Kalpataru Projects International Limited (KPIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Kalpataru Projects International's Q1 FY '27 Earnings Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kishan Mundhra. Thank you, and over to you, sir.

Thanks, Atharva. Good evening, everyone, and a warm welcome to the Q1 FY '27 earnings call of Kalpataru Projects International Limited. To discuss these results, we have the management today, which is being represented by Mr. Manish Mohnot, who is the Managing Director and CEO; Mr. S.K. Tripathi, who is the Deputy Managing Director; Mr. Sanjay Dalmia, the Executive Director; Mr. Amit Uplenchwar, Group Strategy; and Mr. Ram Patodia, President, Finance and the CFO. With that, I'll hand over the floor to Mr. Mohnot for his initial remarks, post which we will open the floor up for the Q&A session. With that, over to you, sir.

Thank you, Kishan. Good evening, everyone, and thank you for joining us today for the KPI Q1 FY '27 Earnings Call. I hope you have all had the opportunity to review our financial results and investor presentation, which are available on the stock exchange and our website. I'm pleased to share that we have delivered another strong set of results for the quarter ended 30th June '26. We registered robust performance across nearly all parameters, including order book, revenue within the constraints, profitability, margins and working capital, reflecting an excellent start to the financial year. Before I delve into details of our Q1 performance, I want to reinforce a few key messages from the previous earnings calls. First, the underlying strength of our business remains solid. This is backed by a robust delivery track record, strong customer trust and steady demand across all diversified -- of India and diversified markets. Second, the investments we made in capability development over the last few years are translating into tangible results. This is evident in our improved competitive positioning as we continue to secure large complex bids aligned with our focus on improving profitability and margin profile. Third and the most important, we remain deeply committed to disciplined growth and strict capital management. Our balance sheet highlights excellent financial health, anchored by disciplined working capital, a best-in-class leverage ratio and improved return ratios. This is further validated by our recent credit rating upgrade to AA+ stable, positioning us among an elite group of large-scale EPC players and giving us strong confidence in our strategy to invest in growth and scale. Moving on to the details of our financial results. KPI maintained its growth momentum, delivering record first quarter revenue, EBITDA and profitability. Our stand-alone revenue increased by 9% Y-o-Y to INR 5,482 crores, while consol revenue reached INR 6,408 crores. On a comparable basis, adjusted for the base effect of our Brazilian business and Road SPVs, KPIs consol revenue increased by 9% Y-o-Y in Q1 '27. Our profitability growth continues to outpace our targeted levels. Our consol EBITDA grew 7% Y-o-Y to INR 562 crores. PBT rose 45% to INR 420 crores and PAT increased 46% to INR 312 crores. At a stand-alone level, EBITDA rose 14% Y-o-Y, while both PBT and PAT grew by 32%. Importantly, our consol EBITDA margin expanded by 30 basis points to reach 8.8% and the PBT margin rose 190 basis points Y-o-Y to 6.6%. On a stand-alone basis, the EBITDA margin reached almost 9%, and the PBT margin was up by 120 basis points to reach 6.6%. This expansion reflects strong operating leverage and improved business mix and disciplined working capital management. It is important to note that we achieved this robust revenue growth and margin improvement despite early quarter labor shortages due to state elections, slower receivables in the water business and global supply chain constraints stemming from ongoing disruptions in the Middle East. This performance clearly highlights the resilience of our business and strengthens the foundation for sustainable growth in the coming quarters. Turning to our balance sheet. Our consol net debt-to-equity ratio stands at 0.1x and ROCE remains within our targeted range of 21% to 22%. Stand-alone and consolidated net debt remained stable Q-o-Q at INR 752 crores and INR 917 crores, respectively. We maintained this stability despite higher execution, capital expenditure exceeding INR 250 crores in the first 3 months and increased capital employed in the Water business. Regarding working capital, our net working capital days declined by 12 days Y-o-Y to 94 days for the stand-alone and decreased by 11 days Y-o-Y to 80 days on a consol basis in Q1 '27. Moving to our order book. Our ongoing momentum continues to anchor our confidence, providing strong revenue visibility and reaffirming customer trust in our capabilities. We closed the quarter with our highest ever order book of INR 66,607 crores. This was supported by robust year-to-date order inflow of INR 7,668 crores in FY '27 with an additional L1 position in projects worth INR 7,500 crores. Equally encouraging is the growth across our key business segments. Starting from T&D business, excluding the Fasttel business, revenue like-for-like grew nearly 10% Y-o-Y. Year-to-date in FY '27, we have secured orders exceeding INR 4,100 crores and hold an L1 and favorable position in contracts valued at over INR 5,000 crores. These are expanding our market presence by onboarding new clients and strengthening our footprint in high-growth HVDC and GIS substation segment. Globally, the T&D market continues to offer a massive structurally attractive growth runway across all our