KEC International Ltd

NSE:KEC

Earnings Call Analysis

Double-Digit Growth and Robust Order Book

KEC International reported a solid quarter with a 14% increase in revenue to over INR 5,000 crores, in line with annual guidance. The company's EBITDA margins expanded by 160 basis points, contributing to a 54% EBITDA growth compared to the same quarter last year. Profit before tax (PBT) soared 11-fold and profit after tax (PAT) 6-fold over the previous year's quarter. Order intake stood at around INR 13,000 crores, leading to a record-setting order book and L1 position of over INR 38,000 crores. Net working capital decreased to 129 days, and net debt was reduced by INR 300 crores. The Transmission & Distribution (T&D) and Civil businesses were major growth contributors, with revenues up by 22% and 30%, respectively, though the Railway business saw a decline of 28% in revenues.

Consolidated Growth and Performance

KEC International Limited has exhibited substantial growth with a 14% increase in consolidated revenue, surpassing INR 5,000 crores this quarter, primarily propelled by robust performances in Civil and the Transmission & Distribution (T&D) businesses, both within India and on the international front. For the nine-month period, revenue growth aligns with their annual guidance at 17%. An impressive momentum is also observed in profitability, with a 54% increase in EBITDA in Q3 and a 51% boost over nine months. Notably, EBITDA margins have risen by 160 basis points year-over-year to 6.2% in Q3.

T&D Business Surge and Expansion

KEC's T&D segment has seen a remarkable 22% growth in revenue, reaching INR 2,723 crores. With diverse international contract wins and a robust order intake of over INR 7,500 crores, KEC is cementing its leadership position. A noteworthy presence in the Middle East and record business in North America signify its expansionary strategies. SAE Towers, a subsidiary, posted positive profits for a third consecutive quarter, showing a turnaround thanks to manufacturing focus. The overall order book and L1 in T&D stands at an all-time high with over INR 22,000 crores, signaling sustainability in growth.

Civil Business as a Growth Engine

The Civil business continues its upward trajectory, achieving INR 1,100 crores, accounting for a 30% increase over last year. A varied portfolio of new orders in multiple sectors strengthens KEC's position in this segment, with high-rise commercial projects as a highlight. With over INR 11,000 crores in orders and L1, KEC is poised to capitalize on the business landscape that's ripe with opportunities, reinforcing their belief in Civil as a pivotal growth driver.

Future Outlook and Expansion Plans

KEC's forward-looking strategy includes a focus on renewables and enhancing their product offerings, such as the expansion at the Vadodara Cable Plant to add a fully integrated manufacturing line for aluminum conductors to meet global demand. The project, with an estimated CapEx of INR 60 crores, is slated for completion in the next few quarters, aligning with the firm's vision of backward integration and capitalizing on market trends. Additionally, in the domestic market, significant T&D projects linked to renewable energy are expected to unfold, with bids already in process.

Challenges, Diversification, and Confidence

Despite augmented competition and shifts in clientele, KEC persists in securing orders in both the domestic and international railway sector. Growth in the oil and gas pipeline business and expansion into international markets solidify KEC's diversified portfolio. The solar segment is showing progress with a large 600-megawatt project in Karnataka. Furthermore, the cables business has not only improved margins but has also ventured into developing environmentally-friendly products. With a strong order book plus L1 of over INR 38,000 crores and a tender pipeline exceeding INR 130,000 crores, KEC maintains a confident outlook and commitment to their revenue guidance of INR 20,000 crores.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the KEC International Limited Q3 FY '24 Results Conference Call. We have with us today from the management, Mr. Vimal Kejriwal, MD and CEO; and Mr. Rajeev Agarwal, CFO. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Vimal Kejriwal, MD and CEO. Thank you, and over to you, Mr. Kejriwal.

[Vimal Kejriwal, executive]

Thank you, Michelle. Good morning to all. We welcome you to the Q3 earnings call of KEC. I will begin by outlining the key performance highlights for the quarter, provide insights into each of our business segments and conclude with the outlook for the year. We have delivered a consolidated revenue growth of 14% for the quarter with revenues surpassing INR 5,000 crores. The growth has been primarily delivered by good performances in Civil and the T&D businesses, both in India and international.

With this, we have achieved a consolidated revenue growth of 17% for 9 months, which is in line with our guidance for the year. Our EBITDA margins continue to show an upward trajectory with an improvement every quarter. We have delivered an impressive growth in EBITDA of 54% in Q3 and 51% in 9 months. EBITDA margins for Q3 have increased by about 160 basis points, increasing from 4.6% in Q3 FY '23 to 6.2% in Q3 FY '24.

We have also delivered a noteworthy growth in the bottom line. The PBT has grown by 11x vis-a-vis Q3 last year and 3x vis-a-vis 9 months last year. PAT has also grown by 6x and 2x in Q3 and 9 months, respectively. The revenues and the margins could have been marginally better, but for the challenges in the supply chain and issues around the Red Sea. These challenges have resulted in larger increase -- a large increase in freight costs and also availability of vessels due to much longer turnaround time on most of the global shipping routes.

