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    KEC International Limited

    KECGood
    Construction·5 Nov 2024
    Management Summary

    KEC International delivered a strong Q2 FY25 performance characterized by robust revenue growth in its core T&D business and a significant strengthening of its balance sheet via a ₹870 crore QIP. While margins saw modest expansion, execution was slightly hampered by labor shortages and heavy rains in key regions. Management is pivotally focused on debt reduction, aiming to bring net debt down to ₹4,000-4,500 crores by year-end while maintaining a 15% revenue growth target.

    Highlights

    8

    • Revenue reached ₹5,113 crores in Q2 FY25, a growth of 14% YoY, primarily led by the T&D segment.

    • Successfully completed a QIP raising ₹870 crores, which was oversubscribed 7x.

    • Net debt (including acceptances) reduced by ₹1,074 crores YoY to ₹5,265 crores as of September 30, 2024.

    • Order intake reached a record YTD high of ₹13,500 crores, up 50% YoY, with T&D accounting for 70%.

    • EBITDA margins expanded by 20bps YoY to 6.3% in Q2; management targets 9-10% exit margins for FY25.

    • PBT grew by 72% YoY in Q2 to ₹114 crores, while PAT reached ₹85 crores.

    • The Board approved the transfer of the Cable business to a subsidiary, KEC Asian Cables Limited, effective January 1, 2025.

    • Total order book plus L1 position stands at a record level of over ₹42,500 crores.

    What Changed1

    vs Q3 FY25

    Risks discussed3 → 4 (+1)
    Key financials

    Metrics

    6

    Periods

    2

    Headline

    5
    • Revenue
      ₹5,113 Cr
      YoY+14.0%
    • EBITDA Margin
      6.3%
    • PAT
      ₹85 Cr
      YoY+53%
    • Net Debt
      ₹5,265 Cr
      YoY-16.9%
    • Interest Cost
      3.3%

    YTD

    1
    • Order Intake
      ₹13,500 Cr
      YoY+50%

    Segment breakdown

    • T&D₹2,831 Cr56.4%
    • Civil₹1,152 Cr23.0%
    • Railways₹503 Cr10.0%
    • Cables₹441 Cr8.8%
    • Oil & Gas₹92 Cr1.8%
    Donut· Share of Revenue

    Guidance & targets

    6
    CategoryTargetPriority
    Revenue
    Annual Revenue Growth
    15%
    		High
    Margin
    EBITDA Margin (Exit)
    9% to 10%
    		Medium
    Debt
    Net Debt with Acceptances
    ₹4,000 to ₹4,500 crores
    		High
    Other
    Working Capital Days
    100 days
    		High
    Profitability
    Interest Cost as % of Sales
    2.5%
    		High
    Volume
    Order Inflow Target
    ₹25,000 crores
    		High

    Risks & concerns

    5
    RiskSeverity

    Labor Shortage

    Shortage of approximately 4,000 technicians/laborers remains, primarily impacting the Civil segment. — Management acknowledged

    medium

    Execution Delays due to Weather

    Heavy rainfalls in Gujarat and Rajasthan delayed high-margin T&D projects in Q2. — Management acknowledged

    medium

    Equipment Supply Chain Constraints

    Shortages in transformers, GIS, and conductors are easing but still lead to elongated delivery cycles. — Both acknowledged

    medium

    Stuck Receivables in Water Projects

    Payment delays from state agencies due to funding mismatches with the central government. — Both acknowledged

    medium

    Areas of Evasion(1)

    • Vague on the exact win ratio for the ₹1.5 lakh crore pipeline, giving a broad 10-20% range.

    Q&A highlights

    3

    “some of the newer projects in T&D, especially in Gujarat and Rajasthan, which are high margin, have got delayed because of severe rains... I think work on that has started, which is why we are saying that we'll have better margins in Q3, Q4.”

    Explains why current margins are lower than targets and provides a catalyst for H2 improvement.

    asked by Aditi, CD Equisearch

    2 min read5 chapters

    Detailed Narrative

    01

    T&D Segment Drives Growth and Margin Outlook

    The T&D business remains KEC's primary growth engine, achieving 28% YoY revenue growth in Q2 FY25. Management highlighted a record order book and L1 position in T&D exceeding ₹26,000 crores. While Q2 margins were impacted by rain-related delays in high-margin projects in Gujarat and Rajasthan, these projects are now ramping up, supporting the company's target of 9-10% exit EBITDA margins by Q4 FY25.

    02

    Strategic De-leveraging via QIP and Working Capital Management

    KEC successfully raised ₹870 crores through a QIP, which was utilized for debt repayment on the final day of the quarter. This, combined with improved collections (including ₹400 crores from Afghanistan), led to a ₹1,074 crore YoY reduction in net debt. Management targets further debt reduction to ₹4,000-4,500 crores by March 2025, supported by a goal to reduce working capital to 100 days.

    03

    Railway Business Transitioning to Quality Revenue

    The Railway segment saw a 35% revenue decline as the company deliberately moved away from low-margin legacy EPC projects. Management expects to complete almost all old projects by March 2025. New orders of over ₹1,300 crores, including tunnel ventilation and Kavach safety systems, are being secured at better margins and improved payment terms, signaling a shift toward profitability over volume.

    04

    Cable Business Hive-off and Expansion

    The Board has approved hiving off the Cable business into a separate subsidiary, KEC Asian Cables Limited, to drive focused growth. KEC is investing ₹90 crores in a new e-beam and elastomeric cable facility, expected to start production in Q4 FY26. Management targets Cable revenues of ₹2,800-2,900 crores by FY27 with improved EBITDA margins of 7.5% to 8%.

    05

    Civil Segment Selective Bidding Strategy

    In the Civil business, KEC is being selective, focusing on projects with front-ended cash flows and shorter execution cycles (less than 24 months). The segment has an order book of over ₹10,000 crores but saw muted order intake recently as the company avoided large water projects with payment delays. Management expects annual order intake for Civil to be between ₹4,000 and ₹5,000 crores.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.