Ladies and gentlemen, good day and Welcome to the KEC International Limited Q2 FY 2027 results conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. Today on the call, we have with us Mr. Vimal Kejriwal, Managing Director and CEO, and Mr. Rajeev Aggarwal, CFO. I now hand the conference over to Mr. Vimal Kejriwal. Thank you, and over to you, sir.
Thank you, Alex, and good morning to everyone, and Welcome to the KEC International's Q2 earning conference call. Let me start with some developments which have happened post the quarter end before I take you through the results and the Middle East environment. First, we have secured orders in L1 of over INR 3,000 crores from PGCIL after a break of 15 months, which also includes our single largest order in India T&D of almost INR 1,200 crores. Execution of these projects will commence from next month onwards in December. Second, we have realized more than INR 200 crores of collections from Afghanistan in October, which has been stuck for more than five years, and we expect another INR 150 crores to come in, hopefully within this quarter, otherwise at least January.
Third, as we will discuss our margins for the quarter, which have been impacted due to the cost escalations owing to the Middle East disruptions, we have submitted claims to the clients against this incremental cost. While the clients have advised closure on these claims will happen after the war ends and there is some finality to the numbers, in the interim, the clients have paid us almost INR 300 crores in advance to ease the impact on the cash flow arising while the cost increases. Let me now turn to the operating environment, particularly in the Middle East, which continue to have a strong bearing on our performance during the quarter. The Middle East business remains operationally stable. The region accounts for almost 22% of our order book and L1 pipeline. While tendering activity remains stable, order finalization timelines continue to be prolonged.
We have secured a few orders during the quarter from Saudi Arabia, Oman, UAE, and are also L1 in some more tenders. Cash flows from the Middle East continue to remain stable. Supply chain and logistics disruptions continue to affect shipments into the GCC market, resulting in longer lead times. Freight rates, including war-related surcharges and fuel prices, remain elevated at historical levels, not only for GCC, but across all markets. These challenges have slowed revenue accrual on certain projects during the quarter due to delayed supplies of equipment and also steel to our factory. We are actively engaging with customers for recovery of these incremental costs. In a few cases, supplies are being deferred until commercial alignment is reached, leading to timing impacts on revenue and margins. Performance during the quarter continues to be impacted by these factors.
Notwithstanding the same, we remain positive on the region's long-term outlook, supported by investments in transmission infrastructure, renewable integration, regional interconnections, grid resilience, and reconstruction activities. Coming to the Q2 performance, we have delivered revenues of INR 5,468 crore in Q2, which has a Q1 growth of 9%, while there has been a decline on year-on-year. PBT stands at INR 41 crore and PAT at INR 30 crore. The performance during the quarter was impacted by a combination of external headwinds and project-specific challenges. Revenue was affected by disruptions in the Middle East, ROW, and land acquisition challenges in India T&D, apart from calibrated supplies, which we talked about. Profitability was impacted due to lower revenues, elevated freight and fuel costs, closure costs associated with certain projects, primarily metros, and delays in resolution of contractual claims in the transportation and metro businesses.
An unexpected consequence of the geopolitical disruption has been the unprecedented increase in global freight costs. For instance, shipments to Afghanistan, which are now being routed through Europe and Turkey, have seen a multifold increase in the freight costs. While these incremental costs are recoverable from customers in several cases, there is a clear timing gap between the incurrence and recovery, which impacted profitability during the quarter. On the order intake front, we secured orders of over INR 13,500 crore, of which 70% is from T&D. Additionally, we have a L1 position of INR 3,500 crore, largely in the T&D business. Our order books remain strong and stand at a record level of INR 40,000 crore as of date. Including our L1 position, the combined order book and L1 pipeline stands at INR 43,500 crore, of which 65% is from T&D, providing strong revenue visibility for the next 18 months.
On the debt front, the net debt, including acceptances, stands at a very high number of INR 7,793 crore as of September 30. The debt levels are elevated owing to some of these things. The spillover of collections of INR 600 crore, including the INR 200 crore and INR 300 crore which we talked, have been realized in October 26. We had also built an additional strategic inventory of almost INR 160 crore to manage the commodity price volatility and the logistic issues. Also, the collections in water and metro projects were lower than what we had planned.
We expect the debt levels to come down to almost INR 6,000 crore by the end of the year. Coming to specific businesses, in T&D, the business achieved revenues of INR 3,686 crore, a growth of 15% over Q1 FY 2027. The revenues would have been higher, but for the issues which we mentioned earlier.
On the order intake front, the business continues to witness significant traction with new orders of INR 9,500 crore across India, Middle East, Africa, SAARC, and the Americas. In India, the business witnessed strong momentum from PGCIL, along with orders from private developers for transmission infrastructure to evacuate power from a PSP project in Western India and a hydroelectric project in Northern India, supporting the growing power infrastructure requirement of India's renewable energy ecosystem. In international, the business has strengthened its order book with multiple wins, including its reentry into Bhutan, further diversifying its international footprint. We are witnessing a gradual revival in the African market, reflected in the recent wins of transmission line orders that further strengthened our presence in the region. Additionally, we are L1 in a large substation order in the Africa region.
In SAE, the business achieved revenues of INR 493 crores, a growth of 15% year-on-year. We continue to witness strong momentum in order inflows with new orders of over INR 1,900 crores for the supply of towers, hardware, poles, and engineering services across the U.S., Mexico, and Brazil, an increase of over 2.5 times compared to last year. With these orders, the order book and L1 position has been scaled up to INR 3,700 crores. In line with our strategy of diversifying our product portfolio and expanding into new markets, we continue to make encouraging progress in SAE. During the quarter, we successfully executed our first pilot order for transformer tanks, opening up opportunities in new industry segments. The overall T&D opportunity pipeline continues to remain robust across both domestic and international markets.
