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KEC International Ltd
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Ladies and gentlemen, good day, and welcome to the KEC International Limited Q4 FY '22 Results Conference Call.
We have with us today from the management Mr. Vimal Kejriwal, Managing Director 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. Thank you, and over to you, sir.
Thank you, Rutuja. Good morning. I welcome you all to the Q4 earnings call of KEC. I hope that you and your family are safe and healthy. Let me start with the key updates on the overall performance for the year and Q4 and thereafter talk about each of the respective businesses.
We commenced the financial year amidst global upheavals due to COVID-19. The environment continued to be challenging due to a relapse of COVID-19 in many countries, supply chain disruptions and continuous rise in commodity prices and logistic costs. The situation showed some signs of improvement with some corrections in the commodity prices in Q4 FY '22. However, the ongoing tension between Russia and Ukraine created fresh geopolitical uncertainties and another surge in the already elevated level of commodity prices.
At the end of the year, our performance for FY '22 has been a mixed bag. While revenue and margins have been impacted, we have achieved the highest ever order intake, and have been successful in accomplishing quite a few strategic initiatives across businesses. Our order intake for the year stands at INR 17,200 crores, a robust growth of 45% over last year with large contributions by our international T&D and Civil businesses.
This has significantly enhanced our closing order book to over INR 23,700 crores (sic) [ INR 23,716 ], a robust growth of 24% over last year. Additionally, we have an L1 position in excess of INR 4,400 crores. Our order book is well diversified across businesses with an equal share in both T&D and non-T&D businesses.
Coming to the financial performance, we have achieved revenues of INR 13,742 crores for the full year with a growth of 5%. The growth has been contributed by good performances in civil, railways and cables. We are making good progress in deploying several mechanization, automation and digitalization initiatives across projects to improve productivity and quality of execution.
In line with our strategy, the share of non-T&D business has increased to 50%. The growth could have been higher, but for a few force-majeure reasons such as suspension of the projects in Afghanistan, impact on DMRC projects due to NGT environmental issues, COVID-19 challenges in international projects and also increasing commodity prices. We have delivered EBITDA margins of 9% at a standalone level, and 6.6% at the consol level. The consol margins have been impacted primarily due to the continuous increase in commodity prices, such as steel, aluminum and copper, rising logistic costs and obviously, the Brazil performance. I'm pleased to inform that in SAE Brazil, the 2 legacy projects have been physically completed. One of them has already been commissioned, and the second one is expected to be commissioned in the next few weeks. The commissioning of the second one has been delayed by a few months owing to external dependencies and heavy rainfall.
These have resulted in unforeseen costs, which were not anticipated earlier in the form of rework of some foundations for strengthening and rebalancing. The work on other 3 EPC projects secured last year are on schedule, 2 projects are expected to be completed this quarter and the third one by Q3 FY '23. We have also significantly enhanced our order book in Americas with orders of almost INR 1,400 crores for supply of towers, hardware and poles, a growth of over 50% vis-a-vis last year.
In North America, we have secured the highest ever order intake of over INR 500 crores for supply of towers and poles. With this, we now have a complete loading of the SAE Mexico factory for FY '23.
With the easing of COVID restrictions, we have also strengthened the organization in Brazil by sending experienced resources from India. Considering the performance of Brazil, we are offered a prudent approach and made an exceptional provision of INR 99 crores, primarily towards the impairment during the quarter. This has impacted our PBT at a standalone level. However, there is no impact on the consolidated PBT. Excluding the impact of exceptional items, we have delivered a PBT margin of 6% and a PAT margin of 4.5% at the standalone level and a margin of 3.2%, and a PAT margin of 4.6% at the consol level.
Our net debt as of 31st March '22 stands at INR 2,613 crores, a reduction of INR 300 crores vis-a-vis last quarter. As communicated in last call, with dedicated efforts, the debt levels have largely normalized, and we have been able to bring it closer to our targeted borrowing levels of INR 2,500 crores. However, the average debt level has been slightly elevated during the year, which has led to higher interest costs.
Coming to the Q4, we have achieved a revenue of INR 4,475 crores. Our revenues are virtually flat vis-a-vis Q4 last year, and a robust growth of 28% sequentially. Again, several railways and cables have delivered good performance during the quarter. We have delivered EBITDA margins at 7.3% at standalone level and 5.9% at the consol level. The margins have clearly been impacted by the high quality prices during the quarter. Excluding the exceptional items stated above, we have achieved EBITDA margins of 4.6% and PAT of 3.7% as a standalone. Consol EBITDA margin stands at 2.8% and PAT margins at 2.6%.
We have secured orders of over INR 4,500 crores in Q4, led by Civil, international T&D and Railways business.
Now we'll talk about the specific businesses. T&D business has achieved revenues of INR 6,900 crores for the year. The revenues are slightly lower due to the suspension of our projects in Afghanistan, some of the continuing COVID challenges and continued elevated levels of commodity prices. The business has secured significant strategic orders of over INR 7,400 crores across transmission lines and substations. The inflows have been led by orders in the international market, especially in the Middle East, SAARC and Americas.
In line with our strategy, the business has expanded its footprint to 2 new countries during the year. Post commissioning of our 6 tower manufacturing facility in Dubai last year, we have ramped up the production capacity from 36,000 metric tonnes to 50,000 metric tonnes this year. In addition to supplying towers for KEC projects, the Dubai subsidiary has been successful in securing orders of over INR 250 crores from third-party customers during the year. These include orders for supply of towers, and maiden EPC orders from reputed utilities and private clients. The state-of-the-art plant is well poised to serve the high-growth Middle Eastern and African markets amongst other regions.
Despite the muted domestic environment this year, the business has strengthened its presence in India with orders of over INR 1,500 crores from PGCIL, a private player, and state utilities, including Green Energy Corridor projects. During the year, the business has also reinforced its presence in the cabling solutions segment, and has secured one of its largest orders ever for laying underground cables for a state utility in India. The overall tender pipeline in T&D is strong across both international and domestic markets.
With the significant upcoming opportunities of Green Energy Corridor Phase-II and the Leh Ladakh [indiscernible] lines, we are witnessing a gradual uptick in the domestic T&D market, which has been sluggish for the past few years. Some of these tenders have already been floated. Additionally, we are seeing opportunities in states such as Karnataka, West Bengal, Tamil Nadu and Bihar.
