Knowledge Marine & Engineering Works Ltd Q4 FY2024 Concall Summary

Key Takeaways

• Revenue hit by geopolitics, not operations: FY24 revenue fell to INR 164 crores as unrest in Myanmar’s Rakhine state forced evacuation from Sittwe Port, delaying INR 70 crores of maintenance dredging revenue into FY25.
• Margins held firm despite the top-line shock: EBITDA margin stayed at 30% and PAT margin rose to 20%, helped by the roll-off of lower-margin JV subcontracting work in H2.
• The order book has transformed: From INR 200 crores in FY23 to INR 700+ crores now, built on Bahrain sand mining (INR 450 crores), IWAI waterways contracts (INR 172 crores), and a repeat Myanmar dredging win. Management targets INR 1,100 crores soon.
• FY25 is a bounce-back bet: Guidance calls for revenue of INR 270–300 crores and minimum PAT of INR 60 crores, implying a near-doubling of the top line, with the delayed Sittwe revenue, Bahrain ramp-up, and new IWAI contracts all landing in the year.
• What to watch next quarter: Whether the INR 70 crores Sittwe revenue actually materializes, the pace of IWAI contract starts (two more expected within 45 days), and any progress on the Saudi Arabia entry plan.

The Sittwe Shock: What Happened in FY24

• The event: Unrest in Rakhine state in January prompted India’s Ministry of External Affairs to evacuate all Indian nationals from the Sittwe Port site, halting maintenance dredging and pushing roughly INR 70 crores of revenue out of FY24.
• The relocation: The company moved its equipment and personnel from Sittwe to Yangon, where it had already secured a separate dredging contract with the Myanmar Port Authority.
• The margin story: Despite the revenue loss, EBITDA margins held at 30% and PAT margins improved to 20%, partly because two large, lower-margin JV subcontracting contracts ended in H1, reducing subcontracting costs in H2.
• Employee cost step-up: Employee expenses rose on a combination of routine annual increases and deliberate hiring of professionals to demonstrate management bandwidth, a move that helped unlock entry into IWAI government contracts.
• Other expenses: The H2 uptick included CSR spending of INR 70–80 lakhs (2% of average net profit), legal drafting costs, and expenses tied to new orders and vessels added in the period.

Kewalramani: "I would say that we may have disappointed a few people by a lower revenue this year, but it has never been our intention or any fault or a gap from the side of the management, but it has been a situation."

Order Book: The Growth Foundation

• Scale of transformation: The order book has grown from INR 200 crores in FY23 to over INR 700 crores, with management targeting an additional INR 400 crores soon to reach INR 1,100 crores. By FY25 end, after exhausting roughly INR 300 crores, the book should stand at INR 700–800 crores with capacity to add 50% more.
• Bahrain sand mining anchor: A five-year order book of approximately INR 450 crores from sand sales, backed by LOIs from 6–7 companies. Pricing is market-driven, not fixed: the rate is set for the first six months, then adjustable. 60% of mined sand is committed under sale agreements with price variation; 40% is reserved for the open market.
• Myanmar repeat win: A second contract from the Myanmar Port Authority for Yangon River dredging, double the value of the first, marks the company’s first independent international project outside its Government of India collaboration.
• IWAI entry: Two contracts worth approximately INR 172 crores for national waterways work on the Ganga, supervised by the World Bank. The Farakka-Kahalgaon stretch started 23 April 2024 with revenue recognition from 15 June; Barh-Digha mobilization completes in July. Two more IWAI orders are expected within 30–45 days.
• Port services wins: Mumbai Port Authority added as a new customer for hire of two dock tugs (INR 34.49 crores, seven years), Paradip Port ordered a patrol boat with crew (INR 5.02 crores), and Visakhapatnam Port renewed a contract for three years at a higher bid (INR 3.44 crores).
• DCI subcontract pipeline: The company was declared L1 for a second subcontract from Dredging Corporation of India at Paradip Port, with the order expected the following week. It had previously executed a INR 100 crores rock dredging contract for DCI as the sole bidder.

FY25 Guidance: The Rebound Arithmetic

• Revenue: INR 270–300 crores, built from Bahrain (INR 75 crores, reduced from INR 90 crores by a 30-day vessel upgrade downtime), IWAI (INR 55–57 crores), Yangon (INR 50 crores), Sittwe (INR 70 crores), plus ancillary business.
• Profitability: Minimum PAT of INR 60 crores, with PAT margin in the historical 20–23% range and EBITDA margin around 30%.
• Bahrain margin normalization: The Bahrain segment delivered roughly 60%+ EBIT margins on INR 16 crores of revenue in FY24, but management expects margins to moderate going forward due to vessel upgrade expenditure, staying above Indian margins but not at 60%.
• Capex: Total planned capex of INR 160 crores for additional cutter suction dredgers and allied craft to support new orders.
• Debt and cash: Net debt rose in FY24 from vessel acquisitions, but debt facilities are aligned with specific fleet contracts for repayment before contract completion. The company keeps a 25% cash balance against any future acquisition debt and holds cash for faster decision-making on second-hand asset purchases.

Kewalramani: "The reason that we are not using up the cash balances is for future growth prospects. Any future acquisition capex that we do requires us to keep 25% cash balance as against the debt that we pick up."

Competitive Position & Market Structure

• Inland waterways: a nascent, protected market: Only four players bid for inland waterways contracts: Northernexpress Infra, Dharti Dredging, Adani, and Knowledge Marine. In more than 50% of bids, only Knowledge Marine and Dharti Dredging compete. The equipment investment requirement and pre-qualification criteria create high entry barriers.
• The opportunity is barely tapped: India has 106 identified national waterways with over 20,000 km of rivers needing dredging. The company has so far secured only roughly 170 km on one waterway (Ganga), with a second pipeline on the Brahmaputra. The government is breaking work into smaller 70–100 km stretches, and management expects that three years of experience will qualify it to bid for single-river stretches.
• Bahrain sand market dynamics: Pricing is supply-demand driven on an almost daily basis with limited public-domain data. The company will consider adding a second vessel only after October, once it has six months of streamlined revenue, timely payments, and counterparty reliability.
• International expansion path: Saudi Arabia is being actively explored with a partner identification process underway; once formalities are complete, the plan is to deploy Bahrain-based equipment there. Management intends to enter one more new country within two years.

Kewalramani: "It's just started. I mean, it's just the cusp of a start."

Fleet, People & Corporate Actions

• Fleet expansion underway: Three vessels were added in FY24 (River Pearl 18, two cutter suction dredgers). Two more cutter suction dredgers and four workboats are being added for the Ganga project, with River Pearl 14, 15, and 16 under construction. The long-term target is 40 or more craft.
• Main board migration: The company will move from the SME platform to the BSE main board and directly list on the NSE main board within 60–90 days.
• Promoter transactions: Promoters sold roughly 5–6% in February to mutual funds, citing a need to raise growth capital and recognize a decade of below-par salaries. They have now decided to buy back shares at available valuations and stated no further selling is planned, though no duration was committed.
• Market share ambition: The stated target is to capture a sustainable 10% share of the dredging business.

Kewalramani: "We believe that we needed further money to grow and we had worked in the company for last 10 years. We had kept our salaries really below par and we believe one day we will be able to reach a valuation where we would dilute 4%, 5% and recognize the hard work put in by the promoters in the last 10 years."

Guidance & Commitments

Key Metrics