In India, strong demand drivers such as rising power consumption, accelerated renewable energy integration, grid modernization, expansion of transmission infrastructure, and the evacuation requirements under the GEC Phase-III program continue to create significant opportunities for the sector. The planned addition of renewable energy capacity, coupled with the need to strengthen and decongest the national grid, is expected to drive substantial investments over the coming years. We expect the recent ROW reforms by the Ministry of Power, including market-based compensation determined through three independent IBBI-empanelled valuers to help address land valuation disputes, ease execution bottlenecks, and improve transmission project timelines. The outlook for our international T&D business remains positive, supported by the planned transmission investments in the Middle East, improving funding outlook in Africa, and the growing opportunities across the Americas.
The global push towards renewable energy integration, grid resilience, electrification, AI-led data center expansion is creating a multi-year investment cycle in transmission infrastructure. With our diversified presence across key markets, proven execution capabilities, and healthy T&D order book, and L1 position of over INR 28,000 crores in this business, we are well-positioned to capitalize on these opportunities and drive sustained growth in the years ahead. In civil, we delivered revenues of INR 957 crores for the quarter. The execution was impacted by certain unanticipated challenges, including delays in release of work fronts, continued labor shortages, and additional costs incurred towards fast-tracking of certain critical projects. Besides these, continued delays in customer payments in the water segment led to the continued calibrated execution. All these factors resulted in higher execution costs and impacted performance.
During the quarter, the honorable Prime Minister and the honorable Chief Minister of Tamil Nadu, Joseph Vijay inaugurated the Chennai Metro Phase II project executed by KEC, marking a significant milestone for the business. Execution on our second package of the Chennai Metro project is expected to be completed by March 2027. On the order intake front, the civil business secured new orders of INR 1,200 crores in the B&F and hospital segments from reputed clients. We continue to be very selective in order intake in the civil business, considering the challenges that we are facing in the business. Our transportation business has achieved a revenue of INR 224 crores for the quarter. During the quarter, the business completed a first-of-its-kind project involving 16 elephant underpasses in Chhattisgarh for IRCON. The business has also physically completed more than 10 legacy projects during the year.
The business entered the ROCS ( Rigid Overhead Catenary System segment by securing a new order from DMRC for the Jaipur Metro Rail Corporation. The business has also successfully implemented Kavach across 682 route kilometers and is currently executing deployments across an additional 1,765 route km of railway network and over 3,000 locos. We continue to actively pursue opportunities in TCAS, Kavach, technology, and tunnel ventilation projects. Our focus remains on accelerating project closures, settlement of arbitration and claims, and selectively pursuing high-value domestic and international opportunities to drive profitable growth. Cables and conductors business has achieved revenues of INR 613 crore with a strong growth of 17% year-on-year, driven by robust demand across the infra, power transmission, and industrial segments. The business continued to witness steady inflow of orders for supply of cables and conductors.
On the new product front, while part of the facility has got commissioned, we expect elastomeric cables and E-Beam to commence production in Q3. These products cater to high-growth end markets and expected to enhance our product portfolio, improve realizations, and contribute to long-term margin improvement. Given the strong demand outlook for aluminum conductors, we have initiated phase two of our capacity expansion to capitalize on the growing market opportunity. Backed by a diversified product portfolio and ongoing capacity augmentation, the cable business is well-placed to sustain its growth momentum. In renewables, the business secured YTD order intake of over INR 1,150 crore. During the quarter, the business has secured two large orders in wind EPC and one order in the solar from renowned private developers.
With these wins, we are currently executing renewable energy projects with a cumulative capacity of over 950 MW, reflecting the increasing scale of our operations and growing customer confidence in our execution capabilities. The outlook for renewable business remains highly encouraging, and we are confident that the renewable business will emerge as a significant growth driver for KEC going forward. We are undertaking a conscious strategic shift in our portfolio by adopting a cautious and selective approach to civil in addition to transportation, considering the performance over the last few quarters. For instance, we have taken only three orders in civil this year in the segments where we intend to continue operating, reflecting our selective approach. This is similar to the approach adopted in transportation. Consequently, civil and transportation together account for just 11% of our YTD order intake against a revenue share of 23%.
In civil business, we are focused on improving the pace of execution and profitability. We remain positive and are making relevant interventions to sharpen the execution to deliver profitable growth going forward. Backed by a robust opportunity pipeline and strong structural demand drivers, T&D will be our primary growth engine. This portfolio realignment reflects our shrink-to-grow approach, prioritizing quality, profitability, and sustainable growth over scale alone. With this, we expect our share of T&D to keep on increasing. In conclusion, while we continue to navigate certain near-term challenges, we remain confident in the strength and resilience of our businesses. Our priorities remain clear: improving cash flows and margin profile, driving execution excellence, strengthening the balance sheet, and increasing the share of T&D, especially in India.
With an order book and L1 position of over INR 43,000 crores and a tender pipeline exceeding INR 2 lakh crores, we are confident of an improved performance in the coming quarters. Thank you very much. We are now open to your questions.
Thank you. We will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Vaibhav Shah with JM Financial. Please go ahead.
Yeah. Sir, we saw a sharp increase in the debt and working capital for the current quarter. You did mention that we are targeting INR 6,000 crore net debt by March of 2027. So, what would be the plan? How do you intend to achieve that?