Coming to Railways, our this business continued its growth trajectory as it actual revenues of INR 3,860 crores for the year, delivering a growth of 13% vis-a-vis last year. The business has been successful in delivering double-digit margins for the second consecutive year despite a challenging environment. We continue to maintain leadership in the conventional area of overhead electrification, OHE, having successfully executed 24% of India's railway electrification in FY '22, highest in the industry. The business has secured orders of over INR 2,500 crores, a growth of 45% over last year, and a market share of over 20%.
In line with this diversification journey, the business has deepened its presence in technologically enabled areas of metros through orders in OHE, power supply, balastless tracks and third rail for metros, and also widened its presence in the conventional segment with orders in speed upgradation, port connectivity, tunnel ventilation and railway sidings. We have seen some good success with orders in these new areas, especially in the semi high-speed rail and the Mission Raftaar where our current market share is over 60%.
We have also started bidding for tenders on TCAS, train collision avoidance system under the Kavach name, which aims to enhance safety of Indian railways with world-class technology developed in-house -- developed within India. The overall tender pipeline continues to remain strong with a blend of conventional, technologically enabled emerging areas as well as international opportunities.
We're also witnessing a gradual reduction in the competitive intensity, especially in the larger projects with the reinstatement of the bid bonds for government tenders. With the continued trust on execution, a strong tender pipeline, improved market share and an order book plus L1 of INR 6,000 crores, we remain confident that railways will continue its growth momentum going ahead.
Our Civil business has delivered a stellar performance with revenues of approximately INR 1,900 crores, an impressive growth of 75% vis-a-vis last year. The growth has been delivered by robust execution across metro, water pipelines and industrial projects. The business has also seen a record year in terms of order inflows with orders exceeding INR 5,800 crores in FY '22, a staggering growth of over 4x over last year. The business continued its diversification by [ furrowing ] into public spaces segment with maiden orders for construction of an airport, and a high court building, reinforced presence in industrial and residential segments strengthened our portfolio in urban infra and water pipeline segment, and expanded footprint in data centers.
The uptick in order intake has significantly enhanced the order book plus L1 to an all-time high of over INR 7,500 crores. We are confident that the Civil business will be one of the key growth drivers for us going ahead. The growth trajectory in our non-T&D business is a testament of our capability to identify new business segments, develop capabilities and scale them to drive the company's growth.
In oil and gas pipelines, the business has demonstrated a very good performance post acquisition of KEC Spur Infrastructure in October '21. The business delivered revenues of INR 180 crores and secured orders of INR 300 crores for H2 FY '22. At a standalone level, KEC Spur infrastructure delivered revenues of INR 255 crores for the full year against INR 104 crores of last year, a robust growth of 145% vis-a-vis the last year.
Obviously, this full revenue will not come in our books, part of it was before acquisition. In our quest to achieve excellence, we have laid special emphasis to integrate KEC Spur infrastructure with KEC's policies and processes during the year, which is helping us leverage cross-function synergies between the teams for faster growth. With an order book and L1 in excess of INR 800 crores, we are confident that this business will become a significant part of the KEC's overall business portfolio going forward, both in India as well as overseas.
Our cable business has delivered an exceptional performance as it registered its highest ever revenue and profitability during the year. The business' actual revenues of INR 1,524 crores with a robust growth of 45% vis-a-vis last year, contributed by growth across all segments.
In line with our focus on developing new products, the business has commenced manufacturing of a wide range of new cables, which include new varieties of contact wires, catenary conductors, [indiscernible] jumpers and [indiscernible] wires, railway OFC cables, railway core cables and hybrid cables. The business is also on track to develop and commercialize more products for domestic and export markets in FY '23.
In Smart Infra, the business secured an order as a master system integrator for 3 Smart City projects in Punjab. In terms of execution, the projects of Aurangabad and Bidkin Smart City has been completed. The defense project for integrated perimeter security system is progressing well towards completion.
We have embarked on our ESG and sustainability journey last year as we have identified key ESG and sustainably focus areas with measurable targets as part of our strategic sustainability road map for the next 3 to 5 years. I'm happy to share that we are taking great [ size ] on this front, and have undertaken several measures towards transforming our operations in a sustainable manner. One of the key measures is installation of additional solar energy capacity at our Jaipur and Nagpur plants.
We are also planning a new solar plant at our Dubai facility. Our progress on this front has been well appreciated, which is reflected in the improvement of our ESG rating by S&P Global, and KEC being ranked in the top 50 most sustainable companies in India by Business World. During the year, we have partnered with a global consultant for a twofold business transformation program on world-class engineering and sole execution excellence. These initiatives are aimed towards building a world-class engineering organization and developing deep exhibition capabilities for consistently delivering projects ahead of schedule.
Overall, we are pleased with our order intake and developments on the strategic front. However, we had a challenging year in terms of revenues and profitability. We have started seeing some softening in the commodity prices of late. I'd also like to add that we have commenced execution of quite a few new projects, which have been secured based on our current commodity logistic costs.
Having said that, with a strong focus on execution, robust order booked plus L1 of over INR 28,000 crores and a strong tender pipeline, we are confident of an improved performance going forward.
By considering the strong order book and robust business outlook, the Board of Directors have decided and recommended a dividend at the same level as last year of 200% in line with north of INR 4 per equity share in the face value of INR 2 each. Thank you. Now, I'm open to questions. Thank you so much.
[Operator Instructions]
The first question is from the line of Ravi S. from Spark Capital.
My first question is with respect to the EBITDA margin. So this year, we had EBITDA at a consol level with around 6.6%. What kind of margins we can expect over the next 12 to 24 months, assuming commodities came say at the same price, what kind of margins can we expect, keeping in mind the mix and also the raw material [indiscernible]?
So Ravi, I think for the next 1 or maybe 2 quarters, we do not see any major change in the EBITDA margins, okay? Because even Q1 now, we are buying at -- now the prices started coming down, but most of the costs have been committed at the same levels as Q4, okay? So Q1, and also to an extent, even Q2 -- although Q2 may be better, but I don't know today. So I will say that Q1, Q2 should remain at the same levels in standalone. Consol, we'll have to wait and see how [indiscernible] shapes up, okay? We do not expect that the numbers will be as bad as they were in FY '22. So there could be something coming better from that. But I think I'll keep my -- you know, [indiscernible] now.
