KEC International Ltd Q1 FY27 Earnings Call Summary

Event Participants

Executives

2 Rajeev Aggarwal, Vimal Kejriwal

Analysts

10 Amit Anwani, Arafat Saiyed, Jainam Jain, Nipur Kemka, Parikshit Kandpal, Priyankar Biswas, Saket Kapoor, Sudeep Bora, Sumit Kishore, Vaibhav Shah

Financials & KPIs

Geographic & Segment Commentary

T&D (Transmission & Distribution): Revenues of ₹3,217 crores, higher YoY despite Middle East supply chain constraints. Secured ₹3,600 crores of orders across India, Middle East, Africa, and Americas including a significant HVDC order (Barmer Rajasthan scheme), first data center power evacuation order in Western India, and repeat orders from private developers. Africa showing gradual revival with a significant transmission line win; tower supply expanded with substantial Middle East order. Tender pipeline robust across domestic and international markets; order book and L1 exceeds ₹25,000 crores.

SAE (Steel Structures - Americas focus): Revenue ₹450 crores, up 25% YoY, with new orders of ₹1,650+ crores across U.S., Mexico, Brazil — nearly 4x last year, including largest-ever U.S. tower supply order. Record order book/L1 of over ₹3,800 crores. First pilot order for mining structures in Brazil and a solar project structure order in Mexico diversify beyond T&D. Manufacturing at ~100% utilization with ~₹2,000 crores revenue potential from current assets; margins near double digit.

Civil: Revenue ₹993 crores, +6% YoY; growth capped by election-period labor shortages and water segment payment delays. Commissioned Bheden Water Supply Project in Odisha (166 villages, 58,000 connections). Secured L1s of over ₹1,400 crores in buildings/factories vertical; added a leading automobile manufacturer as client; constructing ~80 high-rise buildings nationally. Water book ~₹1,200–1,300 crores (13-14% of segment order book); JJM receivables ₹800–900 crores (₹400-500 crores overdue). New tenders healthy in residential, commercial, metals & mining.

Transportation: Revenue ₹259 crores; focus on new order execution and completion of legacy projects. New orders >₹250 crores in automatic block signaling; Mumbai Metro Line 2B section (Mandale–Diamond Garden) inaugurated by Maharashtra CM. KAVACH implemented across 667 RKM, execution ongoing for additional 780 RKM and 3,000+ locos. Legacy metro projects (DMRC x2, Chennai Metro x2) are complete but stuck at commissioning — incurring ~₹10 crores/month per project in maintenance costs charged to expense.

Cables & Conductors: Revenue over ₹600 crores, up 57% YoY on robust demand. Elastomeric cables production slated for Q2, EBM plant commissioning Q3. Current capacity supports ₹3,000 crores annual revenue; margins ~5% (200 bps below market) expected to improve with specialty product mix. Export revenue ~₹200 crores last year, expected to expand with speciality cables by Q4.

Renewables: New orders of ₹800 crores from existing customer (wind and solar); executing 600+ MW cumulative capacity. 1 GW solar projects (Ircon Karnataka, NTPC Rajasthan) commissioned and operating at rated capacity. Engaging with leading wind OEMs for strategic partnerships; business expected to become significant long-term contributor.

Middle East (cross-segment): ~₹10,000 crores order book (25%), equally split Saudi/UAE. On-ground execution and commissioning continue (3-4 projects commissioned in last 4 months), but supply chain/logistics disruptions (Europe, China, India to GCC) have slowed execution and deferred ~₹300 crores of revenue in Q1. Freight costs, war surcharges, insurance remain elevated though moderating. Costs booked immediately; management engaging customers for recovery.

Company-Specific & Strategic Commentary

Order Book Momentum: Record order book of ₹37,697 crores plus L1 of ~₹3,000 crores (total >₹40,000 crores) despite geopolitical disruptions; tender pipeline exceeds ₹2 lakh crores. Management maintained FY27 revenue guidance of 12–15% growth and order intake target of ~₹30,000 crores (60–65% from T&D, ₹9,000–10,000 crores international, largely Middle East).

Capacity Expansion: Completed Butibori facility expansion in Q1, taking global manufacturing capacity to 483,800 MT. Prior expansions at Dubai, Jaipur, and Jabalpur complete. Cables segment: ₹300 crores Capex over last 3 years; potential larger Capex on EHV capacity under evaluation; specialty investment in HTLS conductors planned.