In terms of order intake, our YTD order intake stands at approximately INR 13,000 crores with significant contributions from T&D and Civil businesses. Notably, 25% of these orders are for -- from supply of products such as towers, cables, hardware and poles.

We are also being very selective on our order intake considering the working capital and the margin profile of our various businesses. Notwithstanding the same, we have a well-diversified and strong order book of over INR 30,000 crores as on date. Additionally, we have a large L1 position of over INR 8,000 crores primarily in the T&D business. With this, our order book plus L1 position stands at a record level of over INR 38,000 crores, which gives us a visibility for the next 6 to 8 quarters.

Our focus on cash flows and working capital management has started yielding results. With dedicated efforts, we have brought down our net working capital by 4 days to 129 days as of 31st December '23 vis-a-vis 133 days around 30th September '23. Our net debt, including acceptances has reached INR 6,045 crores as on 31st December, a reduction of INR 300 crores vis-a-vis 30th September '23. This is despite a sequential increase in revenue of over INR 500 crores.

We expect continued improvements in working capital driven by better collections, commercial closure of projects and a shift in the order book composition with a growing share of Civil, T&D and tower supply business. We remain committed to further reducing debt levels by the end of the year.

The positive trajectory of improvement in borrowing is also reflected in the reduction in interest costs for the quarter. The interest cost has been brought down to 3.3% of revenue for the quarter, a reduction of 70 basis points versus Q2 FY '24.

Now coming to the specific businesses. Our T&D business has achieved revenue of INR 2,723 crores, a remarkable growth of 22% vis-a-vis Q3 last year. The growth has been backed by strong execution of projects across India and overseas, especially Middle East. The business continues to demonstrate strong momentum in order intake with pretty order inflows of over INR 7,500 crores across India, Middle East, Africa, Europe, Australia and Americas.

In India, the business has secured multiple orders from PGCIL and repeat orders from state utilities. On the international front, the business has secured significant orders, especially in UAE with the Dubai subsidiary, KEC EPC LLC, leveraging our Dubai subsidiary, we are strategically expanding our presence in the Middle East resulting in a substantial order book and L1 position, which now stands at over INR 6,500 crores.

Considering the sustained increase in tendering activities in the Middle East, we have undertaken a debottlenecking program for increasing our tower manufacturing capacity in Dubai facility by 20% at a nominal cost. This will enable us to meet the growing demand in the region and further consolidate our leadership in the Middle East.

We continue to widen our presence in the tower supply business. During the quarter, we have secured our largest tower supply order from the United States of America. The momentum in the tower supply order, especially North America is indicative of the growing demand for our product offerings in the region. Our unexecuted order book and L1 from tower supply business now stands at over INR 2,500 crores spanning across 6 continents.

In SAE, I'm happy to share that the business has delivered a positive PBT for the third consecutive quarter. Over the past year, the subsidiary has strategically focused exclusively manufacturing operations, a decision that has resulted in consistent profitability in recent quarters. The business has a steady inflow of orders and a healthy order book and L1 position of over INR 1,300 crores, comprising of orders for supply of towers, hardware and poles and engineering and testing of towers from the Americas.

In Afghanistan, the progress on collection continues as we have realized an amount of this INR 55 crores during the quarter. This brings -- the total collections post regime changed to a significant INR 320 crores. We continue to be in active discussions with the multilateral funding agencies for collection of the remaining receivables and are confident of realizing some more amount in quarter 4 and the balance in the coming quarters.

The global demand for aluminum conductors has witnessed a substantial increase in recent years, driven by the growing emphasis on renewable energy and the need for new transmission lines worldwide. In line with our strategy of backward integration and to capitalize on the sustained demand, I'm pleased to share that we have decided to expand the product portfolio at our Vadodara Cable Plant by setting up a fully integrated manufacturing line for aluminum conductors.

The CapEx requirement for this expansion is estimated to be around INR 60 crores, and the project is expected to be completed within the next few quarters. This development is anticipated to add to the competitiveness of our T&D business and also revenues of our Cable [indiscernible].

As we look ahead, the business landscape continues to be promising. In the domestic market, we are witnessing substantial opportunities of over INR 25,000 crores for T&D projects pertaining to renewable energy, including a large [indiscernible] bid across the states of Gujarat, Rajasthan and Madhya Pradesh. Many of these tenders have already been floated and are expected to be awarded in the next few quarters. We expect another large [indiscernible] project to be floated in the near future.

We are also bidding for selective state utilities in India. Internationally, in addition to Middle East, we continue to actively explore opportunities across [ SAARC ], Africa, CIS and East Asia Pacific. Overall, our T&D business continues to experience a robust tender pipeline, both domestically and internationally. With a record order book and L1 in T&D of over INR 22,000 crores, we are confident of delivering a sustainable growth in this business.

Our Civil business has once again delivered an outstanding quarter, achieving revenues of INR 1,100 crores, substantial growth of 30% vis-a-vis Q3 last year. The stellar performance is attributed to robust execution across all segments. The business continues to bolster its order book with YTD order inflows of over INR 2,500 crores. During the quarter, the business has secured multiple orders L1 in diverse sectors, including metals and mining, residential and commercial buildings, defense and water segment.