As far as going on a longer term since you asked about next 2 years, I think H2, we will definitely see an improvement in the margins because by that time, I think almost all of our old projects and wherever we have got some fixed price contracts and all that, either they would have been closed or we would have got a price increase as we are negotiating with some of the people right now.
As far as FY '24 is concerned, I think we should be back to a decent or maybe a reasonable amount of margins, maybe 9%, 10%. I don't know -- it's very difficult to [ hazard ], I guess. But I think back to, I think, decent margins in FY '24 starting from H2.
Got it, sir. And with respect to individual segment level profitability, will it be on par with railways and transmission line towers? Or how is it in terms of profitability?
So as of now, most of our hit has been in transmission. So Civil even now is much better than transmission today, okay? But if you look at FY '22, it is -- and especially on the international side, where the fixed price contracts were more, okay?
If you look at Railways, Railways profitability is definitely better than Civil, but I'd say, it's marginally better, okay? We do expect that we expect Civil turnover to almost double this year in FY '22. And with that happening and the benefits of leverage, it will either catch up with Railways or it will be, I'll say, very close to Railways.
Got it, sir. And the kind of growth that we have seen in Civil is very commendable. So what kind of order inflow growth we can see next 1, 2 years, year-on-year?
Our target would be somewhere between INR 5,000 to INR 7,000 crores or INR 8,000 crores is what we are looking at on the Civil orders. See Civil, I think the issue is that there are -- there's enough business going on. We are just being particular and picking up only what we think our top line, what we want to do. So stable order intake to me is not constrained by the market. It is for by our ability, and what we want to do, yes? I think Ravi, you will have to come back. I think there's a long queue.
The next question is from the line of Kunal Sheth from B&K Securities.
My first question is pertaining to the outlook, if you can speak a little bit about order inflow outlook next year. You would have done well INR [ 17,000 ] crores. So how should we look at order inflow for next year? And specifically, the T&D part, how is the big pipeline and how is the outcome there?
So Kunal, T&D India is picking up -- looking up after a long time, okay? Both -- as I said earlier, both in terms of Power Grid, we have already quoted a few orders for -- a few tenders for Power Grid. A lot more are coming up. One is on the TBCB side and also on the Leh Ladakh tenders are, I think, about to be issued or it will be get issued shortly. So on the PGCL side, they have also been awarded a lot of projects on RTM. So that is definitely picking up.
And I think most of these projects -- tenders would be out and probably be awarded in H1, okay? On the state side, as I mentioned, we are seeing quite a few tenders in the pipeline in Tamil Nadu and Karnataka, and also Bihar and West Bengal. And some of the private sector clients also are there. We have won TBCB projects. We have not yet awarded EPC. So those are also under discussion, which will get finalized hopefully in this quarter.
So as far as India is concerned, we are pretty happy. If you come to SAARC, both Nepal and Bangladesh, we are seeing a lot of tenders there, okay? That's the second piece. Third is Middle East, again, Saudi and UAE, a large number of tenders. Africa is right now muted, not too many tenders. East Asia Pacific, there are a few tenders. We have already quoted some tenders, which should now be opened. So I think we should hopefully get some orders from East Asia. North America, that is U.S. particularly huge amount of orders coming in. Right now, I think we have actually stopped taking orders because our factory is now probably booked for 18 months or so from now. But we are trying to see if we can service those orders from India or our Dubai factory. But for the logistic cost, it's only problem which we can see. Otherwise, we should be able to do it. I think that's broadly on the T&D market.
And sir, overall, any targets that you're putting out on order inflow in revenue growth for next year?
So difficult at this moment, but I think with our current order book and all that, we should at least do a 15% growth next year, okay? And order intake, again, I'll take a similar target so INR 17,000 crores this year, another 15% you add, let's say, around INR 20,000 crores should be the number for our order intake target.
And should the mix remain similar, sir, given that not being almost 50%, is that -- I mean, over the next 2, 3 years, this mix should remain more on that side.
This mix will increase. I think the non-T&D will go up, especially on the back of the Civil growth. So my guess is that it will probably go up to 60% either next year or the year after.
Sure. Sir, and my second question is pertaining to the provisions on SAE that we did INR 99 crores in the standalone. So I mean just a background to -- what was the background for this write-off?
I'll ask Rajeev to take this call. Rajeev?
So basically, Kunal, on this, since we have lost about INR 350-odd crores feet in the current financial year in the SAE, that triggered the impairment of investment with the auditors. And obviously, with such kind of losses, auditors insisted on the, let's say, valuation exercise, detailed valuation exercise of the SAE, and where we had to take some impairment of something around INR 97 crores, INR 98 crores.
So basically, the trigger was the losses in SAE. But ultimately, at the standalone level, there is no impact because when it gets -- investment gets nullified with the amount of equity that we have invested in that entity.
Right, sir. Sir, and just a small clarification sir. You mentioned that the margins will remain more or less at similar levels for the next 2 quarters. So when we see similar levels, it is the Q4 level or FY '22 levels?
Difficult to answer because we'll have to wait and see how the metal prices react. Like we have seen copper has come down to INR 9,500. Aluminum has come down below INR 3,000 after a long time. We -- I think it will depend upon how steel behaves. Coking coal is coming down. Steel, primary steel at the same level, secondary has come down. So -- very difficult to answer whether it will be at the year level or Q4 level. I think I'll just reserve it right now.
The next question is from the line of Renu Baid from IIFL.
The first question is on the working capital side. So usually, we see end of year cash corrections improve, and though the average debt levels are INR 2,500 crores, we tend to reduce it. This was the same target for FY '22 end, but unfortunately, we're not able to do that. And you highlighted some cash flow delays or payments from rail and Afghanistan. So if you can just help us mention that did you see any other pockets of delaying customer payments or pockets of working capital has got stretched beyond the given time line. And how should we look at the same situation panning in FY '23, given interest rates are heading northwards?
So Renu, Rajeev here. So basically, the train, we have been able to reduce, let's say, borrowing by about INR 300 crores in quarter 4 compared to the quarter 3. But basic difference where we could not probably reach to the level of below INR 2,500 crores is there are a couple of large orders that we have taken earlier, in railway business as well as in T&D business. We have -- there is a large amount is -- billing is dependent on the construction of the project.
