KEC International Ltd Q1 FY2027 Concall Summary

Key Takeaways

• Flat quarter, transitory headwinds: Revenue of ₹5,024 crores was flat YoY as ~₹300 crores of EPC execution was deferred by Middle East conflict and labor shortages, but management calls these challenges transitory and recoverable.
• Profitability under pressure: PBT of ₹90 crores (1.8% margin) and PAT of ₹73 crores were dragged down by Middle East logistics costs, metro project maintenance expenses (~₹10 crores/month per project), and delayed claims settlements.
• Order book and L1 pipeline provide visibility: T&D order book plus L1 exceeds ₹25,000 crores, civil plus L1 exceeds ₹10,000 crores, and full-year order inflow guidance of ₹30,000 crores is maintained.
• Debt reduction on track despite headwinds: Net debt reduced by over ₹150 crores to ₹6,568 crores; full-year target of ~₹1,200 crores reduction is backed by identified levers including Afghanistan collections, water dues, and retention releases.
• What to watch next quarter: Whether Afghanistan collections (~₹300 crores) materialize, the pace of Middle East supply normalization, and any resolution on the four stuck metro projects that are bleeding ~₹10 crores per month each.

Middle East Disruption: The Quarter's Central Drag

• Supply-side chaos: Shipments from Europe, China, and India to GCC resumed gradually but with delays; ports under attack, vessel availability constrained, and freight costs including war-related surcharges and insurance remain elevated, cascading into higher logistics, fuel, and power costs at Indian manufacturing facilities.
• Revenue deferred, not lost: ~₹300 crores of EPC execution was deferred in Q1 due to the conflict; management expects this to be recovered in subsequent quarters and is maintaining full-year revenue growth guidance of 12-15%.
• Procurement deferral risk: Project execution may get deferred until customers align on recovery of additional costs, creating both revenue and margin timing impacts that are not yet quantified.
• Spillover into Q2: Challenges from Middle East supply chain and logistics are expected to have a spillover effect on Q2, though freight costs are expected to moderate over the coming weeks.
• Order book composition: ~₹10,000 crores of Middle East orders, equally divided between Saudi and UAE; on-ground execution is normal but local operating costs are up significantly, impacting margins.

Kejriwal: "There has been some talk saying will there be scaling down? I do not think there is a scaling down because continuously projects are coming up."

Margin Trajectory: When Does It Turn?

• Current state: Standalone EBITDA margin declined to ~4% because higher-margin T&D sits largely in the consolidated entity, while Railways and Civil (both negative) sit in standalone. Overall PBT margin was 1.8%.
• Metro project bleed: Four metro projects (two DMRC, two Chennai Metro) are completed or ready for commissioning but not taken over by the client; maintenance costs of almost ₹10 crores per month per project are expensed, dragging profitability.
• Civil and Transportation margins: Still negative, putting overall numbers under pressure; old metro projects are the cause, not new orders, which are all profitable.
• T&D margins resilient: Expected to continue in double digits or very close; enough cushions exist, many contracts are hedged, and steel costs have come down.
• Cable margins: Around 5%, still ~200 bps below the market; specialty cables coming up are expected to inch margins up.
• Challenging-margin orders ending: Some older orders taken at challenging margins are now coming to an end, which should help margin improvement by year-end.
• FY27 double-digit margin ruled out: Management explicitly stated double-digit overall margin is not possible in FY27; high single digit in FY28 should be possible.
• Q2 expectations: Margins expected to remain in a similar line, maybe 50 bps here or there; no significant increase until the war situation resolves.

Kejriwal: "But do we think we will get into double digit and all in FY 2027? No, not possible. ... High single digit in 2028 should be possible."

Working Capital & Debt: The Identified Levers

• Debt reduction target: Targeting ~₹1,200 crores reduction from ~₹6,700 crores to ~₹5,500 crores by March, with multiple identified levers.
• Afghanistan collections: ~₹300 crores expected, with no associated outflow; management expects collection in Q2, or definitely Q3.
• Water old dues: ~₹300-₹400 crores expected if Jal Jeevan Mission funds are released; subsequent revenue will be regularized.
• Saudi/Middle East retention: ~₹300-₹400 crores expected from retention releases, which have been fast-tracked in Saudi and Dubai.
• Railway claims: ₹150-₹200 crores expected in FY27, depending on negotiation; awards already received for about ₹150-₹160 crores.
• Inventory unwinding: Higher Q1 inventory from delayed Dubai dispatches and raw material storage amid Middle East disruptions is expected to release ~₹200-₹250 crores.
• Working capital days: Targeting 110 days at FY27 end.
• Interest cost trajectory: Q1 interest at 3.3% was elevated because cash came in late while April-May borrowings were high; full-year expectation is around 2.3%, total interest around ₹600+ crores.
• Payment terms improving: Management sees general improvement in payment terms and cycles across civil, T&D, and private clients; Power Grid has made advances interest-free.

