Order-book diversity is positive; margins to stay calm: KEC

Ramesh Chandak, MD, KEC International explains to CNBC-TV18 that the increased diversity of the Rs 9,500-crore order book was a big positive for the company. Chandak expects margins to remain and adds that the company would begin to slowly shift its focus on cost to margins in bidding for orders.

Below is an edited transcript of the interview on CNBC-TV18.

Q: What is the position of the order-book after you bagged orders worth Rs 868 crore?

A: This will take the worth of our order-book to around Rs 9,500 crore. The good thing about these orders, which we have received this month, is that there are good mix of orders from overseas and domestic clients, and from various separate strategic business units (SBUs) such as power, transmission, telecom and cables. Though orders from the Power Grid Corporation comprise about Rs 350 crore, the rest of the orders are from several customers.

Q: Power Grid's ordering activity has been very strong as evinced by orders of about Rs 6,000 crore placed in Q1 alone. Do you expect this pace of placing orders by Power Grid to continue in Q2?

A: I think so far Power Grid is concerned, it will complete awarding the entire course of orders worth Rs 20,000 crore for this year. Last year, the PSU had completed the target and this year also, I expect the target to be achieved. Out of this, we expect to be awarded orders worth about Rs 10,000 crore, depending upon how our bids go.

But as we have observed in the first six months, the flow of orders was fairly good. However, at the end of the day, our bids have to be competitive enough to bag the orders. So, we will continue to be competitive. But the order situation from Power Grid looks very positive as of now.

Q: Are you targeting for higher volumes? Are you willing to sacrifice a bit on pricing given the level of competitiveness or will you maintain your margins which have declined over the last four-five quarters? What is your strategy at this point of time?

A: I do not think we will be targeting the order book. As long as we do not have a reasonable EBITDA margins, I do not think we will be taking orders at negative or low margins.

We will probably continue to do better on costing. It's not a question of what margins we quoting, but with good costing we can still be competitive. We won the orders not by losing margins, but by better calculation of costs.

Q: What about your peers? Do you think there is competition weighing-in at this point of time?

A: No. I think everyone realises that there is no use of taking orders at very low margins. But some look at the order book and that’s a strategy of each company on which each company will differ on. I do not know the details but orders will be won depending upon what view a company takes. But our focus has always been to on completing the job at the lowest level of cost possible. But we are also targeting order with our margins.

Q: Are you more optimistic about the flow of orders from overseas or within the country in the second half of the year?

A: I think orders from both segments are equal. Our Rs 9, 500-crore order book constitutes 55 percent of orders from overseas and 45 percent of domestic orders. This has, more or less, the ratio of our order-book for many years. So, I do not see much difference. The best part about our order book is the diversity of sectors, clients and geographies.

Q: Over the last four-five quarters, margins have gone down by about 200 bps. Do you think margins have bottomed out?

A: I expect margins to be stable and maybe, little bit positive. But I do not see margins going down.