KEC International – No Slowdown in orders for another 6-8 months
Key takeaways of the conference call
Sales for the quarter ended Dec 2008 was up by 25% Rs 886 crore. The PAT was Rs 24.97 crore as against Rs 52.30 crore in the corresponding previous period. The corresponding previous quarter is an exceptional one with un-precedented EBITDA margin of over 14% which could not be sustained in the long run. EBITDA margin for the quarter excluding forex gain or loss was just around 10.1% is on par with the long term sustainable margin of the industry. The profits of the company were impacted negatively by a forex loss of Rs 16.55 crore as against a gain of Rs 3.35
Share of international business to the revenue of the quarter is Rs 576 crore (or 65%) and that of South Asia that mostly of India is Rs 310 crore (or 35%). In terms of verticals the revenue from telecom and Railways amounts Rs 32 crore and Rs 12-15 crore respectively with balance is accounted by power transmission and distribution.
Unexecuted order book excluding L1 orders was Rs 5000 crore as end of Dec 2008 up from Rs 4800 crore of order backlog as end of Sep 08. Order inflow for the quarter was around Rs 1100 crore.
Of the unexecuted order book the international orders amounts to Rs 3500 crore (or 69%) and South Asia Rs 1500 crore. The L1 orders will be in the range of Rs 1200 crore.
In terms of verticals the transmission orders stands at Rs 3860 crore and of which Rs 2827 crore being international and balance Rs 1033 crore being South Asia. Similarly the distribution orders stands at Rs 1080 crore and of which the international orders amounts Rs 661 crore and balance Rs 419 is South Asia. The railway orders stand at Rs 36 crore all in South Asia. That of Telecom was Rs 24 crore with international accounting Rs 12 crore.
Interest cost has jumped sharply on the back of higher cost of funds and rise in debts. The company has converted some of the foreign currency borrowing to rupee loans thus resulting in rise in average cost of borrowings there by spike in interest cost. Total debt as end of Dec 2008 stands at Rs 900 crore with an average cost of borrowing being at 10-11%. Cash on hand as end of Dec 2008 is Rs 55 crore.
Next few quarters or at-least for next one year the current growth momentum is to continue. In-terms of geography, there is still lot of interest in transmission projects in the Middle East region especially countries like Saudi Arabia, Abu Dhabi, Kuwait etc. There is continuous flow of orders. Moreover with most of the budgets of the Middle East countries were prepared with base oil price of USD 55/ barell and with just a marginal fall in crude price from that level there will not be change in the long term infra projects. So next one year no slowdown is expected and at-least for next 6-8 month there is clarity. In India there is lot of tenders. PGCIL is expected to release orders starting Feb 2009. However the margins will definitely to come under pressure. Though easing commodity prices offers some cushion the pressure will be there to some extent.
Receivable period is bit longer as far as rural electrification is concerned.
Tower production in tonnage for the quarter ended Dec 2008 is 37341 tonnes. For 9 months ended Dec 2008 it is 143070 tonnes as against 118962 tonne in corresponding previous period.
Pure tower supply order is less than Rs 100 crore for KEC international.
The company has hedged most of its positions for commodity hence there won’t be major benefit on account of easing of commodity price.