KEC International Q3FY17 Concall Summary

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Key Financial Updates

  • Gross revenues for the third quarter were down 6.5% y-o-y. YTD gross revenues fell by 3.6% y-o-y
  • Revenues in Q3 FY 17 were impacted due to following reasons
    • Impact of demonetization on ancillary support industries (revenues loss ~ 3% to 4% of Q3 FY 17 total sales)
    • Conversion delay in a large chunk of L1 orders
    • Delay in revenues from the substation project in Jammu Kashmir due to land availability
  • KEC continues to progress on the margin front – EBITDA margin of 9.26% in Q3 FY17 as against 8% in Q3 FY 16, an improvement of 126bps y-o-y
  • FOREX impact was around INR 10 crores in Q3 FY 1
  • Further, Interest costs witnessed a decline of 16% y-o-y (-9% YTD)
  • Net Income for the group increased by 139% for Q3 y-o-y (YTD basis: +122.8%)

Key Business Updates

KEC Order Book FY17
  • KEC continues to maintain focus towards a healthier balance sheet by reducing the overall borrowing position, which decreased by INR 570 crores – majorly due to lowering of accounts receivables (Gross receivables down from 246 days to 218 days)
  • New orders of INR 1,866 crores were recently announced, thus increasing the total order intake to INR 8,634 crores (+26% growth in the YTD order intake)
  • Solar order book is slightly less than INR 100 crores. However, KEC still has a large L1 position which is not declared yet & the order book by March end will be much higher.
  • KEC’s order book details – 48% is from the international markets (30% of is from MENA, 20% from Africa & CIS, 10% from Far East, 16% from SAARC and SAE is 25%)

Segment Updates

KEC Q3FY17 Revenue Performance
  • Sales for the Infrastructure division grew by 33% y-o-y, with major growth coming from railways (+29.6% y-o-y)
  • Railways witnessed a significant increase in the order intake in the first-half of the year (Total order intake of INR 1,400 crores this year out of which about INR 1,000 crores will be for OHE)
  • SAE – one of the biggest contributor – witnessed an improvement of about 500bps in EBITDA margins. Lower profitability at SAE is majorly due to exchange rate movements
  • SAE division has a huge order backlog (about 2 years backlog in Brazil, 6 months backlog in Mexico)
  • In cable business, losses have come down majorly due to improvements on the cost side as well as on the design. KEC still faces some headwinds esp. on EHV – mainly because it is a new plant
  • Transmission & Distribution constitutes about the major part of the YTD order intake – about 61%. Additionally, YTD order intake for Railways and SAE are 17% and 11% respectively

Company Outlook

  • KEC International expects FY 17 revenues to grow around 5% and EBITDA margins to reach 9% (YTD EBITDA margins already at 8.8%)
  • Revenues for the Railways division on track to reach INR 450-500 crores for FY 17
  • Interest cost to sales is expected to be about 2.7% for the next year
  • FY 18 guidance: Revenues expected to grow by 10% to 15% with EBITDA margins at 9%
  • Order intake is expected to grow in the range of 15 to 20% over the last year
  • Railways division revenues to rise to INR 750 crores and INR 1,000 crores for FY 18 and FY 19 respectively
  • Going forward, KEC expects the improvement in margins from Railways – as the company is still closing the old contracts