Knowledge Marine & Engineering Works Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Revenue surged 541% YoY in H1, but margins compressed sharply: H1 FY23 revenue hit INR 122.7 crores, yet EBITDA margin fell to 28.6% from ~60% last year as vessel idling and drydocking bit.
• The margin reset is structural, not just a one-off: Management now guides to a minimum 30% EBITDA margin going forward, down from the 40%+ levels of FY22, and bids all new work at that floor.
• Bidding capacity is unlocking a step-change in addressable market: The company can now bid for contracts up to INR 250 crores, and Sittwe completion will lift that ceiling to INR 400 crores, opening a pipeline of INR 500 crores in bids already submitted.
• Capital raise funds a fleet build-out, not a pivot: The INR 39.6 crore preferential issue will fund four new dredgers over 18 months, reinforcing the core dredging business while shipbuilding and scrapping remain on hold until 30% margin opportunities appear.
• What to watch next quarter: Whether the INR 500 crore bid pipeline converts at the targeted 50% win rate, the pace of Mangrol execution, and any margin recovery as idled vessels return to work.

Margin Reset: Why 30% Is the New Floor

• Three one-off drags hit H1: River Pearl 8 in Myanmar was idled during monsoon on client instruction because measurement was impossible, two vessels underwent drydocking, and one dredge sat idle through the monsoon period.
• The forward guide was lowered, not just the quarter explained: Management committed to a minimum 30% EBITDA margin for all future work, down from the 40%+ earned in FY22, and confirmed this is the benchmark used when making bids.
• Dredging still earns higher margins than ancillary crafts, and competition is thinner there, so the mix shift toward dredging as the fleet expands should support, not erode, the new floor.
• Chartered equipment earns 5-7% less margin than owned equipment, and the company targets a 60:40 owned-to-chartered mix, down from the current 85:15, which creates a modest structural headwind to blended margins.

Kewalramani: "We only bid for contracts which have at least 30% margins. We evaluate that on day one and only pursue those opportunities. There is no point in making the efforts for lesser margins, sir."

The Bidding Capacity Flywheel

• Qualification thresholds are the gatekeeper: CVC guidelines require bidders to have executed prior work at 40-80% of a contract's value, so each completed contract mechanically unlocks a larger set of tenders.
• The step-up path is mapped: The company moved from a INR 100 crore ceiling to INR 200-250 crores, and Sittwe completion will lift it to INR 400 crores, a progression management called "a step up slowly and clearly."
• A INR 500 crore bid pipeline is already live, with order flow anticipated within 1-1.5 months, and three more bids in preparation; the year-end target is INR 800 crores in total bids submitted.
• Win rate is claimed at 50-70%, though management's own answer was inconsistent within a single sentence, so the 50% figure used for targeting INR 400 crores of order wins is the more prudent reference point.
• River dredging is the next horizon: A INR 1,000 crore tender for National Waterways 1 and 2 is under preparation, with Dredging Corporation of India appointed as consultant, and KMEW plans to participate actively.

Kewalramani: "So today, we are eligible to bid for contracts with a value of INR 200 crores to INR 250 crores. Once we execute Sittwe contract completely, you will be able to bid for contracts worth INR 400 crores. So, this is a step up slowly and clearly."

Order Book & Execution Visibility

• INR 209 crore order book at period end, of which INR 130-140 crores will be executed in FY23, leaving INR 80-90 crores for H2 and the balance spilling into FY24.
• Myanmar is the anchor contract: INR 80 crores remains on the Sittwe port job, with capital dredging expected to complete by January 2023 and maintenance dredging to follow; not all of the balance will be commissioned in H2.
• Mangrol adds INR 68 crores of fresh work, with 60% execution targeted this year and a further 10-15% in variation quantities awaiting Government of Gujarat approval.
• Variation quantities across the book could lift the order book further, with approvals under process at the Ministry.
• Ancillary craft revenue is stable but small: These fixed-price contracts provide port presence and first-mover advantage on dredging opportunities, carry negligible operational cost, and require no marketing spend, but contributed only ~2% of H1 revenue as the fleet mix shifted heavily toward dredging.

Kewalramani: "These ancillary craft businesses allow for long-term presence in every port... That is where we are first in. We always get to know which are the contracts coming up, which are the dredging possibilities that will happen."

Fleet Strategy & Capital Allocation

• Four dredgers to be acquired in the next year at a cost of approximately INR 55 crores, funded by the INR 39.6 crore preferential issue, with spending spread over 1.5 years.
• Cutter suction dredgers will join the fleet as soon as work orders are placed from bids already made; capital is expected to be raised by December and the vessels in the fleet within six months.
• Shipbuilding and ship scrapping are on hold: Both segments were evaluated and found unable to meet the 30% margin threshold; management will deploy capital only once that hurdle is cleared.
• Sand mining is an exploratory adjacency: Tenders are out in Rajasthan, but no revenue is expected in the current year, with a contribution possible next year.
• The owned-versus-chartered mix will shift toward more chartering: The target is 60% owned and 40% chartered, down from 85% owned today, which reduces capital intensity but also trims blended margins by 5-7% on the chartered portion.

Kewalramani: "Only post ensuring that 30% margins are there. Only then we'll deploy our capital in that business."

Competitive Moat & Growth Philosophy

• Experience is the barrier to entry: The promoter group has 55-60 years of combined dredging experience, senior management over 100 years, and the company conducts intensive soil studies from Gujarat to West Bengal before bidding to match equipment to ground conditions for maximum production.
• Growth is deliberately paced: Management explicitly rejected chasing market share, stating it targets "calculated growth" and only pursues contracts it can execute, with a conservative 10-15% CAGR guide post-FY23.
• The Maldives bid signals international ambition beyond Myanmar, but details are restricted due to national security classification, leaving investors with no visibility on size or probability.
• Fishing harbour development and national water waste works were mentioned as new segment entry points, but no timelines, bids, or capital commitments were provided.
• Main bourse migration is planned for next year, which would broaden the investor base and improve liquidity from the current SME platform.

Kewalramani: "We are not looking for any huge stake or 1% to 5% stake of it. We are only trying to have a calculated growth and execute contracts which we can execute."

Guidance & Commitments

Key Metrics