MC Interview | KEC Intl eyeing more solar EPC projects as risk for contractors has reduced: CEO Vimal Kejriwal

Vimal Kejriwal, MD & CEO of KEC International

Engineering, procurement, and construction major KEC International aims to expand its portfolio in the solar photovoltaic (PV) segment in 2024-25 as construction risk, applicable to contractors, for these projects has reduced, Vimal Kejriwal, MD & CEO of KEC International told Moneycontrol.

"We had reduced our portfolio in the solar PV segment as developers were passing on a lot of risk to contractors in the past, this situation has changed. We are building a 500 MW solar PV power plant in India and going forward will look at more such projects," Kejriwal said.

He added that the change in duties for solar panels and consequent difficulties in importing panels had caused prices of panels to increase in India, but now that panel prices have stabilised again the company would look to expand its portfolio in this segment.

Solar power projects under construction in 2020 and 2021 in India faced higher risk due to multiple uncertainties and their financial closure was likely to be delayed, ratings agency India Ratings had said.

The uncertainties were caused by COVID-19-related lockdowns, changes in duties for solar panels and consequent difficulties in importing panels, constraints in mobilising labour for implementation, delays in the signing of power purchase agreements after bidding, delays in tariff adoption and changes in module prices, the agency had said in a report.

While KEC Intl aims to increase its portfolio in the solar PV segment, transmission and distribution (T&D) will continue to be the biggest segment for the company going forward, Kejriwal said.

"T&D will continue to be our primary segment and growth area for the next two years. At the moment around 50 percent of our order book is made up of T&D orders," Kejriwal said.

He added that KEC Intl was eyeing a 15 percent growth in its topline next fiscal when compared to 2023-24, and a 15-20 percent growth in its order inflows.

"We aim to also increase our operating margins to around 8 percent by the end of 2024-25 and aim to touch double digit by 2025-26," Kejriwal said.

KEC Intl's operating margins are expected to rise due to expected stability in raw material prices going forward coupled with the company being able to leverage its size and expertise in future projects, Kejriwal said.

He added that the company has so far spent Rs 200 crore as capital expenditure in 2023-24 and will look to spend another Rs 50 crore by the end of the year. The company is eyeing a capital expenditure of Rs 300 crore in the next fiscal.

KEC Intl also aims to reduce its debt to around Rs 5,000 crore by the end of 2024-25 from Rs 6,000 crore at the end of December 2023 and the working capital debt cycle to 110 days from the 130 days at the moment, Kejriwal said.

Kavach boost

He also said that KEC Intl was eagerly anticipating further tenders for its Train Collision Avoidance System (TCAS), also known as Kavach, and expects a surge in demand for Kavach systems.

KEC Intl has a strategic partnership with Kernex Microsystems to “enhance expertise and expand reach” in the TCAS segment that aims to leverage the combined strengths of both companies to provide cutting-edge Kavach systems.

Kejriwal added that while the government had shown renewed urgency in coming out with orders for Kavach systems after the Balasore train accident in June, tenders for Kavach systems have slowed down after the initial burst.

He added that KEC is eyeing to win around 25 percent of all tenders the Indian Railways comes out with for Kavach systems.

Kejriwal said that so far the government has announced plans to come out with tenders to cover 6,000 km of railway track with Kavach systems, but tenders of Rs 2,000 crore for the same have not come out yet.

In June, KEC Intl won two orders for Kavach System, worth Rs 600 crore.

The transmission tower manufacturer does not expect the ongoing military escalation in West Asia to impact its order inflow from West Asian countries, Kejriwal said, adding that, while there have been some supply chain disruptions for projects in Saudi Arabia, the company has started shipping to port in the United Arab Emirates and transporting products by land.

"If the Red Sea conflict continues and it impacts oil prices and they rise, it will add more money in the hands of West Asian governments thereby increasing their ability to spend more on capital expenditure," Kejriwal said.

Kejriwal said that around 30 percent of KEC Intl's robust order book, which currently stands at Rs 38,000 crore, is made up of orders from the private sector while the remaining 70 percent is made up of government orders from India, Saudi Arabia, Oman, Qatar, and UAE.

Region-wise, around 30 percent of KEC Intl's order book is made up of international orders and 70 percent is domestic. Around 15-16 percent of the company's order book is made up of orders from West Asian countries, followed by orders from the US and Australia.

The company has business across 30 countries.

Banking on govt capex

Going forward, Kejriwal expects capital expenditure from the private sector to remain muted as consumer demand has not yet been restored to pre-COVID levels and uncertainty exists in the private sector for the need to expand capacity.

"Government capex (by the Indian government) will be the driving force for growth for the next two years as the private sector is still looking for long-term policy stability after the pandemic," Kejriwal said.

He added that there have been some pockets of industry like civil works to build commercial buildings where private capex has returned in India.

Kejriwal said he expects private capex to rise after the upcoming general elections in India and the formation of a new government.

He also expects the Indian government to maintain its capital expenditure spending in the interim Budget for 2024-25.

Kejriwal said that he expects the government to increase capital expenditure spending on railway infrastructure in the Budget instead of prioritising new trains and wagons.

"I expect increased capital expenditure to build new railway tracks, upgrading tracks and track technology in the Budget after a couple of years of focus on new trains and wagons," Kejriwal said.

Q3 results

KEC International, the flagship firm of Rama Prasad Goenka Group (RPG Group), on January 30 reported a consolidated net profit of Rs 97 crore for the third quarter ended December 31, 2023, largely due to higher sales seen during the quarter.

Consolidated profit for RPG Group's flagship company rose nearly 5.5 times to Rs 97 crore, while revenue rose 14.4 percent year on year to Rs 5,006.7 crore.

The company's bottom line improved mainly due to a Rs 55.67 crore change in inventory of finished goods inflow seen during the quarter compared to a Rs 17.91 crore change in inventory of finished goods outgo seen in the same period a year ago.