So basically, it is a large milestone payment. So basically, you have supplied the material, and that material could not be built to the customer because there is a dependency on the completion of construction and commissioning of the project. So on these projects, we will get payments only after we have erected the equipment. So there is a large dependency that actually led to the higher increase in working capital.
And also, generally in railways, we quoted a couple of EPC projects. So [ EPC ] project is slightly different from what we were earlier mostly doing on a BOQ basis. So BOQ basis, you were able to supply the material, the clients used to pay us 50% of the payment. But in case of an EPC, you get payment and billing -- and you do the billing and payment only once you have completed the construction and you achieved a certain milestone.
So it is a milestone based payment, which actually really impacted some cash flow. And we were also, let's say -- in Railway business, we were new to that methodology. So there were some issues from our side as well, so which we are now trying to sort it out. And probably by Q2 in financial year '23, we should be back to the normal state of working capital.
So Renu, let me add one more point here to what Rajeev has said is when we talked about milestone, et cetera. In this contract, you have to finish 15-kilometer stretch at continuously, which normally becomes a bit difficult because we'll have some right of way, something like that. And unless we complete that entire 15 and hand it over, they will not pay you for anything which has gone in [ that 15 ]. I think that's something which was a little bit new for us.
And also for railways. So it's the first time that they've given these contracts. But I think now it's under control. So hopefully, from Q1, you'll start seeing improvement happening. And by Q2, I think it should get largely normalized. That's our view.
Right. But overall, because of increase in borrowing costs, interest intensity for the P&L would be higher in '23, '24.
[Foreign Language] But yes '23, '24 -- in fact, '23 [Foreign Language]
Q4 [Foreign Language]
[Foreign Language] because right now, the CP market and all that has started going up. So we'll start seeing some impact in the -- for this year.
But Renu, my view is that probably we will -- our effort would be to neutralize the impact of the higher interest cost with the working capital improvement. So there's a significant focus on the completion of those milestones and recovery of payment from the client after achieving the milestone. So that should get neutralized the impact of the high interest cost.
Sure. And if I read through our cash flow, so I think almost after 5 years is the first time the operating cash turned negative largely because of this working capital and lower profitability. So once this working capital issue is sorted largely because of the rail projects, should we again expect that business should be back to normal in terms of intensity and cash flows? Or do think there could be pockets of weakness in '23 as well?
Yes, you're right. That's my [indiscernible]
Got it. The second question is, broadly, can you help us update on the overall backlog? What is the share of fixed price projects that we have today, largely centered around T&D and oil and gas pipelines. And you did mention in terms of impact on the backlog in terms of margins as we come from execution in first half.
But if we see last year, a good share of the hardware supplies the conductors were delayed and deferred, and I'm sure they will come up for billing sometime this year. So as in should we brace for some shocks in the first quarter or second quarter? Or broadly -- it should be broadly intact?
So Renu, oil and gas pipeline, as of now, we don't have contracts which have got supplies and all that. Right now, most of the contracts -- since Spur was a smaller company, we're all laying contracts. So there, we don't have any issue on the price size. And as far as I know, most of the contracts are backed by price variation also. So oil and gas is not a worry.
As far as T&D is concerned, we have, I'll say, 3 or 4 contracts where we still have some issues going on. And most of these contracts -- I'll say almost all of them are under active negotiation with the clients on what is to be done. Fortunately or unfortunately, one of the large contracts on the Green Energy, which comprise of 5 or 6 orders which we have, are all under hold because of environment and regulatory issues. And these are on hold for a couple of months, which was also one of the reasons why our Q4 revenues were slightly lower than what we had talked about because the projects were put on hold.
Now if anybody's guess what will happen, when do we get an order from the Supreme Court, when the client decides to restart, and then what happens on the intervening period on steel as well as conductor. That's where we have a larger exposure.
On the other pieces, we do have some exposures, but all of them -- we are under active dialogue negotiation with the clients on what needs to be done, okay? So that is why I was very guarded in my forecast when somebody asked me on what is happening on Q1, Q2. We really do not know how these negotiations will go on, and what will happen, which is why we said that Q1, Q2 could be muted. But we do expect that everything should get over more or less by this spirit. That's what we are expecting.
So -- and also, since you can see our standalone margins in Q4 were also lower than earlier and partly because a large part of the supplies have been made, especially on the steel side. So although steel prices have not come down, our exposures have been coming down because the fixed price contracts are under active execution. And currently, many of the new projects which we are executing are at reasonably -- I'll say, decent steel prices, okay? I hope I...
Yes. Yes. And just the last question that broadly, if you look at the 2-year cycle that you've seen of this commodity inflation, would it be right to perceive that probably now we are almost close to the peak steel prices or aluminum prices? And would it make business sense to probably look back aggressively at fixed price projects in the international market or domestic market? Or do you think it's still too early to call it end game there?
So one thing is that -- our view also is that we have probably reached the peak of the metal prices, okay? So fixed price contracts, we have not stopped quoting, but the -- let's say, the cushion which we used to build in the prices [Foreign Language] and you build in a INR 10,000 in your costing. So that we are now revisiting saying what should be done so supply chain works actively. And we have seen, I think over the last 1 month or so, the steel prices have been more or less constant. And you have seen data seems [indiscernible] Estate companies, the EBITDA started coming down because there is a strong resistance from the market.
And those of you who track the secondary steel, the secondary steel on the rebar, or the sarya as we call it, the difference between primary is now up to INR 5,000, INR 6,000 per tonne, okay? Primary producers have still been trying to hold the prices whereas secondary have realized that they cannot sell.
And because the government had earlier issued a relaxation thing, you can use secondary steel. So I think I completely agree with you that we -- our view also is that we have reached a peak.
Secondly, on your aluminum question, we had deferred a lot of revenue. Some of it we have already started booking. So this quarter, we will be able to reduce our aluminum exposure to some extent. Whatever is open is either under negotiation or, as I said, is under hold because of court orders, which when you start to work again, obviously, there will be a renegotiation. So I think that's where we are. Rajeev, you want to add something?
Yes. Yes. And Renu I just want to add our demand that as far as the aluminum prices are concerned, last, let's say, 1 week [indiscernible] aluminum has fallen, and it has come up to now INR 2,900. So it is coming so some of our tenders, which are quoted around these levels. We are able to now hedge those quantities. So those quantities probably will start getting the dispatched in the current quarter and to that extent, the exclusion will actually further come down.