Data Center Opportunity: Secured first transmission line order for data center power evacuation in Western India from private developer; engaged with other data center developers. Civil side completed 5 data centers in last 2 years, bidding for more — potential wins as early as next quarter. Market fragmented with ticket sizes ~₹10 crores/MW; competition includes Tata Projects, L&T. Data center-driven T&D demand also emerging from U.S. private developers.

Hydrocarbon Consolidation: Initiated merger of wholly-owned subsidiary KEC Spur Infrastructure with KEC International; oil & gas pipeline portfolio to integrate into civil hydrocarbon segment for unified approach. Significant domestic and international expansion opportunities identified.

Working Capital Discipline: Net debt reduced ₹150+ crores QoQ to ₹6,568 crores despite higher inventory (Dubai factory balancing equipment, cable raw materials/finished goods). Target of ~₹1,200 crores debt reduction to ~₹5,500 crores by March FY27; working capital target of 110 days by March. Negotiated better payment terms including 20% advance in one contract; observes improving payment cycles broadly (Power Grid interest-free advances, faster GCC retention releases).

Guidance & Outlook

Risks & Constraints

Q&A Highlights

Standalone vs Consolidated Profitability

• Question: Why was standalone EBITDA margin ~4% and PAT negligible? (Parikshit Kandpal, HDFC Securities)
• Answer: Shortfall concentrated in transportation and civil segments, primarily four legacy metro projects (2 DMRC, 2 Chennai) that are complete but awaiting client takeover, incurring ~₹10 crores/month each in maintenance costs. T&D performing reasonably well. New orders are all profitable; margins should inch up sequentially but double-digit consolidated margin not possible in FY27; high single-digit likely only by FY28. (Vimal Kejriwal)

Working Capital Levers & Debt Reduction Roadmap

• Question: What are the specific collection levers to achieve the ~₹1,200 crores debt reduction target? (Priyankar Biswas, JM Financial)
• Answer: CFO Rajeev Aggarwal outlined: Afghanistan ~₹300 crores (expected Q2/Q3), water segment overdue ~₹300–400 crores (assurances of release received), Middle East project closures (Saudi) unlocking ~₹300–400 crores of retention, ₹150–200 crores from railway claims already awarded (INR 150–160 crores awarded), and ₹200–250 crores from inventory unwind (Dubai factory balancing equipment, cable raw materials). Management reiterated ~₹5,500 crores net debt by March FY27.

Middle East Exposure and Execution Impact

• Question: What is the order book composition in Middle East and what was the revenue impact? (Sumit Kishore, Axis Capital)
• Answer: ~₹10,000 crores (25% of order book) split broadly equally between Saudi and UAE. Physical execution and commissioning continue (3-4 projects commissioned in 4 months) — challenge is on supplies (25-30% of revenues) with shipping disruptions and elevated freight costs. ~₹300 crores of revenue deferred in Q1 from supply-side delays; expected recovery later in year. Additionally, India T&D is facing ROW issues in Rajasthan and Gujarat (renewable corridors) — Gujarat's new 2-3x market value compensation scheme should help. (Vimal Kejriwal)

FY27 Guidance Maintenance

• Question: Do you revisit revenue/order inflow guidance in light of Q1? (Sumit Kishore, Axis Capital)
• Answer: Guidance maintained: 12–15% revenue growth for FY27, ~₹30,000 crores order inflow. Management noted potentially minor variation (half to 1%) depending on conflict duration, but order book of ₹40,000 crores and typical Q3-Q4 execution strength provides cushion. No formal margin guidance provided. (Vimal Kejriwal)

Data Center Strategy and Opportunity

• Question: Competition, margins, and right-to-win in data center EPC? (Jainam Jain, DAM Capital)
• Answer: Market fragmented with developers slicing orders into smaller packages; few hyperscalers bundle civil + MEP. KEC pitches combined civil + MEP capability; expects first civil data center wins next quarter. Completed 5 data centers in last 2 years. Separate opportunity in T&D for power evacuation to data centers — secured first transmission line order in Western India; U.S. private developers showing interest. Data center order size roughly ~₹10 crores/MW. Competition: Tata Projects, L&T. (Vimal Kejriwal)

Cables Business Capacity and Margins

• Question: Capacity utilization, CapEx plans, and margin trajectory in cables? (Amit Anwani, PL Capital)
• Answer: Current capacity supports ₹3,000 crores annual revenue without further CapEx; margins ~5% (200 bps below market) with speciality products (elastomeric, EBM) expected to improve trajectory. Export revenue ~₹200 crores last year, expansion planned by Q4. Capital spend ~₹75–100 crores/year in cables (₹300 crores over last 3 years); larger EHV Capex under evaluation for next year. Plans to add aluminum conductor capacity especially HTLS products. (Vimal Kejriwal)

