tender and then quoting. So I'm very hopeful that our railway order book will increase. In fact we are L1 in 1 of the international orders already. Hopefully by the end of this month that should get converted into our first international order also.

[Operator]

Next question is from the line of [ Shalini from DSP Mutual Fund. ]

[Unknown Analyst]

Sorry, the same thing stuck record. In terms of the railway, when is the project going to be completed? Whether this is an elongated working capital cycle and is that in Q2 or Q3? I just missed that. And second thing is more given the fact that your credit ratings are very important to maintain our low interest costs and keep your ratings at least AA-. Could you tell us in terms of your conversations with rating agencies because a lot of the triggers that they've put in seems to have been -- I mean your numbers are worse off than the trigger? So that's second question that I had.

[Vimal Kejriwal, executive]

So one thing is that the railway project is expected to be completed in Q3. However, we do expect that some of the milestones will be met earlier so part of the money should start coming in Q2 and the balance should come in Q3. As far as the rating agencies are concerned, I don't know what they will do and what they have to do, but we have recently had a review of our ratings and they have been affirmed at the same level. I think, Rajeev, recently?

[Rajeev Aggarwal, executive]

Yes. A couple of months back.

[Vimal Kejriwal, executive]

So I don't know. I don't think ratings are at a risk today. One minute, Rajeev wants to add something.

[Rajeev Aggarwal, executive]

So basically on the rating agencies, so we had a review post our last financial year's result. So rating agencies have taken the case to their audit committee -- to their rating committee, but they did raise some issue on the elevated working capital, but we have explained them that what are the reasons for this increase and how we are taking the steps and correcting it. So based on that, they seems to be satisfied and that is how they have reaffirmed the rating. Both ICRA and other agencies who have been rating us, they have all reaffirmed the ratings at the current level.

[Operator]

Next question is from the line of Renu Baid from IIFL Securities.

[Renu Baid, analyst]

I just have one question pending. On the railway segment of the business, if you look at the backlog today, we are close to INR 3,700 crores, INR 3,800 crores of order book and we are expecting to execute almost INR 3,500 odd crores this year. So coming back to the question in terms of growth visibility for the railway portfolio, if you can help us quantify it as you did mention INR 1,000 crores kind of orders coming through. But how should we look at growth in this segment in the next 2 years? Do we see some bit of consolidation in this business because of slowing order book and increasing competitive pressures?

[Vimal Kejriwal, executive]

So Renu, there is definitely some consolidation happening in this business because there has been a change in the nature of business. As I said earlier, from RVNL and rights and all going back to the zonal railways, et cetera. So there was some consolidation. Also we were seeing some change in track by the government and right now they have started processing on speed upgradation, then they went into safety, et cetera. So there has been some delays in the offering also, but now I think all these things are behind us and we are seeing large number of tenders coming up. Just to give you some sort of numbers. Right now we have got around INR 5,000 crores of tenders, which we have quoted in the railways, which are awaiting an opening. So if you take, let's say, a [indiscernible] 20%, that would give you INR 1,000 crore.

We have another INR 12,000 crores of tenders to be quoted in the next couple of -- I'll say a month or so. So the pipeline, if you add the 2, we are talking about over INR 17,000 crores of tenders to be decided or to be quoted now or within the next couple of months. So I think we are pretty okay. Also as I was mentioning earlier that we should be getting our first international order this month hopefully, we are L1 already. And we are also looking at that opportunity outside where there are large number of tenders, most of it they are not considered in the figures which I told you. So I think railways right now is under consolidation phase. I don't see a major growth happening this year in railways in terms of last year. But next year on the back of the orders which we will now get, we will definitely see a growth happening.

[Renu Baid, analyst]

Sure. And lastly, if you look at the metro part of the portfolio, we were -- if you can help us in terms of the update on the various metro projects that you're executing and there were certain pending cost escalations in a couple of them. Also where are we in terms of realizing those cost escalations and by when should we expect overall margins in the metro portfolio to be realized?

[Vimal Kejriwal, executive]

So we were doing 7 metro civil projects; 2 in Chennai, 2 in DMRC, 2 in Kochi and 1 for RRBS. Of that, the first one in Kochi has already been commissioned, it actually has been commercially commissioned also now. RRBS I think it should get completed any time, maybe a month or 2 or something, but the wire duct is already handed over to the other party to overlay the lines, et cetera. Chennai are going on very fast, 1 of them is in very advanced stage, it will take time but it's reasonably okay. Second one just started a few months back. So as for DMRC, 1 of the projects is going on very well. Second one is stuck in approvals and maybe a part of it we may surrender also because the Supreme Court -- the Green Committee has not yet cleared the full route, et cetera. But I think overall, we are pretty okay with what we are seeing in terms of margins, et cetera in the metro sector.

