MC EXPLAINER How Indian EPC firms with Middle East exposure are evaluating the current crisis

Indian EPC firms have gained significant orders from the hydrocarbons sector

• Indian engineering firms watch Iran-Israel conflict's GCC impact
• Shares of L&T, KPIL, and others fell due to Middle East exposure
• Firms say employees in Saudi Arabia and UAE are currently safe

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Major Indian engineering firms with significant order book and revenue exposure to Middle East countries say that they are on a wait-and-watch mode amid the spillover of the Iran-Israel conflict into the Gulf Cooperation Council (GCC) countries, such as Saudi Arabia, UAE, Qatar, and Bahrain, which also houses large US military bases.

Indian engineering firms, such as Larsen & Toubro (L&T), RPG Group-promoted KEC International, Kalpataru Projects International Ltd (KPIL), as well as others, have actively sought business development in the Gulf countries, particularly Saudi Arabia and the UAE.

Some of Iran's retaliatory airstrikes, in the wake of Israeli and US strikes on Iran's territory, hit oil infrastructure and construction sites in Saudi Arabia, as well as in the UAE.

Most of the engineering, procurement, and construction (EPC) firms saw their shares tank on the bourses on Monday, especially those with major exposure to the lucrative Middle East market. L&T tanked 5 percent, as did KPIL. Shapoorji Pallonji Group's Afcons Infrastructure, which has an India-led order book, saw its shares prices decline by 2.7 percent in trading on Monday.

"The Middle East accounts for roughly 20–25 percent of our overall order book. About half of this is in Saudi Arabia, with the balance across the UAE, Oman, Kuwait and other countries in the region. The safety of our people and full regulatory compliance remain our top priorities. We are closely monitoring the situation in accordance with government guidance/ advisories and are taking timely, appropriate actions as the situation is evolving," said Vimal Kejriwal, managing director and CEO of KEC International.

Both of Saudi Arabia and UAE have large-scale ongoing infrastructure and energy projects, especially in Saudi Arabia, where the state-owned oil giant Saudi Aramco has handed out major contracts for onshore and offshore drilling projects to Indian engineering firms.

These countries have also invested in energy transition and transmission projects, which a number of Indian EPC majors have developed capabilties in, and have large teams based in these countries for business development and execution. Even in megaprojects, such as Saudi Arabia's greenfield city Neom, Indian engineering companies have taken up projects in segments such as buildings, electricity transmission, and green hydrogen.

"The Middle East is a strategically significant market for Larsen & Toubro, with a deep and long-standing business presence across the region spanning energy, infrastructure, renewables and technology. We are closely monitoring the evolving situation and confirm that all our employees, workers and assets on the ground are safe," according to a L&T spokesperson.

According to a spokesperson from KPIL, its employees "have not been directly affected" by the ongoing crisis, and are in safe zones.

Industry analysts said that while some firms may face execution issues amid the ongoing crisis, the Middle East will remain an attractive market for the sector, due to large capital expenditures by countries in the region.

"EPC companies with large exposure to Middle East can face short-term execution disruption, resulting in potentially lower revenue growth and margins, with elongation in working capital cycle. However, unless the disruption lingers for an extended period of time, the impact is likely to be temporary without structurally altering the Middle East demand trajectory and its attractiveness to Indian EPC players," said Krishan Binani, Director, India Ratings & Research.