target markets. In India specifically, we expect a notable ramp-up in transmission and substation capacity to meet rising electricity demand and support the evacuation of renewable energy. The annual addressable market is expected to remain within the range of INR 1 trillion to INR 1.25 trillion for at least next 5 years, including incremental opportunities of 1 to 2 HVDC projects every year. On the international front, the lack of build capacity is emerging as a critical bottleneck for rising electricity demand across our key markets in Europe, Middle East and parts of South America. With our differentiated global EPC capabilities and strong international reach, we are uniquely positioned to capitalize on these opportunities. Meanwhile, LMG Sweden delivered 8% Y-o-Y revenue growth, reaching INR 833 crores. LMG has secured orders worth approximately INR 1,500 crores year-to-date in FY '27, bringing its total order backlog to around INR 4,200 crores as of June 30, 2026. Our Buildings & Factories business maintained its upward trajectory, recording a 15% Y-o-Y revenue increase in Q1 '27. We secured record orders worth over INR 2,800 crores till-date in FY '27. Additionally, we hold an L1 position for around INR 2,200 crores in this business. Our order book for the Buildings & Factories business at the end of 30th June '23 stands over INR 19,600 crores. We continue to see steady traction in large-scale residential projects from reputed developers backed by our design-build capabilities and strong delivery track record. Additionally, the pipeline remains strong, powered by a wave of public PSU and private industrial CapEx. This is further supported by improved demand for commercial office space, data centers, airport and large-scale urban development projects. In our Oil & Gas business, execution on our Saudi gas pipeline project is progressing steadily with site activities moving at a strong pace. Despite the ongoing conflicts in Middle East, major utilities and asset developers remain optimistic and eager to advance their investment plans. We see strong business momentum building up in Middle East on the Oil & Gas business, offering multi-fold growth opportunities across onshore engineering and construction projects over the next few years. Our Water business achieved revenue of INR 626 crores, which is in line with our planned execution. Notably, the business achieved a major breakthrough by securing its first order in the high potential Middle East market for a water treatment project valued at INR 344 crores. Our collections in the Water business remain on an improved trajectory with around INR 650 crores collected year-to-date, including July in FY '27. We expect further improvements in collection intensity in the coming months. Growth in our Urban Infra business is driven by robust execution across metro rail projects with all our TBMs remaining fully utilized. I'm pleased to share that we have nearly completed the tunneling work for our first underground metro project in Kanpur, demonstrating our steadfast commitment to execution and timely project completion. Moving forward, we continue to selectively target strategic opportunities into metro rail, tunneling, pump storage, nuclear power and the international roads and highway segment. In our Railways business, our approach remains strictly focused on delivery and project closures while we remain selective with bidding for new orders. To wrap up, I will quickly update you on our guidance for FY '27. In the first 4 months of the year, our project delivery remained resilient despite the Middle East conflict and initial labor availability constraints. The prospects for our diversified end markets remain strong, further reinforced by the increasing need for energy security infrastructure development and industrial growth. This has led to a meaningful acceleration in order intake, keeping us well on track to reach our targeted goal of INR 30,000 crores of order inflow for the current year. Specifically regarding revenue, we confirm our guidance of at least 15% growth on an annualized basis and our original guidance for a PBT margin improvement of over 75 basis points remains unchanged. Our operating cash flow remains healthy due to structural improvements in our order book and business mix. This gives us the confidence to maintain our current positive trend in working capital, debt metrics and return ratios as we move forward in this financial year. Thank you for your attention. We are now happy to take your questions.

[Operator Instructions] The first question comes from the line of Vaibhav Shah from JM Financial.

Yes. Sir, firstly, on the Oil & Gas business, earlier, we had mentioned that we are looking for larger value orders in Saudi, similar to Aramco, maybe size could be smaller. But any update on that? And what inflows are we targeting in Oil & Gas business?

So Vaibhav, as we said earlier, we are now qualified in oil and gas in the large utilities in Middle East, whether it is Saudi, ADNOC, Kuwait or Qatar. We have bid for a lot of tenders in these spaces and some very big ones. A lot of -- the entire tenders in terms of orders have been delayed as of now. We're very confident of making sure that we win a few large projects in the current year, might not happen maybe immediately in the next few months. But as we stand, we believe that there's a huge opportunity of having orders whether from Aramco or ADNOC or Qatar or Kuwait, all in the next 3 to 6 months. We have included that in our targeted INR 30,000 crores of order book for the current year. And we believe that it should be in place in Q3, if not late part of Q2.