And that will also help probably in our Q1 revenues.
[Operator Instructions]
The next question is from the line of Parikshit Kandpal from HDFC Securities.
Congratulations for a decent performance in a challenging quarter. So my first question is, until now we have seen negative surprises on account of SAE. In the fourth quarter, we are seeing it on the standalone margin. So do we do cost-to-completion accounting or provisioning for the escalation in the raw material? If so, then why we are still continuing losses in SAE for the next year? And can any negative surprises spring off on the standalone side, especially on the Metro project, elevated metro projects. So if you can give some guidance there.
So Parikshit, we do CTC, okay? And the way it is done is that if your projects go into negative at the time of doing the CTC, then all the future losses are also provided for, okay, #1.
#2 is that whatever is in a way visible, like the problem which I mentioned about Brazil has been the unpredictability of the completion costs. I'll give a simple example like the Lot 4, which we commissioned recently. When we were about to commission, we realized that due to rains and all that, some large hills have come down below the lines, which reduced the clearance level and contractually, we had to spend a ton of money to clear the entire mud and all that and create clearances and all that.
So whenever you have a clear line of sight and saying that this is what is happening. We do normally provide for it unless there is a chance of recovering it, et cetera. So like metal prices, normally, we do not provide because we do not know what is going to happen on the metal prices. But if a clear construction cost happening, which we know that we are paying a higher rate, et cetera, then those get built in.
So SAE will continue to have to be a little bit, I'll say, an open issue for at least a quarter more or so because still the lines are completed until everything is charged and handed over. All the snack items are cleared and all that because we still keep on getting some surprises on the completion. So now that 1 line has been handed over, second line is as I said, physically complete. Whatever losses or whatever costs we are incurring will get booked in this quarter if we are able to finish everything. And then I think that's where we'll probably, as I said earlier, that H1 should see the end of the uncertainty in SAE.
Okay. So sir, the some of the unforeseen circumstances or situations which we -- got developed building the projects. So are there any coverages on the insurance side, I mean, will we get compensated for some of these issues. Because INR 350 crores of loss in SAE last year, I mean, has made a huge trend, both on cash flows and profitability.
So if you can give some sense on that, whether we are covered on insurance here? And on new orders, which you say bagging in now -- so when do you think SAE hitting normalized EBITDA margins? From which quarter do you think the normal EBITDA margins will come in, let's say?
So to me, most of these things are not covered under insurance because that could be a design error or a construction issue or things like that. And unfortunately, COVID-related delays and all that are not covered by any insurance company in terms of the profit reimbursement, et cetera.
As far as SAE is concerned, I think next year onwards, we should start seeing a normalizing of margins. Because all the EPC projects which we have should get over by Q3, as I said earlier. There will be only 1 EPC project left after this quarter. Others all will get over, including the 2 new ones. So -- and right now, we are not taking any EPC projects, although we have been looking at that. But now that we have a stronger management team in place, we will review this.
However, we have got significant amount of tower and hardware orders in Brazil. While the hardware orders are always very profitable, towers have been a little bit under pressure because of the steel price hike, okay, which also was there in Brazil. But now that the international prices have started softening, we do expect that, that will come under control.
But overall, if you look at SAE as an entity, now I also talked about Mexico. We have large orders of almost, I think, $70 million or something in Mexico. So you will also start seeing some neutralization happening through higher revenue and margins in Mexico.
So this INR 1,300 crores -- INR 1,400 crores of inflows in SAE this year. So these are largely -- I mean these does not include any EPC orders?
No. They don't have any EPC orders. No.
And what is the EBITDA margin [ growth ] in these new orders which we have won?
Normally, in that market, we quote anything between 5% to 15%, okay? So there will be -- at different levels.
So blended could be about 9%, [indiscernible].
It's difficult to guess right now, difficult to guess because we still have imponderables. So let's keep our finger crossed and see that. That's why I said that I said that we will start seeing normalized margins from next year.
Just the last thing on the Civil business -- sorry, on the metro and standalone business. So especially in the elevated metro, do you see any reason because we have seen the developers start making margins in metro typically metro -- elevated metro projects go under loss by the time they complete.
If you can give some sense on any negative surprises, which could potentially [ sum up ] the outside SAE universe, wherein we can see standalone margins under pressure for next 2, 3 quarters because of some of these issues on elevated metro or other projects. If you can give some sense there.
We have doing 7 projects in elevated metro, okay, one of them has been handed over, and we have definitely made more money than what we had tendered for, okay? The balance 6 are under various stages of execution. And I honestly do not see anything negative happening on them in that sense. But that would always be -- if I bid at 10%, that could be 9% or could be 11%, okay?
But I'm not seeing a 10% becoming a 4% or 5%, okay? So I don't see any -- as of now on the 6 balance projects which we are doing, I think we are doing reasonably well. As I mentioned earlier, on some of the DMRC projects, we have seen some delays because -- the client was not able to get approval for tree transplantation. I think we have got some of them. So we will start seeing some revenues going in that side. So there could be some marginal impact of delays and all that which the [indiscernible] will compensate at the end of the project. So I think I don't see that as a negative anywhere.
Even on the standalone business, you don't see anything on the margin side, which could be negative, right, including Civil, Railways and [ T&D ]?
Not on Civil, Railway. T&D, I think we had just answered Renu in detail saying that we do have a few contracts where we are under negotiation, et cetera. So let's see which phase of negotiations going and [indiscernible] don't go in our payout, there could be some marginal impact. But I think with the volume, those will get absorbed someway or the other.
The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.
Sorry, we're all going on like a [indiscernible], and we are answering the questions gainly and we really appreciate the answers. I just wanted to know in the T&D business, where you are facing margin pressure, would it be right to say that 35% of the contracts are fixed base contracts given the current order book?
Difficult to say that. I don't think, it is 35%. It's less than that.
It's less than that.
[indiscernible] 15% to 25%.
I don't have a ready answer for you, okay? But it's not that high, okay?
Okay. Let's say it's less than 30%. Now what I'd like to know is what percentage of contracts are with old aluminum prices? And what percentage are with new -- prospectively where we can see better margins going ahead? Because there's the old contract that is causing a lot of pain and it's distorting this -- given the fantastic performance of the order book and inflows, it is still distorting the performance of the numbers of the company. So I just want to know what percentage of contracts are with old aluminum prices, which will get resolved?