As far as claims and all are concerned, there is 2 parts to it. One is claims which arise because of various costs and other things and all design changes. Second one is on account of scope changes and all that. So part of that are getting accounted and closed and we are getting payment of it. Part of it which are in the nature of claim like let's say idling claim, you had a NGP issue or you have, let's say, you remember Supreme Court saying that you can't work in NCR in November, December because of smog and all that. Those get into claims which get settled at the end of the project. So those claims will now get settled one by one. But the normal claims on account of change in scope, change in design, et cetera are an ongoing process where we keep on submitting and they keep on getting settled.

[Operator]

Next question is from the line of Priyankar Biswas from Nomura.

[Priyankar Biswas, analyst]

My first question is so you told that railways are already at double-digits EBITDA margins and civil is quite close to that as well. So by implication it means that the T&D margins, which earlier used to be like 10% or somewhere higher than that, seems to be in very low single digits. So do we have -- so there seems to be a lot of legacy contracts here. So what is the status about those and can you give us some type of a idea that when are we expected to complete this legacies and let's say when that T&D margins can go back to somewhere around 10%, 10.5% that we used to be?

[Vimal Kejriwal, executive]

So Priyankar, your calculations are pretty okay I think. And I think a large part of the issues on the T&D margins has been on the commodity side and also on account of SAE because you have to add all the 3 of them. We have International portfolio, we have an India portfolio and we have the SAE portfolio. So SAE has been losing money and which we were talking about it. International also has not been doing very well because most of the contracts internationally were fixed price. They are now slowly getting over. So as I mentioned earlier, I think by Q3 we will start seeing changes. In fact if you look at our order intake for the year, large part of some from international T&D which are at current prices or maybe even higher than current prices.

So now that the execution of those projects are starting, we will start seeing an uptick in the T&D revenues -- sorry, margins from Q3 onwards. We still have some legacy projects from Power Grid and if you remember we had an old Essel project also which was taken over by Adani. So some of those projects are at fixed price and the impact of that you can see in the margin. So that's why our Q1 margins are lower and Q2 also we are not predicting an increase in the margins. So hopefully by Q2 and if not fully then at least the balance would probably get knocked off in Q3. That's the way I look at it.

[Priyankar Biswas, analyst]

So probably let's say 4Q or maybe 1Q FY '24 so would it be fair to say that T&D at least can again go back to double digit? So I'm speaking of T&D individually only.

[Vimal Kejriwal, executive]

So Priyankar I already stuck my neck out and said that next year we should start getting back to do double-digit margin for the company as a whole. T&D this quarter is 45% of my revenue so T&D doesn't reach double-digit, I cannot reach give double digit. So the assumption that is that it will start reaching double-digit or very close to double-digit and backed by civil and railways, we should be -- that was the basic assumption when we said that we should hopefully reach double digit.

[Priyankar Biswas, analyst]

Okay. And sir, one more thing is like I see that in this quarter, the other expenses as a portion of the revenues are quite high like 10% plus. So we hadn't seen that sort of higher expenses for quite some several quarters. So what has actually led to the sudden sharp rise in other expenses. So I understand the commodity gross margin?

[Vimal Kejriwal, executive]

There are 2 items, Priyankar, there mainly. One is the sharp increase in freight cost. For many of our projects in Africa, Saudi, et cetera; we have seen freight going up by 3x or 4x. So the freight is one of the large elements why that has basically gone up. Almost INR 40 crores, INR 45 crores is the impact of the freight going up. The second is that this year we -- this quarter we did not have anything -- ForEx was sort of neutral. Normally what happens is that you have a ForEx income and all that happening, which neutralizes and is set off against other costs under the head of other expenses. So ForEx income this year is virtually 0 or something like that nominal. So because of that, the other expenses are lower.

[Operator]

Priyankar, we are unable to hear you.

[Priyankar Biswas, analyst]

Yes, I can hear you. Hello.

[Operator]

We move on to the next participant. The next question is from the line of Rishab Dugar from CD Equisearch.

[Rishab Dugar, analyst]

Sir, what sort of efforts are being undertaken by you to bring down your debtor days?