Okay. And sir, can you tell the quantum of the bids which you have submitted?

So Vaibhav the bids are wide-ranging from $100 million to $500 million, right? It's at different levels. Difficult for me to quantify exactly which one is -- something which the client would award to us, but they're ranging from $100 million to $500 million.

Okay. Sure. Sir, secondly, on Indore side, so the receivables have been completely received now in Q1?

Yes, I think Indore, we are completely at 0 now.

Okay. Any money would be infusing now incrementally, as in SSL or somewhere else?

No, not at all. I think SSL was cash positive. They have literally become debt-free as of 30th July. And Indore is -- the project has closed. So I don't see any reason of any infusion happening in Indore or Shubham not in the near future, in the long term also.

Okay. And sir, lastly, on the interest cost side, we have seen a sizable improvement in terms of interest cost in the first quarter. So incrementally, that would be a sustainable run rate?

Sorry, incrementally -- what was your question? I missed that -- Incrementally?

The interest cost run rate around INR 67 crores, INR 68 crores in Q1. Incrementally, that could be a sustainable run rate or we may see a rise in interest cost?

So, we should be in this range. Depending upon growth, if working capital slightly goes up, and to that extent, you'll see some increased cost. But as a percentage of sales, we should be in a similar range where we are today.

Okay. So roughly, we will be targeting a sub 100 days kind of working capital for FY '27?

Yes, definitely.

[Operator Instructions] We will take the next question from the line of Amit Anwani from PL Capital.

Congrats for the good set of numbers. So first question on the margin. You said you've been maintaining the guidance of 75 bps improvement on PBT level. Just wanted to understand, particularly to Q1, the operating margin of 8.9%, which segments contributed better margin? I understand by seeing the numbers that there was a favorable mix also this quarter. So that is one. Second, in your 75 bps PBT improvement, are you factoring in and by what segments you're factoring in the improvement in especially the EBITDA margin for remainder of the year?

Yes. Amit, as I said earlier also, our Transmission business, our B&F business and our Oil & Gas business, all 3 of them continue to be delivering EBITDA closer to double-digit levels and PBT, which are also good. If you look at Water and Railways, while Water at EBITDA level has delivered reasonably good margins, but because of interest costs, they're getting hit at a PBT level. Railways is not doing such good in margins and Urban Infra -- so 3 businesses are more at a double-digit level and 3 businesses are at a high single-digit level when it comes to EBITDA. As far as the 75 basis point improvement is there, I think it's a mix of the entire order book, but significant improvement in margins would come from the same 3 businesses, T&D, B&F and Oil & Gas.

Understood. So second on -- you highlighted about the orders coming in from Aramco, ADNOC and from geographies of Qatar, Kuwait. So when you are building in the inflows, can we expect a proportionate increase or the disproportionate increase from these geographies in your inflows in the coming years, I would say? And second, is it only T&D or some other segments in these geographies?

So, Amit, as far as the Middle East opportunities are concerned, I think we continue to be bullish on both Oil & Gas and T&D. We are present in both these segments as far as Middle East is concerned. We do believe or we are seeing a lot of traction on tenders coming up on both these segments in these geographies. And we do believe that we are very well positioned to win some projects in the next 3 to 6 months. Would this be disproportionate? It depends on what values of orders we win. But in totality, I think they would -- given our size and scale, they would still be of a reasonable size to make sure that there's good visibility going forward.

Understood. Sir lastly, on the update on the IPO of LMG, any progress there?

So Amit, we have appointed advisers to look at various options of fundraising at LMG. As of today, we are not in a position to give you any further update on that. But we have appointed advisers as earlier informed to all of you last year to look at -- to explore various options of fundraising at LMG. And at an appropriate stage, we would be able to give an update to all of you.

[Operator Instructions] The next question comes from the line of Bharat Sheth from Quest Investment Managers Private Limited.

Congratulations Manish ji and team. Sir, my question is related first is on T&D. So apart from Middle East and India, which are other geographies that you think that the next 2, 3 years could be a growth driver for our company?