I don't think we'll be able to get an answer like that because what is happening is that one is percentage of contracts. And second is many of them we have already supplied. Some of them, we have not supplied. So it's difficult to give you an answer straightaway. That's why when I was answering earlier I said there are, I think, 3 or 4 contracts where we have fixed prices, where all of them are right now under negotiation or renegotiation with the clients, both in private sector, public sector and international market also. -- negotiations are going on and depends upon how the negotiations pan out, what sort of impact would be there. But I still don't expect that there would be a significant impact because a large part of the impact has already come in, in FY '22. If you look at our numbers, and then on the question on the FY '22 margins. One of the reasons for that margin is that the T&D, we did take a lot of hit because we continue to supply especially the towers or the elevated prices. I don't think we have too much of exposure right now. But we still want to keep ourselves a little bit on the safer side.
The other thing is that the new contracts have also started coming in. So you'll also start seeing a mix of that. So even if we are supplying some of the old ones then the new ones will be at current prices. So even if they are fixed price, which is why I said I don't know, I'm not able to give a right answer or a straight answer. Because even if there are many contracts which are at fixed prices, they are at current prices. So when you announce an order intake of INR 17,200, and out of which INR 4,500 crore in Q4. So whatever orders we have got in Q4, most of them are at current steel and aluminum prices. So looking at the ratio of fixed and variable may not give you the right number.
Okay, sir. Fair enough. My second question is on the receivables and the working capital cycle per se. You have decreased the net debt number from December '21, which is creditable. But the interest-bearing acceptances have gone up. So since we have to see it holistically, would you be able to guide on this numbers in terms of this what we see as INR 4,765 as at March '22 because you [indiscernible] pay interest on the entire amount.
See, it is -- basically, you know what -- as I mentioned to the earlier participant that we are trying to correct some of our issues by -- see, we have -- there is some change of model, business model, especially in the Railway business and some of the contract in the T&D business, which have a large dependency. So we have supplied materials. And material, we cannot build because ultimately in the contract, we will be paid once we complete the action of those materials.
So that is where the large dependency is there, which is unlike the previous railway contracts when we were bidding on a BOQ basis, where we used to get 85% payment of the supply of material itself. So there is some change in the contract. The way the new contracts have been designed, and we have bid out. So that is actually causing some pain on the working capital side. But we are completely aware of the issues in the working capital, and we are very focused on that. Our expectation is by Q2 of this financial year FY '23, we should be able to build most of the material which we have supplied along with the construction. So the working capital should start normalizing.
Sure, sir. Last question is on Afghanistan. Given that it's a multilateral project, is there any sign that they will make good the payment to you?
I think we are 100% confident that we will get all our payments, which is the reason -- no provisions have been made by us in the books and neither have been insisted by our auditors, okay? There are 3 multilaterals, USAID, ADB and World Bank, and we are in active dialogue with all 3 of them. I think there have been some developments at the World Bank level and the government of the U.S. levels where they have opened up some dollar lines to Afghanistan.
So I think the general view is that in the next 2 or 3 months, some payments should start coming in or something will happen on the project restart. But all the 3 lenders have assured us again and again, saying that all the amounts which are due to us, will be paid by them. And we [indiscernible] have some ECGC cover on some of the projects. So at least some money is also assured through ECGC, also.
The next question is from the line of Priyankar Biswas from Nomura.
My first question is, sir, what I see -- can you give us an idea like how much of the T&D revenues were sort of impacted due to this sharp rise in commodity prices? I mean like what could have been achieved, let's say, if -- let's say, we had a situation of relatively normal prices?
So to me, Priyankar, INR 500 crores was because of Afghanistan. Had the projects not stopped, we would have booked another INR 500 crores of revenue in Afghanistan, broadly, I'm saying, okay? Another INR 500 crores would be on account of probably a postponement of revenue because of commodity. Broadly, it's INR 1,000 crores.
Yes. So roughly INR 1,000 crores hit is what you are saying because of Afghanistan, and the commodities. And on the same [indiscernible], if I may ask -- see, I broadly understand that most of your non-T&D contracts would have price variation clauses, largely. So is that a fair understanding? I mean most of...
100%, you are right. It's a very fair understanding. But we need to keep 1 thing in mind is that in most cases, except for industrial projects, these contracts, these [indiscernible] are linked to indices. The indices may move exactly in tandem or they may not move in tandem. So sometimes there is a gap. So you may have some negative impact.
But in a rising market -- in a falling market, there's always a positive impact. Like today, even the copper has fallen from INR 10,000 to INR 9,500. Purchase price will go down immediately by INR 500. But the indices will take its own time to adjust to that INR 500. So generally, although we have a full pass-through in most of the Railway and Civil and the cables contract, the indiced movement will always lag a little bit on the rising side as well as on the falling side. But more or less, it evens out during the life of the contract.
So the reason I was asking that, so we can broadly safely assume that whatever margins you are making in non-T&D like, let's say, in railways and civil -- so I remember like 2 years back, you had been very close to like, let's say, a 10% margin on railways. So in the non-T&D, broadly, you would be still at around 8% to 10%, is what I guess. Then...
Priyankar, except for cables. Cables, we don't make 10%. But railways, I said we have made 10% stable is slightly lower than that. You're right, otherwise. Yes.
So broadly around that level. So it seems like when the T&D margins for the first time would probably be based on what the calculation I see, could be below 5%? I mean like some -- what my calculation is coming from...
You're right, Priyankar, primarily also impacted by SAE, okay? Look at it that way with SAE, otherwise standalone margins are at 9%, no?
Okay. So [ ex ] SAE, the standalone margin is like 9%.
Yes.
That's it. So on that side, I'm asking like due to the rising commodity prices as well, so even in the new orders for Brazil, you would kind of have some impacts still going on in SAE. So what is the FY '23 losses that you can broadly estimate versus, let's say, FY '22?
I don't have a number which I can give you right now, but I can only say that they will be significantly lower.
Okay. And sir, the last question from my side. is regarding how much part of the entire order book would be slow moving? Because I heard a question earlier that there are some projects stuck due to litigation. So what part of the order book, including that would be, let's say, you would classify at, let's say, slow moving in that sense?
So we first had DMRC, but I think we have got large permissions already, so I'll now not classify that into slow moving. The only other orders is we have got a few green energy orders which are under hold. I don't have the exact revenue. But [Foreign Language] I don't know. I think you have to speak to Abhishek later on, but maybe around INR 300 or INR 400.