Vaibhav, as I said, we have already received almost INR 600 crores and odd post the balance sheet date, number one. And these were not the normal cash flows. One was Afghanistan, which was stuck for a long time, and second was against, I'll say, against force majeure costs which we have already incurred. Apart from that, as I said, we are expecting another INR 100 crores from Afghanistan. So these are typically, I'll say, more like non-operating, not from the normal operations of the company. Second piece is, we have talked about order book. In the last, I think, last four or five months, we have received a large number of orders. So hopefully, within November or so, we should also be getting close to maybe INR 500 or INR 600 crores of advance payments, which will happen.
There are other, as I talked about the CMRL project being commissioned, there will be inflows from metros, et cetera. I think we have a very clear targeted plan against various items. Okay? And obviously, if you looked at our numbers, et cetera, we have also focused a lot on closure of projects. That itself will release a significant amount of funds. In fact, we are expecting more than INR 100 crores, INR 150 crores from Power Grid on old projects which have been also, I will say, which have been closed now, awaiting final commercial sign-off. There is a clear path forward on where we expect and how we expect to reduce the debt.
Sure. Sir, last time you mentioned that we are planning to recover INR 350 crores from JJM, INR 300 crores from retention money in Middle East, and some INR 150 crores of railway claims. Any update on that?
As far as JJM is concerned, I think we got around INR 100 crores, [Non-English content] sir?
INR 150 crore.
150 crores this quarter. But as I have been mentioning, we have also been spending money to complete the projects. On retention, the figures are right, but what is also happening is that since the revenue keeps on happening, the retentions on the new projects also are there. But now what we are seeing, I think I should have mentioned it against your cash flow earlier. Now what we are seeing is that the order intake from Saudi has been a little bit lower, so the revenue accruals in Saudi will come down a little bit, and the new retention accruals will come down. Old retentions will keep on getting released. So, I think around 500 or 700 crores of retention release will also happen to reduce our debt. I am talking about net retention accruals.
And incremental target in second half for JJM recovery and railway dues?
Railway for the last seven months, if you took aggregate till October, we have been positive on cash flow. I think we have around 30, 40 crores per month has been the normal cash flow positive. So, railway business has turned positive. I think seven months could be 150, 200 crores. I do not have the exact number, but it has been a positive.
JJM is a question mark all across. So, I know honestly, every quarter we have been talking with both the central government and the state governments, and they have been promising that they will pay. But it has been, I will say, a trickle rather than normal payments should happen. So, I honestly cannot give you right now, I think. So, in fact, we have put in another 100 crores additionally in this business to close some of the projects so that at least the cost can come under control.
Okay. Sir, secondly, on the working capital, if we can split up on a broad basis, what will be the split in T&D, civil, water, and railway?
I don't know, Rajeev, do we have that number split that way or T&D, non-T&D?
Roughly about 50%, let's say, is between T&D and non-T&D as of now.
In terms of absolute amounts.
In terms of the absolute amounts. Roughly the breakup is 50/50, and the reason that there is a higher amount which is there in the non-T&D businesses, partly because most of the projects we are talking of closure in the current financial year, so a lot of money should get released. Plus the metro project in civil business, few of them have been closed, and we are actually settling the claims with the client. And one last project, as Vimal mentioned in his opening remarks, is still going on, which will take some more time to close the project.
Okay. Last year our target on working capital days for FY 2027?
We are expecting to be in the region of about 125 days by end of March.
Earlier you were targeting closer to 110 days?
Pardon?
Earlier you were targeting closer to 110, right?
Yeah, 110. Currently it is at about 125 days, that is where we are targeting. Reason being that there has been some slippages in terms of the closure of the project in Saudi Arabia, and there the retention is 20%. We have invested because the last year the order intake was significant, so we are executing those projects, which is taking the net working capital levels to a higher level in Middle East.
Okay. Thank you, sir.
Whatever you want to come, you are able to come back, yeah.
Yeah, sure.
The next question comes from the line of Sumit Kishore with Axis Capital. Please go ahead.
Good morning. Please help to segregate and quantify the impact of Middle East disruption on revenue booking and the EBITDA margin impact, EBITDA impact in the second quarter and first half of this year. Also, in your order book, X of L1, how much is Middle East as a proportion of order book? That's the first question.
I don't have the exact number of order, but it's roughly around 22%. I'll say maybe INR 9,000 crores or so would be roughly the order book in the Middle East. The impact on revenues has been around INR 300 crores to INR 350 crores for the quarter. And on margins, it is approximately between 1.25% - 1.5%.
Okay.
Yeah.
What is your revised guidance for FY 2027 on top-line growth and margin? And yeah, that's the first part of the second question, yes.
Sumit, difficult right now to give a guidance on the margin part because it will depend upon how the claims get settled, our cost increases are there, we have asked and all that. It is, I think, very difficult for us to hazard a guess on where we will. We had not thought that we will have a 1.5% impact, okay, for this quarter itself. But on the top line, I think we do expect that we should have around 8%-10% growth because we have lost around INR 600 crores of revenue. Depending upon when the war ends, we will be not very confident on when we will recover that. Revenue will happen. It is not that it is a lost revenue.
But it will depend upon how soon the logistics get settled and we can start shipping out much better and then the Dubai factory can run at the full capacity. But with the order book, which we order intake, sorry, which we got from Power Grid, et cetera, and we expect those revenues could start from, I will say, next month onwards, and the earlier orders also which we announced. We do feel that we will have a very strong uptick in Q4. That should help us in our probably anywhere between 8%-10% is what we will this. Also, we are seeing some improvement happening in the civil execution. Okay? So I think that is why our revenue part should be maybe closer to 10. I do not know honestly, but 8%-10% is what I would say from 10% to upward what we had said.
