Konstelec Engineers Limited — Q3 FY25 earnings call

Call held 5 Feb 2025

Management summary

Konstelec Engineers Limited reported improved profitability with EBITDA margin at 10.57% and PAT growing 28% to ₹3.70 crores. The company holds a strong unexecuted order book of ₹485 crores as of December 31, 2024, and a bidding pipeline over ₹1,000 crores, targeting 15-20% annual revenue growth. However, the company is navigating project execution delays, working capital challenges leading to negative cash flow, and high customer concentration, while also addressing pending receivables from its Nigerian operations.

Highlights

  • EBITDA margin improved to 10.57% (from 9.39%), reflecting a 13% growth.

  • PAT increased by 28% to ₹3.70 crores (from ₹2.89 crores).

  • Unexecuted order book of ₹485 crores as of December 31, 2024, offers significant revenue visibility for 18-24 months.

  • Bidding pipeline is robust, exceeding ₹1,000 crores, with a 10-15% success rate.

  • Company is targeting 15-20% annual revenue growth for the next 2-3 years and aims to exceed FY24 performance.

Concerns

  • Project execution faced slowdowns due to external factors like land concerns and the election year, impacting H1 FY25 targets.

  • Negative cash flow is observed due to milestone-based billing and the need to fund suppliers 100% upfront, creating working capital stress.

  • Receivables from Nigeria operations still include ₹2 crores pending from an original ₹3 crores, despite management's efforts.

  • High concentration of revenue from top 10 customers (40-50%) is a recognized risk.

Key financials

  1. ROE 11.3%
  2. ROCE 16.4%
  3. EBITDA Margin 10.6% +13%YoY
  4. PAT ₹3.7 Cr +28%YoY

What they filed

Q4 FY26: revenue down 13.1%, net profit up 0.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY24Q4 FY24Q2 FY25Q4 FY25Q2 FY26Q4 FY26
Revenue93 122 84 109 105 +13%106 −13%
EBITDA7 11 8 5 7 +0%13 +18%
Net profit3 6 3 1 2 −33%6 +0%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Order book

high confidence

Total value

₹800 Cr

as of 2024-12-31 quantified

Execution

The unexecuted portion of 485 crores is expected to be executed over approximately 18 to 24 months.

Composition

Mix 3 sectors
  • Refinery 60%
  • Steel 20%
  • Other sectors 20%

Share of order book by sector

Pipeline

deal pipeline tcv

Bidding pipeline in excess of ₹1,000 crores with a 10-15% success rate.

Cancellations & deferrals

  • deferred: Couple of projects slowed down due to land concerns from the government, impacting H1 FY25 targets.
The company has a strong order book providing good visibility, but execution can be impacted by external factors.

Source: Prepared remarks

Capital allocation

high confidence
  • Debt Gross ₹49 Cr Cost 9.5%
    It's a 49 crores of total debt, which actually includes 7 crores of debt that you mentioned earlier is the long term debt. ... But our borrowing is less than 10% only.
  • Liquidity Undrawn ₹58 Cr The company has a CC limit of around ₹58 crores.
    We have a CC limit of around 58 Crores.

Guidance & targets

Revenue

  • Annual Revenue Growth Revenue · next 2-3 years · High confidence 15-20%
    But at least for a short term, what is the growth? The percentage you are looking at 15-20% a year? for the next 2, 3 years? Mr. Amish Shah: Yes, that is the achievable target section.

    — Mr. Amish Shah

  • Annual Performance Revenue · FY25 · Medium confidence Exceed FY24 performance
    So we are also targeting the same that we exceed the performance of last financial year 24.

    — Mr. Amish Shah

  • Revenue Seasonality Revenue · FY25 · High confidence 30-40% in H1, 60-70% in H2
    It's generally 30-40% in 1st half and 60-70% in the second half. That is the trend. ... Yes, definitely.