Kejriwal: "I think if we are lucky, let me put it, that we should get it in Q2 itself. Otherwise, definitely Q3, and that is a large amount, INR 300 crore without any outflow against it."

T&D: The Growth Engine

• Revenue and order book: Q1 T&D revenues of ₹3,217 crores, higher YoY but constrained by Middle East supply chain; order book plus L1 over ₹25,000 crores provides strong visibility.
• Full-year order intake: 60-70% of the ₹30,000 crore order inflow target expected from T&D (~₹20,000 crores); international at ₹9,000-₹10,000 crores, with a significant part from West Asia.
• HVDC breakthrough: Secured a significant order in the rapidly growing HVDC segment and participated in multiple packages in the Barmer Rajasthan HVDC scheme; additional schemes expected to be floated during the year.
• Data center opportunity: Secured the first transmission line order for evacuation of power to a data center in Western India; management sees more inquiries coming on the T&D side as data centers face power supply challenges.
• India T&D headwinds: ROW issues in Rajasthan and Gujarat (major renewable project states) causing execution headwinds; Gujarat has introduced a new compensation scheme with 2-3x market value, which is expected to improve movement.
• New developer relationships: Started bidding for three new developers during the quarter, in addition to PGCIL and other private developers.
• Africa revival: Won a significant transmission line order in Africa, strengthening regional presence.

SAE Towers & Cables: The Bright Spots

• SAE revenue growth: Revenues of ₹450 crores, 25% YoY growth; order inflows nearly 4x vs last year, including the largest ever tower supply order from the U.S.
• SAE utilization and margins: Running at almost full capacity (~100%), with current fixed assets supporting ~₹2,000 crores revenue; margins are almost double digit.
• SAE order book delivery: ₹3,800 crores order book to be delivered in ~1.5-2 years; those markets get orders at least 12 months in advance.
• Cables revenue surge: Revenue over ₹600 crores, 57% YoY growth driven by robust demand across infrastructure, power transmission, and industrial segments.
• Specialty cable ramp-up: Elastomeric cables slated to commence production in Q2 FY27; EBM plant commissioning in Q3 FY27; new products expected to add ₹300-₹400 crores revenue and inch margins up from the current ~5%.
• Cable capex: Over the last three years, ₹300 crores spent on cable capacity; normal annual spend is ₹75-₹100 crores; EHV expansion capex is on the drawing board, could happen next year or later.
• Export push: Expect increase in export market by Q4 with specialty cables coming up.
• Manufacturing capacity: Completed expansion of Butibori facility in Nagpur in Q1; global capacity now 483,800 metric tons.

Civil, Transportation & Water: The Turnaround Bets

• Civil revenues: ₹993 crores, 6% YoY growth; slightly lower due to labor shortages from the election period and customer payment delays in the water segment.
• Labor normalization: Labor situation started improving from June 26 onwards; shortages arose from the election period and impacted civil execution.
• Civil order book: Order book plus L1 over ₹10,000 crores; large tender pipeline across residential, commercial, and metals/mining sectors.
• Water projects: Most water projects (MP and Odisha) should complete within this year; projects are profitable at 8-10% margin, but large outstanding receivables are the challenge, not cost structure. Execution slowed deliberately on supply items to need-based only.
• Transportation revenues: ₹259 crores; focus on execution and completion; profitability impacted by delays in legal closure of disputes and settlement of claims.
• Railway slow-moving projects: Most are at 95-97% closure; completion depends on railway blocks or depot design approvals.
• Data center civil orders: Management hopes to secure a few orders on the civil side for data centers by next quarter.
• Renewables: Secured ₹800 crores in new orders from an existing customer in wind and solar; engaging with leading wind OEMs for strategic partnerships.

Kejriwal: "Because of that, what happens is that the client will not take over, you are supposed to maintain. So virtually, you end up spending almost INR 10 crores per month on each project. Now all these are going in the expense account. You will make a claim and all that. That is where it is continuing, and I think it is a saga which is I do not know what to say about it."

Guidance & Commitments

Key Metrics