Notably, our presence in the commercial building segment has expanded further with a prestigious order from a hybrid -- for a hybrid high-rise structure from a reputed real estate developer. We are now developing more than 50 high-rise buildings across India for marquee real estate developers.

The business outlook remains healthy across segments with a robust and diversified order book and L1 of over INR 11,000 crores, we firmly believe that Civil will continue to be a major growth driver for us.

Our Railway business has achieved a revenue of INR 653 crores for the quarter, degrowing by 28%, impacting the margins and working capital of the business. In a recent development, our honorable Prime Minister, Shri Narendra Modiji, recently inaugurated the new Pandit Deendayal Upadhyay-Bhaupur freight corridor section in Uttar Pradesh. We are honored to partnered with Siemens and DFCCIL to commission the signaling a telecommuting system of this prestigious project.

In terms of order intake, the challenge continues owing to the increase in competition from Tier 2, Tier 3 EPC contractors and the shift in the clientele from railway PSUs to zonal railways. We continue to actively pursue select opportunities in India as well as international in the railways.

In oil and gas pipeline, the business has delivered revenues of INR 182 crores, a good growth of 15% vis-a-vis Q3 last year. The business has strengthened its order book by securing its second order for composite station works. We have also started exploring international opportunities and have been approved by leading global energy company based in the Middle East. The business has a strong order book and L1 of over INR 900 crores comprising government and private players. We are confident of scaling up this business in the coming years.

In our solar business, we are progressing well with the execution of a larger 600-megawatt solar project in Karnataka. We continue to bid actively for select opportunities in line with the sustained commitment of the government to promote renewable energy. We believe this business will help contribute to our growth going forward.

Our cables business has achieved revenues of INR 383 crores for the quarter. The business continues to deliver an improvement in margins on the back of an improved product mix. Notably, it has also achieved its highest ever profitability for the 9-month period of this year.

In line with our strategy to enhance our portfolio of niche products and cater to emerging market segments, we have developed 2 new products, EV charging cables and green cables. These products are also in line with our commitment towards ESG and sustainability.

Overall, we are pleased with our consistent revenue growth, improving trajectory of profitability and optimization of working capital. We generally have a positive outlook for all our business segments. We expect that tomorrow's budget will bring both strategic measures and policies to foster growth and development in the infrastructure sector. The robust order book plus L1 of over INR 38,000 crores and a strong tender pipeline of over INR 130,000 crores, notwithstanding the supply chain constraints, we are confident of maintaining our overall guidance on revenue of INR 20,000 crores.

Thank you, everyone. Open to take questions now.

[Operator]

[Operator Instructions] The first question is from the line of Mohit Kumar from ICICI Securities.

[Mohit Kumar, analyst]

My first question is on this -- on the domestic transmission opportunity. Given the fact that large tending has happened in the last 9 months, we haven't seen the converting into the order inflow for us. You did mention that your L1 in the -- is roughly INR 7,000 crores. Is it fair to say that most of it is coming from the domestic market -- domestic transmission market? And how do you see it going forward for the next 12 months?

[Vimal Kejriwal, executive]

So the L1 has got domestic as well as international. But I'd say a reasonably large amount is from domestic. And as you are aware, there has been a change in guard in our major client, and that has delayed some -- award of some orders, which are in L1. I think we do expect that all of them should get converted into orders very quickly.

Number two is, clearly, we are seeing a large potential, at least in the next few quarters, at least 2 large [indiscernible] which are coming out. One is already tendered out by Power Grid under TBCB. And on the renewable front, I think we have got at least 30, 35 tenders to be quoted for transmission lines. So the potential in India clearly continues to be very good on this.

[Mohit Kumar, analyst]

My second question is on the civil opportunity. So do you think given the fact that we are entering into an election mode, are we seeing a slowness in decision-making and finalization of tenders, and do you expect that weakness to continue for a couple of quarters, especially domestic?

[Vimal Kejriwal, executive]

So as of now, we have not seen any major slowness in orders or something. But clearly, we will have some impact on the announcement of tenders and even on decision of some of the tenders once the elections are announced. Once the Aachar Sanhita comes into place, the tenders will not be opened or they will not be ordered.

Also during 1 month or so of the election period, typically, you find that district administration and all others are busy with the election mode. So wherever you need ground support from government officials, you may see some slowdown. But as far as private CapEx or private projects are concerned and even some of the government projects where you don't need the ground support from the administration execution should not be impacted. But yes, there could be some impact on the announcement of tenders as well as decision of tenders, let's say, starting March or something.

[Mohit Kumar, analyst]

Okay. My last question is on the Cable business, you said that you're going to expand into aluminum conductors, is it fair to say that this -- you are talking about AL59 conductors. That's where the -- I think the [indiscernible] has allowed all the EPC companies to put up the -- to choose between ACSR or AL59. Is that a correct assumption?