Even an 8% growth for the full year would mean closer to 20% growth in the second half of the fiscal. That appears to be a bit of a challenging ask, if the factors which are depressing Middle East execution continue. Your comments on that, and B, in FY 2028, do you expect normalized margins to at least achieve FY 2026 levels?
Sumit, on the first question, which is why when you asked me on the revenue catch-up, I said that Middle East revenue, what we lost right now, I am not sure they will catch up or not. The entire growth which we are talking about will largely growth part of it, the normal revenues will come from Middle East, but the growth part of it will definitely come from India T&D, which has, I will say, underperformed in terms of revenues because of a lower order intake in the first half. Okay? Now that we have got orders from Power Grid and we are L1 in some more after 15 months or so, and Power Grid, you can start revenues, accrue revenues quite early. I think we are pretty confident on the numbers of what we are talking right now.
Okay. FY 2028 margins, do you think you will be able to recover to FY 2026 level?
Too early. Too early. [Non-English content ] I think we will have to wait. But let me just tell you one thing is that we have an order book of almost 40,000 + this, and largely they are very reasonably good profit margins. If nothing untoward happens, we should have a decent margin.
Thank you.
Thanks, Sumit.
The next question comes from the line of Abhijeet Singh with Systematix Group. Please go ahead.
Yeah, thank you for the opportunity. Sir, I wanted to understand more on the retention money terms that we have with our clients. Saudi mentioned it is 20%, and you also mentioned in your opening remarks that you're expecting some retention money to be booked in the H2, right? I mean, why do you think that are some of our larger orders coming to the fag end of the execution? If you can comment on the retention money, like what percentage is it in general, and after completion of the project, after what time do we typically receive that money?
Abhijeet, let me put it this way that there, for virtually with every client, you have different payment terms. Typically, the retention would vary between 5%-10%, typically. In most of the cases, the retention gets released against bank guarantee also, especially in the private customers and some of the government customers also. There are customers like U.A.E. and Oman and Saudi, et cetera, who will not release against bank guarantee. In private, we get it released. If you look at Power Grid, on the supplies, there are no retentions. On execution, there is some retention which gets released on completion. Most of the cases, what happens is the retention gets released in two parts.
One is, let's say there is 10% retention, 5% will get released on completion of the project, and 5% will get released on either commercial closure or commercial charging, et cetera. The terms vary, but in most cases, it would get released within six months of the project completion. There are very rare cases where there may be a one-year, like in Oman, where there could be a one-year retention. But typically, within six months, you will get all of it. Within three months, half of it, and six months, all of it. Saudi is an exception where there is a 20% retention, but of that, 10% they release immediately the day you complete physically, or even if you're not complete physically, if the line cannot be completed because of issues of the client, they have been releasing that.
Why we said that we will expect retention happening, because if you look at order book, Saudi had a very huge wave of orders which came around, I will say, around 18 - 24 months back. Most of these orders are now, or projects, are completing. Even last month, I think we completed three or four projects. This quarter, we are planning to complete three or four projects. So, all these projects on completion will release a 20% retention, which is a large amount. Okay? Against that, since the revenues have been slightly degrowing that way, the new retention approvals are lower. So, which is where there will be a net release of funds from the retention. I hope I am clear, Abhijeet.
Yes, sir. That was helpful. Sir, second question on civil business. I mean, there is some weakness in execution in this quarter. We have seen some 17% decline in the revenue. Could you point out to some factors that are leading to this execution slowdown in the civil business?
Abhijeet, there are two parts to it. One part is because of labor and other some issues which we are facing on clearances, et cetera, there has been delay. The second part is, out of our four metro projects, three have been completed. So last year, there was a revenue which was there from the metro projects, which is now virtually not there. I think we have an order book of, I do not know, INR 100 crores or something. Yeah. So we will probably have INR 150 crores of revenue left out on the CMRL project. So that is a major cause, a reason why the revenues have come down. Also, as I mentioned, the order intake has slowed down significantly, I will say very consciously, and because of which also the revenues from new projects, typically it is a cycle.
Old projects get over and new projects start, so you keep on getting a revenue from the new projects. Since we have reduced our order intake, that has also impacted the revenue.
Right. Sir, lastly, sir, we have seen that, you know, JJM has suffered, you know, some kind of delayed receivables. Apart from the water segment, is there any other segment that you are witnessing some slowdown in the release of funds particularly?
Okay.
Water, so what they said.
Are you talking about slowdown in the sectors?
Release of funds.
Release of funds.
Slowdown in terms of the, I mean, in terms of the funding from the customer side.
I don't think there's anything in particular where there is a slowdown in release of funds. Often what happens is people don't want to pay at the month end and all that, so the money will come in the next week or so and all. But otherwise, except JJM, we have not seen any concerted slowdown, if I can use that word, on payments, no.
Understood, sir. Thank you for the opportunity.
Thanks, Abhijeet . Thank you.
The next question comes from the line of Parikshit Kandpal with HDFC Securities. Please go ahead.
Yes, sir. Hi. My first question, if I look at your standalone numbers, if I remove the other income, we had made a loss at the standalone level both in Q1 and H1. In the past, we have discussed segmental margins, like civil we were just touching double digit, T&D we were double digit. If you can give us some more clarity on the segmental margins, what is adding up to such a big decline in the EBITDA margins, especially in this quarter?
