KEC International Ltd (KEC) Q2FY27 Concall Transcript - Sep-2026 Qtr
Moderator: Ladies and gentlemen, good day and welcome to the KEC International Limited Q2 FY27 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.
Vimal Kejriwal (KEC International Ltd): Thank you, Eric, and good morning to everyone and welcome to the KEC International's Q2 earning conference call. Now, 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 ₹3,000 crores from PGCIL after a break of 15 months, which also includes our single largest order in India T&D of almost over ₹1,200 crores. Execution of these projects will commence from next month onwards, in December. Second, we have realized more than 200 crores of collections from Afghanistan in October, which has been stuck for more than 5 years, and we expect another 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 300 crores rupees as advance to ease the impact on the cash flow arising from 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 effect shipments into the GCC market resulting in longer lead times. Freight rates, including war-related surcharges and fuel prices remained 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
Vimal Kejriwal (KEC International Ltd): 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 our transportation and metro businesses. An unexpected consequence of the geopolitical disruptions has been the unprecedented increase in global freight cost. For instance, shipments to Afghanistan, which are now being routed through Europe and Turkey, have seen a multifold increase in the freight cost. While these incremental costs are recoverable from customers in several cases, there is a clear timing gap between their incurrence and recovery which impacted profitability during the quarter. On the order intake front, we secured orders of over ₹13,500 crores of which 70% is from T&D. Additionally, we have a L1 position of ₹3,500 crores largely in the T&D business. Our order book remains strong and stands at a record level of ₹40,000 crores as of date. Including our L1 position, the combined order book and L1 pipeline stands at ₹43,500 crores, 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 ₹7,793 crores as on 30th September. The debt levels are elevated owing to some of owing to some of these things. The spillover of collections of ₹600 crores including the ₹200 and ₹300 crores if you talk have been realized in October 26. We had also build an additional strategic inventory of almost ₹160 crores to manage the commodity price volatility and the logistics 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 ₹6,000 crores by the end of the year. Coming to specific businesses, in T&D, the business achieved revenues of ₹3,686 crores, a growth of 15% over Q1 FY27. 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 ₹9,500 crores 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 strengthen 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 ₹493 crores, a growth of 15% year-on-year. We continue to witness strong momentum in order inflows with new orders of over ₹1,900 crores for the supply of towers, hardware, poles, and engineering services across the US, 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 ₹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 de-congest 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 empaneled valuers,
Vimal Kejriwal (KEC International Ltd): will 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, and 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 Rs. 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 Rs. 957 crores for the quarter. The execution was impacted by certain unanticipated challenges, including delays in release of work fronts, continuing 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 27. On the order intake front, the civil business secured new orders of Rs. 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 Rs. 224 crores for the quarter. During the quarter, the business completed the 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 systems segment, by securing a new order from DMRC for the Jaipur metro rail corporation. The business has also successfully implemented Kavach across 682 route km 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 Rs. 613 crores, 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 niche markets, are 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 II 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 1,150 crores. During the quarter, the business has secured two large orders in wind EPC and one order in the solar EPC from renowned private developers. With these wins, we are currently executing renewable energy products 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 renewables 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
Vimal Kejriwal (KEC International Ltd): 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 a 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 kee- 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 Rs. 43,000 crores and a tender pipeline exceeding Rs. 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.
Moderator: 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 touch-tone 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.
Vaibhav Shah (JM Financial): Yeah. Sir, we saw a sharp increase in the debt and working capital for the current quarter. We did mention that we are targeting 6,000 crore net debt by March of 27. So, what would be the plan? How do you intend to achieve that?
Vimal Kejriwal (KEC International Ltd): So, Vaibhav, as I said, we have already received almost 600 crores and odd post the balance sheet date, number one. And, you know, 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 cost which we have already incurred. Apart from that, as I said, we will we are expecting another 100 crores from Afghanistan. So these are, you know, typically, I'll say more like non-operating, not not from the normal operations of the company. Second piece is, you we had 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 500 or 600 crores of of advance payments wh- which will happen. There are other as I talked about the Camargo project being commissioned, there will be inflows from metros, etcetera. So, I think we have a very clear targeted plan against various items. Okay? And, obviously, if you looked at our numbers, etcetera, so we have also focused a lot on closure of projects. So that itself will release significant amount of funds. In fact, we are expecting more than 100, 150 crores from Power Grid on old old projects which have been also I'll say which have been closed. Now awaiting final commercial sign-off. So there is a a clear path forward on where we expect and how we expect to reduce the debt.
Vaibhav Shah (JM Financial): Sure. So sir last time you mentioned that we are planning to recover 350 crores from JJM, 300 crores from retention money in Middle East, and some 150 crores of railway claims. So any update on that?
Vimal Kejriwal (KEC International Ltd): So as far as JJM is concerned, I think we got around 100 crores. Kitna baaki hai? 150 crores. 150 crores this quarter. Okay? But as 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 will come down a little bit. And then new retention accruals will come down. And we have and 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'm talking about net retention accruals.
Vaibhav Shah (JM Financial): And incremental target in second half for JJM recovery and railway claims?
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