[Vimal Kejriwal, executive]

So, Mohit, we were manufacturing aluminum conductors even earlier, but at a very small quantity. So that was more for our business and for railway supplies, et cetera. We are looking at what's happening on the supply chain and the huge order book -- and sorry tender pipeline, which we are saying our own order book. We've decided to this and obviously you're right -- absolutely right. This will also have the capability to manufacture both AL59 and ACSR conductor.

[Operator]

The next question is from the line of Amit Anwani from PL Capital.

[Amit Anwani, analyst]

My question, again, on the conductor side. So you did highlighted that there would be INR 60 crores CapEx. Just wanted to understand what is the capacity now? And will this be the strategic capacity expansion happening over 2, 3 years? Or this is just one-off thing near-term trend and demand in the -- on the conductor side.

[Vimal Kejriwal, executive]

I think we'll have to wait and watch, Amit, as to what happens. The idea is obviously strategic and also with our Cable business now reaching almost INR 1,700 crores. And this will more or less -- if I do a merchant sale of this capacity to add around INR 550 crores -- INR 500 crores to INR 600 crores of revenue also.

So right now, it's more for internal consumption because we have a large queue in the order book and requirement of AL59 and ACSR. So as of now, we don't intend to sell in the market. But depending upon what happens and there's not a high cost also INR 60 crores, and I said the turnover INR 500 crores to INR 600 crores. So from that point of view, we will see what is to be done. I think it's a little bit early on that side. But today, as I said, it's for our internal consumption.

[Amit Anwani, analyst]

Right. The next question on the order intake. So we are at roughly about INR 13,000 crores YTD, and we have been guiding INR 23,000 crore to INR 25,000 crores. Just wanted to understand, are we sticking to that?

And second thing is, despite so much robustness, any sense you're getting from the domestic market, though, we are seeing a strong pipeline that there could be some risk intake or spillover happening from next year onwards.

[Vimal Kejriwal, executive]

So clearly, meeting the guidance of INR 23,000, INR 24,000 is going to be a bit of a challenge because we are right now at INR 13,000, we have INR 8,000 crores of L1. So unless we are able to get some more projects very quickly now and get them before March. It's a slight challenge. I'm not seeing as a major challenge, but maybe a little bit here and there.

But I want to add one thing, Amit, is that if you look at our order intake and all that, a large part of the order intake has been from transmission and especially PGCIL where the execution time has been around 15 months. So the order book to revenue ratio in our case would be significantly controlled unlike other internal players where the ratios are beyond 2 and 3 and all. For us, the ratio has been between -- and I don't expect beyond more than 1.2x or 1.3x, and especially that 20% of our revenues are coming from supply orders.

So if you take that out, we should be having a revenue of INR 18,000, INR 19,000 crores or something like that next year. And so to have INR 25,000 of the INR 27,000 crore order book also is okay. So do we like -- would we want to have a larger order book? Yes, we would like to have a larger order book, but is it okay for our [ client ] to go up for external, I think our current order book plus L1 is also good enough for our numbers.

[Amit Anwani, analyst]

Sir, my last question on the margins. So you did -- we saw the sequential margin ramp up. So just wanted to understand segment-wise, if you would like to highlight, and now Civil is the larger part of the business. How is the margin ramp-up we are expecting in next 6 to 12 months across segments? We saw domestic T&D is also under pressure with respect to margins. So just wanted to understand your view segment-wise, where we are seeing the major margin ramp-up in the next 12 months?

[Vimal Kejriwal, executive]

Typically, we don't give segment-wise margins on this. But let me add one thing. That domestic T&D is right now in a very sweet spot. And I think that they will have pretty good margins, okay? I can only say that maybe closer to a double digit or something. But the domestic T&D, I think, is seeing one of the best years, at least I have seen in my last 22 years, 23 years with this industry. Domestic T&D is really doing very well. And I think international is also picking up.

We had issues in international because of fixed price contracts and all that. Now they're most -- I think almost all are hedged, et cetera. So international will also do well. Civil, we are generally seeing a decent margin, slightly lower than what we would want them to do, okay? But I think the margins and the working capital in Civil are doing well.

Railways continue to be some challenge on account of the delays, what we are seeing because of block availability and other reasons. Cable, I already said that they are one of the best margins. Yes? Thank you, Amit.

[Operator]

The next question is from the line of Bhoomika Nair from DAM Capital.

[Bhoomika Nair, analyst]

Yes, sir, so just continuing on the question on margins. You did mention that some of these international T&D projects, which have been a [indiscernible] are coming to an end. So when do we start seeing this legacy orders of fixed price kind of completing? And when do we start seeing than the current orders kind of reflecting in terms of an improved margin profile?

[Vimal Kejriwal, executive]

So, Bhoomika, I think improved margin profile has started in the last few quarters. We have been improving bit-by-bit, not what you or what we or you would have loved to see, but that's not the way it has happened, but I think we are improving.