Parikshit, as I said earlier that on railways and transportation, we have faced some headwinds, and that entire revenue and the margins are in the standalone. That's one particular reason why the positive margin of T&D is getting eaten into or becoming negative because of that. Secondly, because of the slowdown in the India business. See, what has happened is that since we were not getting Power Grid orders earlier, a large portion of our India order book now comprised of basically, you know, all civil works. If you look at the nature of the contracts, any contract which I get from a private developer, there are some exceptions here and there, would be for supply of towers and construction. Whereas Power Grid also has a conductor, insulator, hardware, so there is a huge amount of product revenue also which is happening.
This quarter of Q2 was very, very construction heavy. We did face a lot of challenges on account of surprisingly rainfall in Gujarat and MP. But apart from that, it was basically ROW. I will give an example. Today, we have got three substation projects which are virtually stuck. In fact, one of them is stuck for more than 1.5 years, where land has not been secured by the developer. This has now it is getting secured finally, but this has led to significant, I will say, de-growth in the India T&D also. All the three or four businesses where, so we would, which are lying in the standalone, have been impacted.
But as I mentioned that with the India T&D now picking up, with the Power Grid orders now coming in, we will definitely see a reversal in the numbers of the standalone.
If I put it the other way, sir, I mean, we have X of T&D order book in India comprising of maybe civil, some of metro projects, and domestic T&D orders which you said. What is the order book, and if you compare the cost of completion, how much negative, if you can help us understand, how much hit still we have to take in terms of like, because every quarter we are seeing almost 250-300 crore kind of subpar EBITDA being reported on the standalone basis. Is it right to assume that we still have about 700,000 crore of like cost hit which needs to take over the next few quarters until we come back to a healthy EBITDA margin of high single digits?
Parikshit, very difficult to quantify because whatever we have been, every quarter we have been quantifying the cost of closures and the CTCs, this, and that is what gets booked and that is what is reflecting, as you rightly said, in the standalone. I will tell you the problem what is there is, when you go to complete a project, suddenly you get hit by something which you have not anticipated, or when you are closing a dispute or an arbitration, okay? You have numbers which are clearly tenable, which are there, and then you go into a settlement. It is very difficult that because all, whatever we have seen on 30th September has been quantified and has been provisioned or provided for, okay? Beyond that, it is very difficult today, because if I had, what we would have provided you today. I think that that is the thing.
But yes, in a way your numbers are right that we have been, every quarter we have been having a hit of 2%, 3% on account of that, which is why we have not been talking about 9% or 10% margin, because we are very clear that the way the closures are all happening. Although I will also mention one thing is that we have an ECL provision of more than INR 450 crores in our books. So some part of that also goes against that, but still difficult to say what will happen.
So, I mean, any your own gut feeling or guesstimate, I mean, are we how many, like three, four quarters still away from that trajectory, margin trajectory moving upwards from 5% now in a sustainable manner? Because we have seen it going up, then it comes down again. So additionally, at least if you can help us understand maybe Q4 or Q1 next year or maybe by the early FY 2029, we will be back towards that high end of the spectrum between five to nine. So how do you move in terms of EBITDA margin?
So let me put it this way. With our large order intake which has happened in T&D, and also we expect to get more. I think from Q4 onward, we will see a significant bump up in our T&D revenues, okay? Which will definitely start have a positive impact on the numbers. FY 2028, I definitely Let me put it this way. My expectation is that this is the lowest number which we have got to. I do not see that we will go below this in our margins. Now, whether we will achieve 7% or 8%, 9%, this is difficult to say, but I do expect that all the old projects or legacy or wherever we are losing money or wherever we have to close, will definitely get closed by, I think, by Q2 of next year.
If you look at railways today, transportation, by March, we will just have two or three projects to be closed, and none of them are loss-making, okay? Civil also, we are, I think, closing around 15 - 20 projects this year. So I think the trajectory on losses happening will keep on coming down. The other thing is that what will also happen apart from T&D is with all these older projects getting closed, the margin trajectory for the non-T&D business, whether it is civil, whether it is transportation, and even cables, we are discounting it, all of them will also start improving. So FY 2029 though definitely, but it is far away, that is why I do not want to say anything. But we do expect that margins will start showing an uptick.
Whether it will be 10 basis points or 100 basis points is right now difficult to quantify because the other problem which I have is my Iran war is still overhang. [Non-English content] then I can talk much more confidently and push much more revenue in that area.
Just the last question, sir, on the debt. I mean, the debt is all-time high for us now. Just wanted some more granularity on that on a sustainable basis, what kind of business which we are doing, and when we compare to our peers, who are at almost like one-fourth or one-fifth of the debt which we are running. There is obviously a stock payments which you are receiving, which you have received for this, but I do not see a trajectory where the debt goes down from INR 6,000 crores -INR 3,000 or maybe INR 2,000 crores on a sustainable manner because there will be a growth also which will require a working capital. And this debt is not sustainable. INR 6,000 is too high a debt for this business.
What other options do you have beyond the usual business receivables coming in, retentions coming down, and all those things? Beyond that, do you think there is a possibility that some of your NPTs you can monetize stake, like one of your peer has done, and cut down debt? What are the options on that table? Or maybe promoter can infuse some capital to bring down the debt because this debt is not sustainable.
Parikshit, while we take what you are saying on the debt not being sustainable, I think that is also a function of the margins which we have had. We have been having this debt around five and a half to INR 6,000 for a long term, and I do not think that is been a major problem. I think the problem has started because the margins went down, and we are very clear that the margins will improve. Coming to your question on options, I think for the last two years, we have been talking about the cable business, and we are expecting that business. I think this year we will probably close at INR 2,500, INR 2,600. I do not know the exact amount, INR 2,500, INR 2,600 crores of revenue. And I did talk about the expansion of the conductor facility and also the elastomeric and this.