    — Mr. Amish Shah

Profitability

  • Bottom Line Margin Profitability · ongoing · Medium confidence Improvement
    So we have now got into a leap of bidding bigger size project. So for higher size, bigger size projects, the margins are definitely much heavier than what it is than in the smaller segment. So we are now slowly getting qualified to bid for large size projects. So this is one of the attempt which will definitely improve the bottom line, which is there.

    — Mr. Amish Shah

What to watch in Q4 FY25

Quarterly Results Disclosure

next financial quarter
Current Half-yearly reporting
Target Start of quarterly results disclosure

Why it matters

Increased transparency and investor confidence through more frequent financial updates.

So we might start from the next financial quarter but not sure.

Risks & concerns

  • Project execution delays due to external factors

    medium

    Land concerns from the government and election year slowdowns have caused project delays, impacting H1 FY25 top-line targets.

    Management acknowledged

  • Working capital stress and negative cash flow

    medium

    Milestone-based billing means partial payments from clients, while 100% funding is required for suppliers, leading to working capital requirements and negative cash flow.

    Management acknowledged

  • Receivables from Nigeria operations

    medium

    ₹2 crores from an original ₹3 crores are still pending from Nigerian operations, though management is actively pursuing recovery.

    Management acknowledged

  • Manpower shortage for skilled roles

    medium

    The company faces a challenge in finding skilled manpower and is addressing this through partnerships with training centers and colleges.

    Management acknowledged

  • High customer concentration

    low

    40-50% of revenue comes from the top 10 customers, and the company aims to dilute this concentration.

    Management acknowledged

Q&A highlights

7 direct
Order book clarity and execution timeline Direct
So currently, we are operating 800 crores orders. Currently 485 crore is an unexecuted portion. ... Around 18 to 24 months.

Clarified the total order book, unexecuted portion, and the expected timeline for its execution, providing revenue visibility.

Asked by Mr. Hiral Nandu

Reasons for execution slowdown and impact on top-line Direct
There are cases where a lot of orders, there are a lot of projects which are likely to get slowed down also because of reasons not attributable to us. That recent case we had couple of projects told because of some land concerns of the government so due to which, you know, our top line could not be achieved, our target would not be achieved for the 1st half of 25, potentially a 25.

Revealed external factors (land concerns, election year) causing project delays and impacting revenue targets, explaining potential underperformance.

Asked by Mr. Ameet S

Negative cash flow despite profitability Direct
So in most of the projects we have milestone based payments. in a contract, there is material, and there is services involved. So in in cases where there are material involved, at times, on delivery of the material, we get paid 70% or 60% or 70%, and the balance is paid on installation of the material. But however, we have to fund completely 100% to our suppliers. So the funding of that, 20%-30% has to come out of our project till the time we come to the closure of the project. Its kind of working capital.

Explained the structural reason for negative cash flow in the construction business, highlighting working capital intensity due to payment terms and supplier funding.

Asked by Mr. Miten Shah

Disclosure of quarterly results for SME company Partial
Hello, Mr. Hardik, we are into the consideration of the issuing a quarterly results. But as of today, we are into our internal improvement system to give you the quarterly result. So we might start from the next financial quarter but not sure.

Addressed investor demand for more frequent financial reporting, indicating a potential shift to quarterly results in the future, which would improve transparency.

Asked by Mr. Hardik Vasha

Low Return on Equity (11%) for an asset-light EPC company Direct
So we are trying to improve on the return on equity part, it's a growing company, as such and we have just came up with an IPO into the growing stage. We're definitely trying to improve the return on equity part in coming years.

Acknowledged the concern about low ROE and committed to improving it in the coming years, linking it to the company's growth stage post-IPO.

Asked by Mr. Varun Agarwal

Status of Nigeria operations and receivables Direct
The ground reality today is it's receivable, and the part of the money has already been received and remaining part of the money is also we are trying to receive in the upcoming financial year. So we have received a good amount of money in the last 2 quarters also, and that amount received still stands receivable. ... The amount receivable is around 2 crores. ... No, there is no, no plan of shutting down any operations in Nigeria. ... A decent net margin of around 20% there.