[Foreign Language]
[Foreign Language] Okay. Okay. So it may be -- Rajeev is saying it would be INR 700 to INR 800, including the commodities and everything. So that is on hold.
Okay. So not a very big part of the order.
No. No, no. It's not a very big one. And as I said, we are very happy that it is on hold because that gives you a contractual right to relook at all the costs and everything.
And sir, just last question, absolutely from me. So if you can give me some idea of the prospects, let's say, in a INR crore, something like that in the domestic T&D segment because we had not seen strength in this. So vis-a-vis you gave an order, let's say, a target of something like a growth of -- like an order inflow of, let's say, INR 20,000 crores next year. But what do you see the prospect breakup like in domestic T&D in particular, I mean, in crores?
So right now, we are looking at roughly INR 30,000 crores of tenders coming out in the next half year, H1, okay? 3-0, INR 30,000 crores of tenders largely from -- almost INR 20,000 crores to INR 25,000 crores coming from Power Grid, and another INR 5,000 crores to INR 6,000 crores coming from SEBs and private players. That's the number.
The next question is from the line of Bhoomika Nair DAM Capital.
Sir, in Indian -- for the railways orders, [indiscernible] to see the last 2 years have been quite tough in terms of order intake, and not only on ordering thing, but also in terms of the delayed payments, et cetera. Now as we move ahead, given that our order backlog is equivalent to our revenues, how are we looking at the segment going ahead in terms of finalization of orders, et cetera and kind of the revenue also?
So I think Bhoomika the background in order to understand is that last 2 years, the road sector has not been getting so many orders. So one is, most of the road sector players had moved into railways. Second is government had relaxed the requirement for putting in bid bonds and all that. So which is the basic reason why we virtually gave up the conventional railway market was there was no point in competing with those players who are not on the same league in terms of costing and standards, et cetera.
Slowly, with first January, the bid bonds have come back. So we have started seeing the competitive intensity, let's say, easing up a lot. In fact, in some of the tenders we already started seeing especially on INR 500 crore-plus tenders. So we started seeing only 3 bids, 4 bids coming back. So I think we will definitely start seeing a lot more orders coming in, in the railways, in the conventional sector also. That's #1.
#2, as I mentioned that railways has now moved significantly towards the technology part, especially on the metro, and even in conventional railway on Mission Raftaar and other things, where the, I'd say, competition is relatively lesser.
Third piece is that we have started quoting a lot of international orders, okay? We have quoted some orders in SAARC. We are quoting some in Middle East, and also in the Far East, et cetera, and Africa. So we do expect that by -- within this year, we will start getting in, hopefully, some revenues this year, if not next year. I think we are still hopeful that this year itself, we'll get some revenues in the railways from the international market. So I think we will see a turnaround happening in the railways growth module this year, which was slightly lower last year at 13%. I do think that this year onwards, we'll start seeing better inflows.
Okay. Okay. Sir, as you mentioned on the margin profile, obviously, 1H is going to be a bit of a challenging. But as we move out into the second half, and probably more on a longer-term trajectory, given that the non-T&D portion is rising, 50% already, and likely to go to 60% plus. And within that Civil is growing at a very fast pace. You mentioned that next year, again, if we kind of double it in terms of the revenues. Then being the case, Civil is at a lower margin profile, would that mean that coming to a 9%, 10% margin trajectory given the growing proportion of the non-T&D, particularly Civil, will be a challenge?
Civil is not significantly below, okay? I'll not say it has reached double digit, but it's not something which is at 5% or 6%, okay. So Civil also, as I said earlier, is slowly inching towards railways. Now whether they are able to achieve that this quarter -- this year in Q4 or they go into next year. But I think we will be -- we'll definitely see an improvement in the margins, okay? So I don't think increasing share of non-T&D is a major cause of concern on the margin. Right now, the T&D margins are on the lower than this. So I am actually pushing for more on T&D right now, okay? The [indiscernible] or any time.
Also in H2, I think we will clearly see that SAE impact of the negative EPCs should more or less get hopefully wiped off. So T&D margins should start picking up. Plus you saw that we have got INR 7,400 crores of orders in T&D in FY'22, and the execution of that started. So we will start seeing positive numbers coming in from those orders also, okay? So I think H2 should start seeing significant turnaround in the numbers which have been going down.
Okay. Got it. Sir, just on -- [indiscernible] our size has clearly grown. We have like almost a INR 7,400 crore kind of an order backlog [ bay]. With kind of order inflow continue to grow INR 6,000 crore, INR 7,000 crores that we might be looking at. Maybe if you can just comment on the [indiscernible] intensity in the Civil space [indiscernible] on how are you seeing the [ competitive ] intensity...
Sorry to interrupt you, Ms. Bhoomika, but your voice is not audible. It is breaking, ma'am.
It is breaking. I couldn't understand your question.
Sir, I was just asking what would -- how would be the competitive intensity in Civil orders now that we are targeting more orders, which are like INR 6,000 crore, INR 7,000 crores plus?
So to me, if you look at -- let me break it up in 3 or 4 different categories. If you take metro viaducts, if orders are below INR 500 crores, you will have 6 or 7 players or 8 players coming in. If it is above INR 500 crores, you'll normally see 3 or 4 players that way, okay? If you take industrial, there are -- normally, I've seen only 2 or 3 players competing in, okay, because each industry has got its own preferences, they would like to deal with particular contractors, et cetera. So typically, industrial and even as residential the competition would be 3 or 4 players at the most.
The maximum competition would come in orders for public spaces, like it will -- let's take an airport there you may have 10 or 12 players. Also things like that, which are government contracts, you may see a lot more. Then Civil has also started bidding for international, which -- right now, they are primarily contracts which are funded by government of India, et cetera, to start with or with known customers. There, the intensity is significantly lower. I'll say 3 players or 4 players was maximum. So Civil, except for contracts below INR 500 crores in water supply or in metros, the intensity is not as high as we see in other businesses.
Next question is from the line of Saket Kapoor from Kapoor Company.
Sir, firstly, sir, if you could explain how ForEx has played its part for this quarter, and the entire year?