Our view is that probably by end of next year, the business should be at a reasonable number of 3,500 or maybe FY 2028 should be 4,000 or more of revenue. That is one place where we have been discussing and we have been open about it, saying that at some point of time, there would be some form of dilution in that business. Now, whether it is a dilution completely or what happens, I don't think we will get a complete dilution, but whether it would be equity infusion by a strategic investor or a public issue, I do not know. It will happen later on, but that is one area where we clearly see that cash flow can be inducted. The other piece, I still have more hope than you have on reducing the debt by our own operations and all that.
I think if you look at India T&D today, our NWC is down to 40 days. When I'm talking about that we will increase our India business, et cetera, we are very clear that there will be much more numbers coming out of the business. Although the past two quarters are not justifying it, but we are very clear on that part of it that we have to do much more on getting out from the business. Because if you look at the 6,000, it's largely working capital. We have to do more work on improving the working capital to bring it down.
Okay. Sure, sir. Thank you.
Thanks, Parikshit.
Thank you. Ladies and gentlemen, in order to ensure that management is able to address questions from all participants in the conference, please limit your questions to two per participant. The next question is from the line of Amit Anwani from PL Capital. Please go ahead.
Hi, sir. Good morning.
Morning, Amit.
Sir, first question again on the civil side. You highlighted the current order book has roughly about 11% of civil and transportation and railways. Just wanted to understand, any key risk with the projects in hand? Second, when we take these projects, because I am just putting a context that over past five years, whatever non-T&D businesses we have done, whether it is commercial railways, oil and gas, civil, there has been lot of We went long and then we have to cut short the books. So, what is strategically, which you kind of want to build as a risk hedging in this order? For the existing book in civil, what is your view in terms of execution coming in or impacting the margins, I guess?
Amit, to me, I was not very clear on your question, but let me try to still answer it, and if I am not able to answer, you can please ask for clarification. First of all, 11% is the number of our order intake. We had order intake of roughly around INR 1,500 crores or so between the transportation and civil put together. Order book will be more than that. I think my order book between railways and civil will be around 25% almost. INR 8,000, INR 9,000 in the civil and another INR 2,000 or so in railways. Order book would be around 25% between them. Could we just talk a little bit more of what exactly was what you wanted to ask?
Yeah. Order book of 25%, does it carries more risk? You must be aware of what is the composition of the book, when these 25% of the order book comes into execution. Any risk in next four quarters in terms of, again, impacting the margins?
Difficult to say whether there is a direct risk. If we know, we would have quantified and put it in. But if you look at the order book, and I think civil is a large number of INR 9,000 crores or so, it is largely, I will say, B&F. Largely B&F, except for a INR 1,000 crore of JJM orders. That is, I can say, a little bit risky in terms of cash flows. It is still profitable, so I will not say it is risky in terms of margins.
Obviously, you will not make as much as you were making earlier because of the delayed execution. Otherwise, it is all buildings and factories, and I do not see too much of a risk on the order book what is there. As I said earlier, the costs which are getting incurred are on closure of projects which are not in the order book.
The projects are already completed or you have 1%, 2% of revenue left. Now you are doing a railway project. [Non-English content ] They have not cleared the depot. When you go to complete the depot, it takes up much more than what you can think about it. You try to get it de-scoped. [Non-English content ] Those are the things. But, if you ask me, if I give you a generalistic reply, I do not see there is any significant risk in the balance order book, which is what before you came, I was saying that we do expect to start having some improvement in our numbers in non-T&D.
All right. And, sir, you mentioned that now civil, we are deliberately slow, the railway we have gone slow. So, more of the heavy lifting in terms of order inflow will be T&D, I am assuming that. Second, in terms of composition, let's say two year down the line, is it fair to assume that the T&D plus all this product business will be like more than two-third of the revenue? Any sense you want to give, like what is the composition we are looking, and will T&D be doing more of a heavy lifting because lot of things now we are going slow on the non-T&D side?
Amit, you are absolutely right that T&D would be doing the heavy lifting. And in T&D also, I do think that India T&D will do more, because as I said that the Saudi order intake has been slightly lower, plus the 20% retention. So, in a way, and we are seeing a huge pipeline in India. So, one is clearly the T&D business and more, I will say India. But I will just say that Africa, we have got now four orders also.
So, I think everything that way is looking okay. On the manufactured product business, the expectation is that we should be doing, we want to do between 15%-20%, actually more closer to 20%, so INR 4,000 crore -INR 5,000 crore is the target. In fact, if you look at cable plus AC, we are there at INR 4,000 crore, INR 2,500 crore from cable and INR 1,500 crore, INR 1,800 crore from this.
But we actually wanted to push the transmission to 15%. Okay? So, we do want to increase the tower sale business, especially to the American market as well as to the Australian market. In fact, we are also getting a lot of inquiries now from Middle East, surprisingly, because logistics is becoming problem for people to supply to Middle East from India and all that. So, we are having a lot of discussions on the Middle East market also. So, clearly as a strategy, I don't have exact numbers, but we are clearly focusing on increasing the share of manufactured revenue into our business, our overall numbers.
All right. So, lastly on the labor-
Sorry to interrupt, Mr. Anwani.
Yeah.
May we request you return to the question queue for a follow-up question? Thank you.
Yeah.
The next question is from the line of Sanjay Mahajan from Wealthw ise Capital. Please go ahead.
Hello?
Yeah, Sanjay.
Hello? Yeah.
Yeah, go ahead.
