Expect better growth in FY14 than FY13: KEC Int'l

EPC major KEC International announced its fourth quarter (January-March) consolidated net loss at Rs 14 crore. Vardhan Dharkar of KEC International told CNBC-TV18 that the loss is at the standalone level and not consolidated level. For the year, as a whole, the company made a profit of Rs 65 crore, he says.

The major reason for company’s margins being under pressure is the new businesses that it has entered in last two or three years. Those businesses quoted at a very low margin and that has impacted overall profitability number. However, Dharkar is sure that going forward the margins profile will improve. With a very robust order book of Rs 9500 crore, he expects, the company will register a decent growth for FY14 over FY13. Below is the verbatim transcript of his interview to CNBC-TV18 Q: Can you just take us through the key highlights this quarter because it has been a net loss versus a profit on year on year (YoY) basis. What led to the net loss and how was your operational performance this time around? A: We have grown for the year as a whole at 20 percent to Rs 6979 crore. For the quarter the growth is at 4 percent at Rs 2150 crore. The loss that we are talking about is at the standalone result level not at the consolidated. However, year as a whole we have a profit of Rs 65 crore. Some of the highlights that I would like to share with your viewers are that we have a very robust order book at Rs 9500 crore. We have grown by 10 percent during the year in terms of order book and it is evenly split between India and outside of India. During the year we have received orders of almost Rs 7500 crore. So, we have a very good visibility in terms of next year’s revenue and all of that at the order book as I said in the first place is evenly split between India and outside of India. Even outside of India we have a very good order book in Middle East, Central Asia and America, that is one part of the result. Second part is that our focus on improving working capital management continues to yield us good results. During the year we have been able to bring down our receivables to 179 days, reduction of six days over and above 33 days reduction that happened in FY12. Inventory also we have been able to bring it down to 21 days in terms of number of days of sales, reduction of seven days. So, overall in terms of our revenue growth, in terms of order book and in terms of our working capital management we continue to do well. As far as margins are concerned, margins are under pressure and one major reason for that has been the new businesses that we entered in last two or three years. Very clearly those businesses we had quoted at a very low margin and that has impacted overall profitability number. Q: What is the exact operating profit margin that you have clocked in this quarter? A: This quarter EBITDA margins would be 4.1 percent at consolidated level. Q: That is quite a drop from the 8.2 percent level that you saw same quarter last year, so that is halving of margins if you compare it between last quarter and this one. Are you confident that you will be able to recover from this low single digit margins? A: If I look at our order book and next 12 and15 months, the margins profile will improve as we move forward into the future. As I said that we had taken the orders in the new businesses at low margins and some of the projects had cost and time overruns which impacted the margin profile. If I look at our transmission business margin however, the transmission business margin continues to be in the region of 8.75 even in this quarter. So, for the year as well as for the quarter the transmission business margin are intact. So, as we move forward into future we will build on our own prequalification which will help us improve our margins. Q: I don’t have your P&L open with me but I do understand that your finance costs were quite high this quarter on a YoY basis. What was it exactly and what is the trajectory on the interest cost that you expect? A: If you look at our finance cost for the year they are at 2.7 percent as against 2 percent last year same quarter. One reason why the cost is high is last year we were in the process of establishing the manufacturing facility at Vadodara for cables business. Now, that facility has been capitalised during the year so that interest cost has started hitting the P&L from July quarter onwards. So, that is one impact which has come to the profit and loss account. Otherwise, as I said that our overall working capital management has improved. Q: When do you expect to break into the black again? A: As I said that as we move forward our margin profile will keep improving. We expect that FY14 will be far better than FY13. Q: Could you just give us one indication of what the sales trajectory will be because even this time around your sales has hardly grown. What kind of average run rate do you think you can maintain on the topline? A: Although we don’t give a guideline but we expect that with a very robust order book of Rs 9500 crore we should be able to register a decent growth for FY14 over FY13.