Rajeev, I think, Saket, the ForEx has played a very positive role in the current quarter. If I'm not mistaken, I think close to about INR 30 crores ForEx gain has been booked in this quarter. For the year as a whole, I think we have booked about INR 60 crores ForEx gain in the current financial year FY '22. As compared to last year, it was, I think, around INR 20 crores, INR 25 crores.
Okay. Sir, you were mentioning -- Kejriwal, you were mentioning about the order for which some approval from Supreme Court is awaited. I missed that Green Energy or something. So if you could elaborate what is the size of the order? And what is the status on the same?
So there are around INR 700 crores, INR 800 crores of multiple orders. [Foreign Language] There are, I think, 5 or 6 orders, which are under hold becuase the Supreme Court is examining that entire Green Energy Corridor in Rajasthan saying that there is some disturbance to the birds and ecology, and whether there should be some transmission lines or whether there should be cables and all that. So right now, a few orders all related to the same piece are under hold by the client until they get a clarification.
Okay. And on the cable business, sir, what is the outlook for the cable business, and we have seen this growth in turnover. Is it totally on the price realization or also on the volume front? How is the cable business looking for the coming...
I think cable business is doing very well. As I said in my speech, that this is the best year we have ever had in cable for the last at least last 10, 15 years, I have seen the cable business, okay? .
Part of the cable is obviously because of the price increase at copper and aluminum, part is because of the diversification into higher-value products, okay? Like if you make more of copper as in, more of aluminum, your prices will go up. So looking at what products can give you a higher realization selective order intake, et cetera. So I'll not say that there's a large volume increase, but it is because of a sale of more higher value-added products -- or higher value products.
And sir, any particular cable you would like to mention for which the same has been there? And what is the way forward? How are you seeing the current year shaping up? And which are the key clients for whom we are customized orders...
So there are 2 major clients, I will say. One is the railways because we have developed a lot of products for the railways, especially for the Mission Raftaar and also for the metros and all that. So a large part of our increase is going to the railways either directly through railways and the various metro companies to contractors of the metros, and also Indian Railways, and also obviously, to our own railway business also. So that is 1 part. .
The second part where we will see some growth happening is on the, what you call, digital and all that. So a lot of telecom cables -- we are seeing a lot of demand happening for that with the government plan for single fiber across the country, across all the defense establishment.
A lot of inquiries are coming on that, and we are getting some orders on the telecom fiber, which was actually very low in the last 2 years. So we will definitely see a growth in the railways as well as on the telecom side. And third is on the EHV.
I already mentioned that we've got a very large -- one of the largest orders we've ever got on the cabling side in EHV. We are seeing significant inquiries for EHV cable, basically 220kV, okay? So this year, I think we should do well on the 220 kv EHV, also.
If I could squeeze in for the EHV partner, what is our current market share? And what is the size of opportunity currently we are eyeing in the extra-high voltage...
[Foreign Language] next year, our turnover would be around INR 200 crores or INR 250 crores on the EHV cabling side, okay? EHV and HV cable [Foreign Language] There is some double counting because EHV cabling will use our cables also. If you're taking only cable, the cable revenue on the higher ones would be somewhere around INR 400 crores or INR 450 crores [Foreign Language] So we have got some international orders. So this year, the revenue can be anywhere between INR 200 crores to INR 300 crores on cabling, also.
Market share in the EHV segment?
[Foreign Language]
You were mentioning on the telecom cable part [Foreign Language] or the OFC, sir?
OFC. Fiber.
Optic fiber cable. So okay. So we'll be tendering them to the optical fiber players than laying them out. That was the...
We are not in the business of laying them out. We are only selling the product.
So we are not manufacturing OFC.
Saket [Foreign Language] we are manufacturing, but we are not in the business of laying. [Foreign Language]. We will sell the product to the EPC.
Okay. And what is our capacity for OFC?
I don't have that. [Foreign Language]
Right, sir. And last point on the SAE front, sir, what has been the total cash burnt on SAE for the last 2 years? [Foreign Language] going forward?
[Foreign Language], and I think [Foreign Language]
Yes, sir. [Foreign Language] we have been funded from KEC.
Part of it has been funded, part has been raised locally by borrowings.
The next question is from the line of Aashna Manaktala from ICICI Securities.
Sir, [ my first question is ] towards the tax rate, it has been significantly lower. So what led to that? And what levels are we expecting that to be for a couple of...
Sorry, Aashna, I couldn't hear understand -- what was your question?
Sir, my first question is towards the tax rate, and it has been significantly lower, and what led to that? And what levels are we expecting in the coming quarters?
Sorry. Aashna, we can't -- I think your voice is echoing completely. You're talking about what?
The tax rate.
Tax rate. Okay, okay, okay. Yes, Rajeev is going to answer on tax rate.
So sir, the tax rate for the current year is slightly lower because on the amount of losses that we had in the SAE business, and they're the -- generally, the tax rate is in excess 32%. So we have created a deferred tax asset. So that has, let's say, reduced our ETR for us in the current year.
Also, we have got some -- we had some income tax claims on the losses that we had incurred in South Africa. So that claims we have been allowed at the appeal level. So those impacts have also come. So these are the 2 reasons, basically, which has impacted the tax rate, and where our tax rate for the year is looking lower. Otherwise normal, on a standalone basis, the tax rate is close to about 25%, 26%.
So sir, what level can we estimate for...
So normal tax rate for the company would be around 25%. That's the normal tax rate.
Okay, sir. And sir, one -- another question I had, like you mentioned for North America that we are completely booked for coming 18 months. So are we looking at some kind of capacity expansion in that region?
No. We are not looking at any expansion at this point in time. So we will be focusing more on the -- though we have significant orders, especially in our Mexico plant, our order book this year, especially in the last 3, 4 months, has actually increased and that has resulted into the full load capacity for next 15 to 18 months in Mexico.
Similarly, in Brazil, we have booked a lot of orders this year. So we will be focusing on -- all year on manufacturing, no expansion at least at this point in time.
The next question is from the line of Kunal Sheth from B&K Securities.
All my questions have been answered.
[Operator Instructions]
As there are no further questions from the participants. I now hand the conference over to Mr. Vimal Kejriwal for closing comments.
Just want to thank everyone for their continued interest in KEC. And I think we are very confident that we'll definitely have a better year in FY '23 than in FY '22. Thank you so much. Thank you, everyone. Thanks, Rutuja. Thank you.
Thank you. On behalf of KEC International, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.