We would like the management to continue or throw more light on the manufacturing side of the business or the products in the power sale, cables, and the conductor. It seems that this could be one of the stronger business where we will have a better visibility. And within this business also, how much is typically for the captive or our own projects, and how much is for the outside sale? If I understand this component in a right manner, I will be happy to know more about it. And the CapEx that you tried to mention in the opening remarks, something more on the CapEx, what is going on this side? Thank you.
Thanks, Sanjay. As far as captive is concerned, transmission would right now be 70%-80% of India and Dubai would be captive. Rest we are selling overseas. SAE obviously is 100% a third party. Entire revenue of INR 1,800 crores in SAE would be for third-party sales. As far as cables and conductors is concerned, the number varies between 30%-40% of captive sales. So around, let us say, if we do a revenue of INR 2,500 crores, around INR 1,000 crores would be captive consumption. And if the conductor, once the conductor plants comes in, and with our Power Grid order book, et cetera, we do expect that the share may go up slightly on account of conductor.
Okay.
Yeah.
And-
Anything else, Sanjay?
What is the kind of CapEx we are doing over here, and what would be the work in progress or whatever more funds that would be required for this?
For capital, I think on the cable side, for elastomeric and all that, we have already spent the money and capitalized it. That is why you see an increase in our fixed assets. As far as the conductor part is concerned, we are now about to start on our second phase. I think that is around INR 50 crores or so, if I am not mistaken. Okay?
And on the transmission side, we have already expanded all our capacity. So, we do not have any major CapEx on increasing capacity right now, but we are looking at the market. If the need arises, we will plan for it. But right now, in our current CapEx plans, we are not spending too much money on the transmission CapEx on the factory. However, we are spending close to INR 100 crores or so on the construction equipment side on transmission. We have bought more transmission, TAC machines.
We are doing a lot more on the gin poles and other mechanization efforts. So, at least INR 100 crores is being spent on the capital side on construction in transmission.
Okay. Last question, we will reach it to this.
Sorry to interrupt.
So-
Mr. Mahajan, may we request you return to the question queue for a follow-up? Thank you. The next question is from the line of Nipun Khemka from CD Research. Please go ahead.
Yeah. Hi, sir. Good morning.
Morning, Nipun Khemka.
Yeah. My first question was, how much additional capital do you people would need to sustain the business in the current rate?
I don't think we would need additional capital because what we have been talking about is release of capital.
Okay.
I do not envisage any extra capital to be poured in. In fact, we have been talking about reducing the balance sheet size and reducing the debt, and I think Rajeev Aggarwal gave some figures also how we want to reduce it. I think we are very clear on that we do not. Yeah.
Yeah. No, because I was seeing that in the last year, something close to INR 2,800 crores is what we have poured in. That is why I was asking. And in the H1 also, we have close to INR 900 crores we have sucked in. So, what is the rate that we are targeting for this year?
No, I think as I explained earlier, that there have been some factors which led to an increase in the last two quarters, which already we have received a lot of collections, and I actually elaborated a full collections item by item, which we expect to realize and which will reduce the debt. So, I think we are pretty comfortable, I will say, on the reduction part of it.
Okay. Okay. And the second question was, like, with this, whatever money we would receive, how do we expect to pull up our ROE, if any?
Follow me, Rajeev. ROE improvement, what is our vision?
Once the funds get selected and borrowing level comes down, it will lead to a better ROCE and ROE, and the margin improvement. Margin improvement coupled with the reduction in the balance sheet side will have a positive impact on the ROE and ROCE.
Because I was asking this question because it has been so long that because of these portals-
Sorry
We are out of shape. That is why.
The point is that, if you look at last few years, and especially last four, five years, one, the business has grown from INR 17,000 to almost INR 24,000, INR 25,000 crores. Almost 40% growth in the business has taken an additional capital. That is one. Second, last three, four years have been challenging in terms of the margin. Obviously, last couple of years, we saw improvement because of the better high of T&D business and also the margins in T&D business improving. But apart from that, we have seen earlier the SAE and transportation business. We have not made enough money to fund that growth. Obviously, the funding of the growth has taken place by debt. Third piece is that the Saudi growth, where the 20% retention is there, and obviously, the business doesn't generate 20% margin.
Some working capital has been taken away in the Saudi business. As Vimal mentioned in the opening remarks and later on also, the Saudi business this year, we have not received so many orders for whatever Middle East war is going on. We are trying to close all the projects that will help us to reduce our retention, close the project, realize the retention. That will help us to release the working capital. These are all some of the reasons that we should also appreciate that basically the growth funding has taken place by debt capital. Although we did a QIP of about $100 million in 2024. That also helped us to fund our growth plans.
Understood. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Saket Kapoor from Kapoor & Co. Please go ahead.
[Non-English content]
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Sir, firstly, a small bit of clarification on the cable part of the story, sir. What were you mentioning in terms of infusion or in terms of some capital raising? Can you explain what any thought process that we have, or firstly, we will be creating a new entity as a cable and then raising fund, or what was your all there, sir? I am unable to comprehend.
[Non-English content ] the question was [Non-English content ] if there was a need, where would you bring cash into the company? That was the question for which I gave that answer. And if you recollect [Non-English content ] that we had subsidized cable, I think two years ago.
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Then also we had said this and even now we are saying that at the appropriate time, maybe 12 months down the line or 15 months down the line, whenever the cable reaches a particular size, this year it will be around INR 2,500-INR 2,600 crores. We expect another INR 500-INR 600 crores every year to go up. So, what we had said is at that point of time, we will decide in what format we can raise money in that company. Options are very clearly is that either we dilute from KEC holds 100% equity. So, either I dilute some KEC's portion and get some cash into KEC, if that is what we require. Or if the company requires cable, if you think it will get me more revenue, more margins than what KEC is getting, then maybe we will dilute to get more funds into the cable company.