Our new margins are starting to kick in. The old ones, I'll say, more or less, on the domestic side, we are through with all of them, okay. International, we still have 1 or 2 orders which we are now in the -- are still in the midst of controlling. So I think by Q1 of next year all the legacy orders should be completely out of our system, okay?

[Bhoomika Nair, analyst]

Okay. Okay. And, sir, how will -- you did speak about the best year that we're seeing in the domestic T&D. Similarly, if you can also touch upon the international when we are bidding for orders and getting orders, how is the bid margins kind of trending? Is that also seeing like a double-digit kind of thing which can possibly reflect into our actual margins into the second half of '25-'26, where these margins are starting to reflect?

[Vimal Kejriwal, executive]

Difficult to generalize about international because, I think, each country has got its own challenges or -- so let's take something like Saudi. And interestingly, what we heard [ L&T ] talking about is not Saudi predominance and all that. So today, if you look at our international market, yes, it's predominantly, I think, 2 or 3 countries. So beyond Saudi, we are doing very well in UAE also, and to an extent in Oman, I will say, and some orders in Kuwait.

So those are the countries where the competition is relatively less because of their prequalification and the criteria, which they follow. It's pretty tight, okay, hardly any -- and if you look at India, hardly 3 companies from India are there in that market. Africa has been a bit of a challenge. But I would say this quarter onwards or maybe last couple of months, we've started seeing new tenders coming in. And we are already L1 in a very large center in Africa, which is part of the L1, which we are seeing, okay?

Now the bright spot seems to be United States, North America and a little bit of, I'll say, LatAm also where we are seeing a lot of inquiries for supplies. And as I said in my earlier part that we have got some very large orders, and we still have very large inquiries, both from U.S. market, Chile, Colombia and also from Australia. So which is why we are trying to expand our Dubai factory also.

So I think overall, the markets are -- look good. Margin would actually depend, Bhoomika, on individual orders. What is the competition, what is the complexity, et cetera, rather than generalizing, okay.

[Bhoomika Nair, analyst]

Right. Understood. Understood, sir. And, sir, similarly for Civil because we've seen the 9 months Y-o-Y kind of being slightly down versus last year. So there are the margins kind of holding on. Is there any improvement? And I do understand that relatively, the margins are lower but the working capital is also much better out there. So if you can just comment on that aspect as well.

And lastly, I just want to also touch upon the working capital, which has kind of seen an improvement in the current quarter as also debt reduction. So what are we looking at the year ends in the next quarter or so? How should we look at this kind of further improvement? Or any comments on that aspect as well?

[Vimal Kejriwal, executive]

So let me take the first 2 questions, then Rajeev can answer on the working capital. So as far as Civil is concerned, I think, yes, there has been a slight, I'll say, a slowdown in the order intake. We were expecting a lot more orders, looking at the growth. But I mean, Bhoomika, what happened was that somewhere the T&D is doing so well. We also upped our gate in Civil. I need 1 or 2 growth engines and if T&D is [ firing ] where I actually have a better control on everything.

Today, T&D is virtually almost 60% of our order book. So we did say that on Civil, we became a lot more selective on what we wanted to do and also at what levels we wanted to do, which is what reflection you can see on the order intake of Civil as well as Railways because in both the cases, we really increase our threshold limits. That's why you are saying -- but in any case, my order book plus L1 in Civil is even today INR 11,000 crores.

So -- and I don't have any large 5-year, 4-year orders and all that. So most of these orders would sort of get executed over the next 15 to 18 months, okay? We are still expecting that we will grow by at least 25% to 30% next year also on top of what we are growing. Yes? So that's on the Civil. What was your second part, sorry?

[Bhoomika Nair, analyst]

On the margins and working capital of Civil, sir. That was actually the question.

[Vimal Kejriwal, executive]

Margins, I think, I generally covered in my earlier part where we briefed about all the books. But today, I think clearly [Technical Difficulty]

[Operator]

Ladies and gentlemen, the management line has been disconnected. Kindly stay connected while I try to reconnect them. Ladies and gentlemen, the line for the management has been reconnected. Over to you, sir.

[Vimal Kejriwal, executive]

Yes. Yes. So Bhoomika, on the working capital front, as you are aware, we are focusing a lot on the working capital. And this quarter, we have been able to reduce debt by about INR 300 crores. And that has helped us to reduce our NWC days by 4 days from the previous quarter. So we are at INR 129.

And we are expecting a lot of collection to happen in quarter 4. And our estimate is that by end of this year, we should reduce the NWC days to about 110 days or so. So last year, we were at about 118 days. So from there, there will be a reduction of another 8 days on the NWC front.

In terms of the debt profile, I think, we should be closer to about INR 5,000 crores, INR 5,200 crores. So including the interest bearing acceptances and that's where with the 15%, 16% growth on the revenue side, we will be able to generally maintain our debt levels at the same level as last year.

[Operator]

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

[Parikshit Kandpal, analyst]

Congratulations on a decent quarter. I heard your overall commentary on the margins, sir. Just on the standalone margins when do you expect that to increase -- improve from here because there we have been seeing something in that many quarters now. So in our overall strategy of moving to high single-digit margins by [ FY '26 ], how do you see these standalone margins playing out?

