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Last Updated : Sep 27, 2018 12:09 PM IST | Source:

RPG Group flagship KEC builds diversification story to beat power blues

Even as its legacy T&D business faces headwinds, the company has diversified into railways & civil, and has forayed into into Brazil and SAARC countries.

Prince Mathews Thomas @prince0879

Chief financial officers becoming CEOs may have become a trend now, but three years ago when Vimal Kejriwal took over as the chief executive of KEC International, the RPG Group flagship, it was a novelty. The move has worked with the infrastructure engineering, procurement and construction (EPC) major doubling its net profits in these three years, and its revenues crossing Rs 10,000 crore.

“CFOs need to know everything,” says Kejriwal, who joined KEC 16 years ago. It was a difficult time for the company, and Kejriwal would even do the production planning at KEC’s factory. “It was to ensure that we make products that give more profits and cash flow,” says the chartered accountant in an interview with Moneycontrol.

Under Kejriwal, KEC has fast-tracked diversification, adding verticals of railways, civil and cables in the past three years. As a result, the new verticals have more than made up for the slowdown in the company’s core T&D business. “We have done a lot of de-risking,” says Kejriwal.


Q) You just completed 16 years in the company, and were a CFO before taking over as the CEO. How did this help?

A) Two things are there.

I joined the company in a difficult time. That made you get into every piece of the business.  I used to go to the factory for production planning.  CFOs need to know everything.

Then it relates to the industry. In pharma or FMCG companies, may be a marketing head is more suited to head the company. But in an industry like ours, where there is too much of volatility in terms of commodity prices, changes in contractual issues with clients, here a commercial person is much more suitable to become a CEO.

Q) You have shown good growth in revenues, PAT and EBITDA (earnings before interest, tax, depreciation and amortization) in FY18, even as your peers in EPC – focused on power sector  - are having a tough time. How have you managed it?

A) Let me start with last year’s numbers. Last year, our turnover increased by 15%. And if we normalise for GST, the growth was 20% plus. Our EBITDA crossed Rs 1,000 crore for the first time. Profits went up almost 50%.

Our order book went up by 20% and we have an inflow of Rs 15,000 crore, which is equivalent to 18 months of turnover.

Knowing what is happening in the market, we have done a lot of de-risking. For instance, (we debated) should we do business just in India, we also looked at our business profile, and a consultant did a portfolio review.

Q) You have talked about diversification into railways, civil and cables. How did you plan on this diversification?

A) Earlier we were a pure transmission company. Eight years ago, we got into sub-station, which is a related subject. We got into that, but then once we reached Rs 7,000 crore (in revenue), we realised the ambition of growing 25% every year is not possible by being just in this industry. We engaged a consultant. We wanted to diversify in areas where we could use our knowledge. So railway, civil and smart infrastructure were the areas. We got into railways four years ago, and civil last year.

Q) Railways and civil  are sectors where competition is intense. Who do you differentiate?

A) We have electrified almost 40% of railways network. But the growth was slow. Every year we would get about Rs 100 crore revenue from this. So we decided to go fast track.

Now we do electrification, track laying, signaling, station building, and over the last three years, our order book has grown to Rs 5,000 crore. This is 30% of the overall order book. We kept on doubling our revenues. From Rs 200 crore we did Rs 400 crore, and last year we did Rs 800 crore. This year, hopefully, we should cross Rs 1,500 crore.

Q) How about the civil space?

A) Civil was an area that was a surprise for us when the consultant brought it up. We also though there is competition. But when we went into it, we realized that there is one large colossal L&T standing there. Below that there are not too many players.

We are pretty happy. In one year we have an order book of Rs 500 crore and revenue of Rs 200 crore. Hopefully, this year we will cross Rs 500 crore in revenues.

Q) We all know the challenges in the power sector. As an EPC player, how do you ensure order book inflow?

A) We started looking at different geographies. Today 45% of order book is from outside India. We de-risked ourselves from the downturn.

We went into other businesses. Today, non-power order book is already 30%.

We diversified client base. Earlier power was the main customer. We went to southern states and private customers. Geographically, segment wise and client wise, we did a considerable amount of de-risking.

Q) Your international business has grown steadily in the last eight years, and the company has focused on Brazil. Why Brazil?

A) We went to Brazil through an acquisition in 2010 (of SAE Towers). For five to six years, we were present as tower manufacturers. Two years ago, we realised that EPC option is looking very attractive. So, we expanded Brazil operations. We have done eight projects.

Brazil is now one of the four pillars of the company. The other three are railways, civil and the SAARC market. We are doing a large amount of work in the neighboring countries and see a huge amount of growth in these regions.

Q) Many of these places, including Afghanistan, are not easy places to operate. How do you navigate that?

A) Most of my clients are in under developed areas. Afghanistan has a lot of more challenges. But we have been there for a decade and have been happy.

We are also present in Bangladesh and Sri Lanka. The progress in Bangladesh is unbelievable and it is getting a lot of funding.

Q) How much of your revenue now comes from international operations?

A) Overall, 45% is international. The share had gone up to 75%. Now, the India business has picked up. Ideally, we want the share to be 50-50.

Q) We are in the middle of the financial year. What is your outlook for the rest of the year?A) We have order book of Rs 18,000 crore. And have another Rs 5,000 crore worth orders in the line-up. Last year, we did Rs 10,000 crore of revenues. We have been talking about 15% growth and we are comfortable with that.
First Published on Sep 27, 2018 12:09 pm
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