So, that's a decision which we will take somewhere down the line after a year, a year and a half, saying that the dilution [Non-English content] in what format it should be, [Non-English content] whether to bring money into the cable company or to bring money into KEC. So that decision is still, I think maybe few quarters away, maybe by end of next year is when that decision will be taken. But that is always available in case if there is a cash flow issue or something happens and we need to bring in more money in the KEC. That's a straight option available.
Right, sir. Sir, how are the margins being for the cable and the conductor part? I will just put two more questions for you in the capacity of time. [Non-English content] That is all account from the execution from our Spur subsidiary or what has led to this increase and what is the outlook for H2? Secondly, sir, [Non-English content] JJM [Non-English content ] receivable [Non-English content ] pending receivable [Non-English content ] six months [Non-English content ] how much money have we received back?
JJM [Non-English content] Right now the margins are lower.
Conductor would be, I think, similar or maybe slightly lower because conductor is a much more volume-driven game.
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[Non-English content] । Now they are getting into specialized conductors, HTLS [Non-English content] conductor [Non-English content] margin [Non-English content]
Right, sir. Lastly, that transportation part
Sorry to interrupt, Mr. Kapoor. May we request you to conclude your call?
Sir, only answer. Just you answer complete [Non-English content] Sir, only I'll complete the answer. Oil and gas pipeline [Non-English content]
[Non-English content] oil and gas pipeline [Non-English content] revenue [Non-English content] basically [Non-English content] international project [Non-English content] Saudi [Non-English content] Africa [Non-English content] execution improve [Non-English content] India [Non-English content] revenue [Non-English content]
[Non-English content] sir. Its closing order book?
I don't know. [Non-English content] closing order book? INR 200-300 crore [Non-English content]
[Non-English content] sir.
[Non-English content] international Gulf market [Non-English content] I think order book [Non-English content] Post-war [Non-English content] I think Middle East [Non-English content] Africa [Non-English content] i nquiries [Non-English content] । Mainly I think Middle East [Non-English content] , sir?
[Non-English content] sir and I should reply to the team, sir. Thank you.
Thank you. Ladies and gentlemen, due to time constraints, please limit your questions to one per participant. The next question is from the line of Jayesh Gandhi from Harshad H Gandhi Securities. Please go ahead.
All my questions are actually answered. Only one query I have is that in slide number 11, you spoke about performance impacted due to certain reasons, and one of the reasons cited is land acquisition also. Can you just help me understand what exactly is that land acquisition problem?
Jayesh bhai, there are two parts to that land acquisition. One is what I talked about, at least three of my substation projects have not taken off because the client has not been able to get land for the substation, and that has impacted the revenues in India T&D significantly. That is one part of it. Second place where the land acquisition is coming into play has been on the renewable side, where on, I think, two or three of our wind projects, we are facing not we, the developer is facing significant challenges in acquiring land. However, let me add one thing is that I talked about a new Ministry of Power guideline which has come on forming a market rate committee, etc. And the expectation is that with that MRC, the land acquisition issues should hopefully get more streamlined.
[Non-English content] Power Grid [Non-English content] conference call [Non-English content ], on land. But land [Non-English content] land acquisition is basically on the substation side, which has serious impact.
Sir, if it is possible for you, can you quantify that order book which is impacted by this particular? I mean, what amount of order book is there?
Difficult. I don't have the numbers. Maybe Abhishek, then you can speak to Jayesh Gandhi and give the numbers. We will give the numbers to you separately. Okay?
Sure.
But I will only add one thing, Jayesh bhai, is that out of the three, I think [Non-English content]
Got it, sir.
Thank you. Yeah.
Thank you. The next question is from the line of Abhinav Mandowara from Aequitas Investments. Please go ahead.
Yeah, thanks for the opportunity. I joined the call a bit late, so not sure if it is being repeated. I wanted to understand the working capital issues where we are facing and how our payments have been, and also with regard to Middle East pipeline, just quickly.
Working capital, we had mentioned earlier, Abhinav, on the call that there have been some slippages in the collection, and some of the money we have already realized in the month of October. Plus, apart from that, we were expecting the collection in the water project, which has not happened. That is how the working capital is slightly high. But at the year-end, we are expecting the borrowing levels to go down to about INR 6,000 crore level.
Okay. With regard to, could you just quantify how much of the collection are we pending as such?
No, collections are pending at a few areas. Like we mentioned that retention collection is pending, which is going to happen in the next six months' time. Water collection has not come, and still we are struggling to get the payment from both state and the central for the Jal Jeevan Mission. Some of the projects which we have closed in the Saudi and other territories, we are expecting a lot of collections to come from the retention payments. All these will help us to reduce our borrowing by March.
Okay. What is the Middle East? Like, how are you seeing execution there? Any specific issues which you are facing?
Execution issues, basically what happened in the first half due to the West Asia war, the execution has been impacted, especially on the supply side. Supplies which are coming up from the Europe and other parts of the globe, they have been impacted. Freight cost has gone up significantly higher. All these has impacted. In India, basically the ROW issues and few of the projects have impacted the execution. These are some of the challenges that we have faced. Obviously, in the civil business also, we are facing the, we need to increase the pace of the execution, which is currently, it needs to improve significantly, and that is where the performance has been impacted.
Okay, thank you.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for the day. Now I would like to hand over the conference over to Mr. Vimal Kejriwal for closing comments.
Mr. Kejriwal has left for a meeting. Thank you very much for your interest in KEC. Thank you so much.
Thank you. On behalf of KEC International, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.