[Vimal Kejriwal, executive]

So for me, standalone should start improving from this quarter itself because now the India T&D piece is going to start kicking in, okay? So I think from this quarter onwards, quarter-on-quarter, we will start seeing an improvement in the standalone. There's no question about it.

So if you look at the last 1 year, you are aware that we had this TBCB issues where we had the metal prices and all. So all that has been closed. So now you will definitely see margins improving in standalone both in T&D and Civil.

[Parikshit Kandpal, analyst]

Okay. Just on the Dubai factory, so if you can just -- sorry, I missed that when you spoke about order book there. So what is the order book? What was the 9-month revenue and EBITDA from that entity?

[Vimal Kejriwal, executive]

I don't think we spoke about the order book on Dubai. What we said was that order book plus L1 in Middle East is around INR 6,500 crores. We also said that we are expanding capacity by 20% in the Dubai plant at a very nominal debottlenecking cost and all that.

[Parikshit Kandpal, analyst]

Okay. And what will be the revenue and EBITDA from that entity in the 9 months?

[Vimal Kejriwal, executive]

For Dubai, we have got 2 different entities. One is the supply entity, which runs the plant, and then we have an EPC entity. So all our orders in UAE are now under that entity, we call it Dubai ECP LLC. I don't know the numbers for Dubai EPC LLC, but between the two of them, I think we are around INR 1,500 crores of revenue.

[Parikshit Kandpal, analyst]

And EBITDA will be how much?

[Vimal Kejriwal, executive]

Maybe around close to 9%, 8% -- 9%, 10%.

[Parikshit Kandpal, analyst]

Okay. Because when we separate the standalone and consol, I mean, the numbers on EBITDA looks really high. So I was wondering like which entity. So largely the Dubai entity which is contributing this time?

[Vimal Kejriwal, executive]

Parikshit, this is the Dubai entity, and I also mentioned that SAE has been doing well. It is a positive equity with high interest rates in Brazil. So the EBITDA there is reasonably good also. So it's a combination of both Dubai as well as Brazil.

[Parikshit Kandpal, analyst]

Okay. So what would be the 9-month EBITDA for SAE now?

[Vimal Kejriwal, executive]

It would be similar to a 9%, 10%.

[Parikshit Kandpal, analyst]

Okay, 9%, 10% EBITDA. So we are back to that old ways of doing EBITDA [ margins ]. Okay. Just on the residential business. So you did say that you have over 50 high rises you were executing across India. So of the total order book, what will be the private real estate? And in the past, we have had -- now the cycle is doing good, but in the past we have been very, very focused residential or building EPC players exiting the private real estate and focusing more on government sector. So how are we looking to mitigate the risk in case there is a downturn in the cycle in the coming years? So how do we do the risk assessment here while bidding? So what kind of clientele we had? What clienteles we're targeting here so that no major risk comes on us?

[Vimal Kejriwal, executive]

So as far as private residential is concerned, Parikshit, we are working with, I think 4 or 5 of the top developers. I don't think we have more than 5 clients in the private residential, okay? Names I would not like to give here, but may be you can take it from Abhishek. So those are -- on the -- if you look at the public sector, I'll say residential as well as sort of commercial because office blocks and everything is there in that. So we have a few projects with the defense authorities where we are doing at least, I think, 4 or 5 projects with defense.

Then we have got a couple of more commercial projects, which are with private equities and the bigger reputed houses. And then we are having, I think, 4 or 5 data centers, which are again with big marquee names. So that's the way the -- broadly, the risk profile of the clienteles for I'd say, residential and commercial is there.

[Parikshit Kandpal, analyst]

And what will be the total order book from the building segment and this entire piece of which you just highlighted?

[Vimal Kejriwal, executive]

I don't have the number, but I think it should be close to around INR 3,000 crores. If you add residential, commercial and data centers and altogether, which would be INR 3,000 crores or more. Maybe Abhishek can give the exact number, but I think that's the ballpark number.

[Parikshit Kandpal, analyst]

And on an individual basis, sir, how much is your present qualification now on your books right for building segment, especially the government building because we did see some large tenders coming in for station development and all. So how are you placed at to build those kind of tenders and what would be your individual qualification on the government side?

[Vimal Kejriwal, executive]

So, Parikshit, what happens here is that the government tenders for buildings and all come from different authorities. It's not like we have in T&D, we have on power grid. So there you can very clearly define your PQ. Here, it is difficult with some people, we may have INR 500 crores, with some people we may have INR 1,000 crores, very difficult to today quantify as to what you can do. And obviously, with private, you don't need a PQ that way. I think the tallest we are doing right now is a few buildings of 40 story I don't know -- around 40 story is what we have got a few buildings. So that will help us in private.

Public it is different, okay? We -- I think the biggest order we have in public on this is INR 550 crores or INR 600 crores from one of the state governments.