[Vimal Kejriwal, executive]

I hope I have answered your question.

[Operator]

Sir, sorry that was Priyankar. We have Rishab.

[Rishab Dugar, analyst]

Sir. what sort of efforts are being undertaken by you to bring down your debtor days.

[Vimal Kejriwal, executive]

I think we -- as Rajeev explained. Rajeev, you want to once again explain what you said about how debt has come down.

[Rajeev Aggarwal, executive]

So basically, Rishab, as I explained earlier that there are few contracts where there is a large price variation because last 2 years the commodities have remained at a elevated level so that has entitled us to get huge price variation in few contracts and unfortunately those funded by the multilaterals that there is a clause in the contract that those price variations will be settled towards the end of the contract. So those things will be settled towards the end of the contract when we finish. Some of them are closing in Q3 and Q4 so we are likely to receive that money. So that will help us bringing down the DSO days. Another important factor that you are aware that Afghan exposure, we have about INR 250-odd crore net exposure in Afghan and due to the force majeure issues, we are not able to recover that money. But our dialog with the funding agencies, World Bank and ADB, are regularly going on and in fact they are going to start the project maybe in Q3 or maybe in Q4.

We don't know, we can't really give you the timeline. But they are very clear that these projects are very important and they want to finish these projects. So once we restart those projects so there is a visibility to recover the Afghan exposure also. So that will help us to bring down the DSO days. The third thing, which is there, Vimal also explained quite a few times is that certain railway projects which are EPC nature, which are very different from the BoQ type of projects where you can only bill to the client and recover the money only on completion of certain milestone and those milestones are like quite big, it takes time to complete those milestone. So once those milestones get completed so you are entitled to raise the billing and then realize the payment. So one of the large projects, the railway electrification that we have doing, is likely to get completed in Q3 so that will also release large amount of money. So our expectation is that between Q3 and Q4, lot of these DSO days will come down because as we complete those projects, we will be able to recover the money.

[Rishab Dugar, analyst]

Okay. Sir, what sort of projects you're more comfortable in taking? Are these the T&D projects or the railway or civil projects?

[Vimal Kejriwal, executive]

Rishab, it is the business-wise project. It is actually individual tender-wise, what are the payment terms, what are the conditions for payment, et cetera. So even in civil and all that, sometimes we get projects which are back-ended or linked to large milestones, et cetera. So it depends upon individual tender and project rather than I'll say classifying it under each business. But generally we have seen that civil payment terms are better and cash flows are better if you execute the project well. Generally, I'm just saying a general statement.

[Operator]

Next question is from the line of Swarnim Maheshwari from Edelweiss.

[Swarnim Maheshwari, analyst]

Some sense on some of the total order in opportunity at the moment that is being targeted?

[Vimal Kejriwal, executive]

So Swarnim, right now if you look at our numbers, we have quoted around INR 27,000 crores of tenders, which are awaiting results. So that's one part of it. And our pipeline for the next 2, 3 months is roughly around INR 80,000. So between the 2 of them put together, it's around INR 1,10,000 crores quoted and to be quoted.

[Swarnim Maheshwari, analyst]

Got it. Sir, this used to be about INR 50,000 crores to INR 60,000 crores about a year back or so. So I believe the big jump is actually coming from the civil, is that a correct understanding?

[Vimal Kejriwal, executive]

Not exactly. Civil I'll say is roughly around INR 30,000 of it. But a large part is transmission both -- one domestic and also international especially on the MENA side. MENA is almost close to INR 20,000 crores right now out of this number. So that's a large percent.

[Swarnim Maheshwari, analyst]

And domestic T&D?

[Vimal Kejriwal, executive]

T&D the numbers are very big. I don't know if you include Leh-Ladakh and all that, then we are talking about INR 35,000 crores. That number is included in this because of the large number of, Swarnim, tenders which are stuck on the GIB issue, which I think the expectation is that will get resolved either way very quickly. If there is a problem, then my cabling business will do well. If they agree to only transmission line, then the transmission will do well.

[Operator]

Thank you. I now hand the conference over to Mr. Kejriwal for closing comments.

[Vimal Kejriwal, executive]

Thank you, everyone, for your continued interest. I can only add that we have got a large order book, raw material prices and all are coming under control. So we will definitely start seeing changes happening from Q3 onwards. Thank you so much.

[Operator]

Thank you very much. On behalf of KEC International Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.