SAE Towers Business Capacity

• Question: Fixed asset revenue potential and utilization in SAE? (Sudeep Bora, Ambit Capital)
• Answer: Revenue potential ~₹2,000 crores from current assets; at ~100% utilization. Order book of ₹3,800 crores translates to ~1.5-2 years of work given 12-month advance order lead times in U.S./Brazil markets. Margins near double digit. (Vimal Kejriwal)

Water Segment Receivables and Future Loss Potential

• Question: What is pending order book costs and potential for further losses in JJM projects? (Priyankar Biswas, JM Financial)
• Answer: Water projects are profitable at 8–10% margins at various stages — no cost structure challenge. The issue is deliberately slowed execution (need-based supplies) due to payment delays. Receivables of ₹800–900 crores (of which ₹400–500 crores overdue), expected collections of ₹300–400 crores against cost already incurred; ₹110 crores received in July–August from MP/Odisha. Two states (MP, Odisha) with 6-7 Odisha projects; most complete by year-end if cash flow normalizes. (Rajeev Aggarwal, Vimal Kejriwal)

Middle East Order Conversion Delays

• Question: Are conversion delays domestic or international, and what's the international order intake expectation? (Amit Anwani, PL Capital)
• Answer: Delays primarily in West Asia (Saudi, UAE, Oman) even though L1 on several projects; new tenders still being announced (including yesterday). No scaling down observed. FY27 international order intake expected ₹9,000–10,000 crores (out of ~₹30,000 crores total), significant portion from West Asia. T&D order intake contribution expected 60–65%. (Vimal Kejriwal)

Payment Terms and Working Capital Levers

• Question: Can you structurally reduce working capital by shifting order mix/payment terms? (Nipur Kemka, CD EquiSearch)
• Answer: Negotiable on private contracts — recently secured 20% advance in one exceptional case; cash retention negotiable with private clients (not in standard Power Grid/Middle East tenders). Observed broad improvement in payment terms: Power Grid advances now interest-free, GCC retention releases fast-tracked (retention percentage unchanged: 10% UAE, 20% Saudi, 30-35% Kuwait), some clients paying 95% on progress bills and changing billing breakups. (Vimal Kejriwal)

Margin Path to Recovery

• Question: What factors drive margin recovery given Q1 is far below historical performance? (Saket Kapoor, Kapoor & Company)
• Answer: Improvements expected from Q3 onwards as Middle East disruptions normalize and labor situation resolves. Legacy low-margin orders are winding down to completion; fast-track projects in Middle East offer additional tailwind. Arbitration closures (especially railways) and working capital improvements will contribute to PBT. No specific margin guidance provided; double-digit margins not achievable in FY27, high single-digit possible in FY28. (Vimal Kejriwal)

Adani Group Exposure

• Question: What is the share of Adani Group in current order book? (Nipur Kemka, CD EquiSearch)
• Answer: 5% or less of total order book (₹40,000 crores), spread across T&D, railways, civil. FY26 order intake from Adani was ~₹1,000 crores (2-3 orders including one HVDC). (Vimal Kejriwal)

Key Takeaway

KEC International posted a resilient Q1 FY27 with flat revenues at ₹5,024 crores, PBT of ₹90 crores, and PAT of ₹73 crores amid Middle East supply chain disruptions and labor shortages, while growing order book to ₹37,697 crores (₹40,000+ crores with L1) and cutting net debt by ₹150+ crores QoQ to ₹6,568 crores. Management maintained FY27 guidance of 12–15% revenue growth (recovering ~₹300 crores deferred Middle East revenue) and ~₹30,000 crores order intake, underpinned by a ₹2 lakh crore tender pipeline. Strategic focus: T&D driving growth (HVDC, data center power evacuation, Middle East/Africa/Americas expansion), SAE at record order book, cables growing 57% YoY with speciality product mix, and data center EPC entry in both T&D and civil. Key watch points: margin recovery path (legacy metro project maintenance costs ~₹40 crores/quarter, Middle East cost recovery negotiations), working capital conversion (Afghanistan ~₹300 crores, JJM ₹400-500 crores overdue, inventory unwind ₹200-250 crores) targeting 110 days by March, and debt reduction to ~₹5,500 crores. Management expects sequential margin improvement from Q3 with high single-digit margins achievable only in FY28.