[Parikshit Kandpal, analyst]

Okay. And just the last question, sir. I mean you did mention about strong ordering in T&D, TBCB [indiscernible] so everything now falling in place. INR 25,000 crores, I think you spoke about the total debt pipeline. So just one question. Now when -- on the other hand, we are seeing the -- on the supply chain side, the equipment providers, the transformer, substations and all, they are also talking about shortage of supply coming in.

So in this kind of a scenario where there could be potentially price inflation coming and price hikes coming in the equipment value chain. So how do you -- how are you bidding now when any tender as a composite package on the EPC side? So that our margins won't suffer and there is some undue increase in prices because of shortage of supply?

[Vimal Kejriwal, executive]

So typically, what happens, Parikshit, is that there are 2 types of risks in the price part what you talked about. One is on the subscription side and one is on the transmission side. Transmission is basically conductors where you see a short supply, which is a slightly easing -- it's not easing, but it's better than before I can say that much.

So there, the moment you are L1, you go and hedge your aluminum exposure on the LME or with the vendor. So there is now 0 price risk on that. As far as items like, let's say, GIS and all this is concerned, typically, we have been dealing with most of the vendors who give you a fixed price. You may have a small exposure in copper, which you can hedge in this way.

So I don't see a price risk on what we are doing. Supply risk is always there saying whether it gets delayed or not. But typically, what happens is with the [indiscernible] and today, we are, I think, probably the largest substation contractor in the country. We do sign up on the delivery period before we bid with the vendor. So I don't think we are facing a significant delay. Yes, there are delays of maybe 1 quarter in the equipments moving from 1 quarter to the other quarter. So I don't think we are today worried about it. In fact, to me, it's a better opportunity for us because with our relationship with all the OEMs, et cetera. We do get preference in I'll say at least in supplies, if not in prices, and that's actually adding to our competitiveness.

[Operator]

The next question is from the line of Vaibhav Shah from JM Financial Limited.

[Vaibhav Shah, analyst]

Sir, what could the outstanding debt in the SAE entity?

[Vimal Kejriwal, executive]

[Foreign Language] Rajeev?

[Rajeev Aggarwal, executive]

INR 400 crores.

[Vimal Kejriwal, executive]

Odd INR 400 crores.

[Vaibhav Shah, analyst]

Okay. And what would be the interest cost?

[Vimal Kejriwal, executive]

[Foreign Language]?

[Rajeev Aggarwal, executive]

[Foreign Language]

[Vimal Kejriwal, executive]

Yes, roughly around 12%.

[Vaibhav Shah, analyst]

So we expect to further come down or should be stable around these levels?

[Vimal Kejriwal, executive]

I don't think the interest rates are coming down. Obviously, to the extent we make money there, the debt itself will come down gradually. But interest rates, I think last 1 year, the Brazilian Central Bank brought it down by 25 or 50 basis points last year. After that, they have been quite. So unless and until the global interest rates come down -- honestly, next 2 quarters, I don't see interest rates coming down in Brazil. No.

[Vaibhav Shah, analyst]

Okay. And sir, we have been PBT positive for first 3 quarters, right?

[Vimal Kejriwal, executive]

Sorry?

[Vaibhav Shah, analyst]

We have been PBT positive for the 3 quarters, right?

[Vimal Kejriwal, executive]

Yes, yes, yes.

[Vaibhav Shah, analyst]

And sir, on consol level, we had guided for margin improvement in the second half. So you are targeting around 8% in second half and around 7% for the whole year. So given the weaker margins in Q3. So do we reduce the guidance for the whole year?

[Vimal Kejriwal, executive]

I think we will have to. We still don't have the numbers we are looking at what is going to happen in Q4. But I think that margin guidance looks difficult to achieve today, very, very honestly. But I don't think it is going to be significantly different, okay, from 7%, whether it will be 20 basis points, 25, 30, I don't think we are saying that 7% will become 5% or higher, not that way. So there will be some downward.

This will also depend upon the supply chain part of it. Are we able to get some more supply source or more profitable orders, et cetera, where the margins can be higher. So it's slightly difficult to put our number, but yes, it will be in a way a little bit lower than what we were talking.

[Vaibhav Shah, analyst]

But there will be a significant improvement on a quarter-on-quarter basis in fourth quarter?

[Vimal Kejriwal, executive]

Definitely significant improvement quarter-on-quarter. Also, the interest cost will come down. So on the PBT side, you will see improvement happening.

[Operator]

The next question is from the line of Bala Subramanian from Arihant Capital.

[Balasubramanian A, analyst]

I just wanted to understand what are the challenges we are facing on order intaking. We have guided around INR 20,000 to INR 25,000 order intake, but till we have achieved around INR 12,850 crores. Just want to understand which are the factors we are facing issue, and is there any specific reason? We are facing challenges because of elections? These are my first question, sir.

[Vimal Kejriwal, executive]

So on the order intake, we are at INR 12,000 or, let's say, close to INR 13,000 plus INR 8,000 of L1. So in that way, which was by 2021. As I said, we will not be reaching '24, '25. Also because we very clearly have become a lot more selective on the order intake, especially because we are getting a lot of models. So we deliberately slowed down, especially on the railways where we are seeing a lot of uncertainty in terms of execution.