Provided an update on the contentious Nigeria receivables, confirming ₹2 crores still pending but also highlighting the healthy 20% net margin from those operations, justifying continued presence.

Asked by Mr. Anuj Daftery

Scope of work in new sectors (renewable, data center) and vision 2030 Direct
So generally, electrification is identical works across the industry. So they're basically power enablers. So power enabling for any industry is identical with a little bit of change in technology here and there. ... So these are the segments we've identified, and we are trying to make inroads into this segment by identifying opportunities and potential clients and trying to obtain enquiry and execute few projects in those segments in terms of value in terms of opportunity.

Clarified that the company's core expertise (electrification, instrumentation) is transferable to new growth sectors, and outlined the strategy for market entry without changing the fundamental scope of work.

Asked by Mr. Lakshman Kumar

Manpower challenges and strategy Direct
The manpower, this area is an area of challenge which we always face a shortage on the skilled ability which is there. So we are trying to tie up with a lot of training centers, lot of colleges, so that we are trying to groom a lot of skills which is there at a very early stage and develop that skill so that they can be taken at a later stage.

Addressed a critical operational constraint (skilled manpower shortage) and outlined the company's strategy to mitigate it through training and partnerships.

Asked by Mr. Miten Shah

2 min read 6 chapters

Detailed narrative

Overview of Business & Financial Performance

Konstelec Engineers Limited, an EPC player in electrical instrumentation and automation, reported an EBITDA margin of 10.57%, a 13% growth from 9.39%. The company's PAT increased by 28% from ₹2.89 crores to ₹3.70 crores. ROE and ROCE for the first half of FY25 stood at 11.3% and 16.4% respectively. The management aims to exceed FY24's performance in the current financial year, targeting an annual revenue growth of 15-20% for the next 2-3 years.

Order Book and Execution Outlook

As of December 31, 2024, Konstelec holds a total order book of ₹800 crores, with ₹485 crores remaining unexecuted. This unexecuted portion is expected to be completed within 18 to 24 months, providing strong revenue visibility. The company also boasts a robust bidding pipeline exceeding ₹1,000 crores, with a historical success rate of 10-15%. However, project execution has faced slowdowns due to external factors like government land concerns and the general election year, impacting H1 FY25 targets.

Strategic Expansion and New Market Opportunities

Konstelec is actively expanding into new high-growth sectors such as renewable energy, data centers, smart cities, and industrial automation, leveraging its transferable expertise in electrification and instrumentation. The company is also making inroads into new geographies, particularly Saudi Arabia, where significant infrastructure development is expected. Management believes these new areas offer healthier margins compared to existing projects and are crucial for achieving its Vision 2030.

Financial Health and Working Capital Management

The company's total debt stands at ₹49 crores, with an effective cost of borrowing less than 10%. While the company maintains a CC limit of ₹58 crores, it experiences negative cash flow due to its milestone-based billing model. Clients typically pay 60-70% upon material delivery, while Konstelec funds 100% of supplier costs, creating a working capital gap that needs to be covered until project closure. This dynamic necessitates reliance on banking institutions for working capital support.

International Operations and Receivables

Konstelec's Nigerian operations continue to be healthy, yielding a net margin of around 20%. However, ₹2 crores of receivables from Nigeria are still pending from an original ₹3 crores, due to country-specific financial fluctuations. Management is actively working to recover the remaining amount in the upcoming financial year and has no plans to shut down these profitable activities despite the collection challenges.

Operational Efficiency and Manpower Strategy

The company acknowledges a persistent challenge in securing skilled manpower. To address this, Konstelec is actively partnering with training centers and colleges to groom talent from an early stage, ensuring a pipeline of skilled professionals for future projects. This strategy aims to enhance operational efficiency and support the execution of its growing order book, particularly for significantly important projects requiring specialized skills.

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