And Civil where we realize that if it's not the number -- the private CapEx is not happening in the way we were looking at it. But actually, as I said, I don't see a challenge on that because we have a large order book more than enough for meeting our guidance for the next year.

[Balasubramanian A, analyst]

Got it, sir. Sir, on that we are doing debottlenecking in Dubai facilities, like, what is the facility capacity and how much CapEx we are doing? And what is the asset [ tonne ] for those CapEx?

[Vimal Kejriwal, executive]

So we are currently at 50,000 tonnes per annum. So we are expanding it to 60,000. That's -- the cost is hardly less than INR 10 crores.

[Operator]

[Operator Instructions] The next question is from the line of Vinod from BOB Capital Markets.

[Vinod Chari, analyst]

You just mentioned in your opening remarks that the clientele is shifting in railways from rail PSUs to zonal railways. So do you think that will impact our margins and working capital in some sense?

[Vimal Kejriwal, executive]

Vinod, it has already impacted, okay? And we are seeing a significant problem in the margins as well as working capital because what is happening is that earlier you were dealing with, in a way, I'll say, professional managers whose job was to execute projects. [indiscernible] with program manager of that sector. Now one is the number of clients have multiplied. I think there are 17 or 18 divisions in the railways. So you're sort of dealing with 17, 18 different clients where there's a lot of movement of people from 1 railway to other, et cetera.

And they are not the people -- they are very good at running railways, okay? Are they very good at running projects is something, which has been a bit of a problem. Second part is the railways also changed the price -- the railways also changed the numbers from the project right from BOQ to EPC all of a sudden. So one is you've got people who are not conversant with running large projects, and then you also change the type of the project from BOQ to EPC. So that has created a major disruption for all the EPC players. And you can check with any one of them. I think all the large EPC players have been facing a lot of disruption because of this. So unless and until either these things get reversed or the people of railways become much more expert in handling EPC contracts, design-related issues, et cetera. That there will be continued disruption for some more time, at least in the railway EPC orders.

[Vinod Chari, analyst]

Okay. The second question I had was on T&D. You yourself mentioned that it's one of the best years for T&D in the last 20 years. And given the probably increased mix of T&D in KEC next say, a couple of years. You see KEC going back to that old double-digit margins. So I mean if you look at KEC a decade back when we are purely T&D, you used to make 11%, 12% kind of margins.

[Vimal Kejriwal, executive]

So, I think, that's our hope and wish also that we go back to double-digit margin. But I think the way things are happening, I think, at least in T&D probably in H2 next year, we should be reaching a double-digit margin. As I said over the questions earlier that our legacy orders and all that will be closed by Q1 unless we're taking some time more, an extra quarter there. So I do think that by H2, we should be back to double-digit in T&D.

[Vinod Chari, analyst]

Okay. Okay. Finally, Vimal, a macro question. If you -- are you seeing the return of the sellers market given the way the CapEx cycle is behaving? So I mean basically in terms of the -- they have better customer advances and lesser competition. Are you seeing that happening in this space?

[Vimal Kejriwal, executive]

So I think for a particular size of the projects, we are seeing that happening, okay, and particular type. Like I'll give a simple example, railways, if you look at new lines and all that. It's not happening because there are too many road players coming into railways, okay?

But if you look at, let's say, T&D where there are very large projects. Like I remember, 6 months back, we got a project of almost INR 900 crores from Power Grid. For projects of that size and et cetera, it's clearly coming -- I'll not say sellers market, but I think the competition is significantly below what we used to see at 10 and 12 and 14 players. So that's come down.

Similarly, is the position in I'll say Middle East also. Especially UAE, Oman, Saudi, et cetera, where the competition has significantly come down because of the volume of business.

[Vinod Chari, analyst]

Okay. Okay. So we're still probably some time away because from that stage where you probably can command much better advance -- customer advances.

[Vimal Kejriwal, executive]

Yes, customer advances is something which depends upon, again, contract to contract, okay? So the most of the international projects will have an advance. Even now in India also, I think most of the projects now have a customer advance.

[Vinod Chari, analyst]

Okay. But is that quantum going up because in the previous cycle, I recall customers were even willing to pay 15%, 20% in advance?

[Vimal Kejriwal, executive]

So that is happening, especially in the -- on the private CapEx side, where you can go and negotiate with our clients, okay? In all the public sector, et cetera, because it's a tender specification, you're not able to change.

We're also seeing this improving, especially when there is multilateral funded and let's say in Africa and all that most of the projects have15% to 20% advance. On Middle East and India would typically be around 10%.

[Operator]

Ladies and gentlemen, that was the last question. I would now hand the conference over to Mr. Vimal Kejriwal for his closing comments. Over to you, sir.

[Vimal Kejriwal, executive]

Thanks, Michelle, and thank you, everyone, for your continued interest in KEC. Thank you very much.

[Operator]

Thank you, members of the management. On behalf of KEC International, that concludes this conference. We thank you for joining us, and you may now disconnect your lines. Thank you.