Bharat bhai, I think from our perspective, even when you look at our numbers today on the international front, you see that our larger exposure is in Latin America, which is the entire Chile, Guyana, that market, excluding Brazil. So if you ask me today, I think we stay bullish in all 3 markets. One is LatAm, excluding Brazil. Second is Europe, driven by Linjemontage and the neighboring countries. Third is Middle East. And today, for us, our LatAm exposure, excluding Brazil, is much higher than Middle East and Europe. So per se today, we stay bullish in all these markets. And in the last 3 months, we've become slightly more bullish on the Middle East opportunities because we see a lot of developments happening there. So it's all across the globe, if you ask me.

Okay. And for other business, like say, Oil & Gas apart from Middle East, this time, I think we have also seen some order in domestic market. Is that correct understanding?

No, I don't think we have secured any order in the domestic market in Oil & Gas. Yes, we've got a small project, not something big, which is a small project what we are doing earlier. Not very big one, around INR 100-odd crores. But as far as Oil & Gas is concerned, I think our focus significantly continues to be on the Middle East market. And at least from a 1- to 2-year perspective, I think that's our biggest opportunity, which we want to focus on. Given that last 3 years, we have delivered on one of the largest Saudi Aramco projects, we started from 0, and we have reached a scale where we have delivered on some of the large projects. So our focus continues to be Middle East, at least on Oil & Gas for the next couple of years, if not beyond that also.

Sorry, I missed one. I mean, earlier, we were very strong in Africa also. So any color on that market? Or do you think that this is still, I mean, a few years away?

Well, I think we have a lot of tenders coming from Africa. So it's not that we are not bullish on that. But if you ask me in terms of our priority markets, #1, 2, 3, 4, Africa is #4, right? It continues to be LatAm, followed by Middle East, followed by Europe and then Africa. Also for reasons that Africa now is seeing a lot of competition, whether Indian competition or even Chinese competition. So at times, it's difficult to really compete and have projects with our margin standards, which we have. So -- but are we bullish? Yes. In my ranking, it would be #4.

Okay. So apart from T&D now second is the Buildings and Factories. So how do we see and how the whole landscape is changing? Are we seeing any kind of a change in landscape factory side or building side still, I mean, it is -- we are bullish.

So Bharat bhai, as I said earlier, on the Building & Factories side, we are seeing a lot of developments coming on industrial CapEx, primarily from PSUs and select private players. So PSUs, we have seen a lot of tenders come, whether it is the tenders from NMDC, NALCOs and all of them and for which we're qualified. So where we stand today, while residential and commercial continues to be very, very attractive, at least with the large developers where we are doing a lot of work. But besides that, given our expertise in doing data centers, given that we have done 2 airports now, given that we have done some very large industrial plants, we continue to be very positive on those opportunities also, and we're seeing good traction as compared to what we saw in the previous year.

Sir, any color on Buildings & Factories side EBITDA margin differential between residential and the industrial side?

No, I think, Bharat bhai, there's not a significant differential in terms of residential versus industrial at the EBITDA level at least. They are -- typically double-digit margins more in the range of 10% to 12%. Project to project, sometimes it might change depending upon the size of the project, the client and all of that. But on average, I think all this -- the entire order book continues to be in the range of 10% to 12% EBITDA only.

Okay. Great. And any -- capability-wise also, do we have to build further in industrial side or we have all kind of a capability we have developed?

So, Bharat bhai this is a continuous exercise, right? There's nothing which says that we have built everything. It's a continuous exercise. We started from 0. Now we are qualified for large-scale projects, maybe not very big scale project like some of our large competitors. But we are moving in that direction. So every project we take, we move towards this direction of qualifying for a higher value, and that's been the journey.

And any update would you like to give on Urban Infra? And the last question would be on backward integration that we were evaluating.

No. So Urban Infra, Bharat bhai, we -- as I said earlier, we have a reasonably good order book today. We restarted this journey 4 years ago. Now we have 6 TBMs. We have now nearly completed 1 underground project already. All the TBMs are deployed on 2 new projects, which we got in the last year. We are not seeing many tenders in Urban Infra in the last few months, but we believe should come up sooner than later. As far as our own business is concerned, we see good double-digit growth in Urban Infra in the current year. And going forward, we will keep on exploring opportunities in the underground metro as well as overhead metro in India and also explore opportunities overseas. Maybe not immediately, but going forward, that's also something which would be on our radar.

Okay. And sir, CapEx side and backward integration that we are looking for.

So on CapEx side, I think we have targeted a CapEx of closer to INR 800 crores in the current year, and I think we should be on track to do that, if not slightly more than that. As far as backward integration is concerned, we have just declared today that we would be setting up a rolling mill in Raipur along with our plant. We are continuously exploring backward integration on various other products within the value chain where we exist today. One of them we have declared, but we are continuously exploring some. And as soon as we have clarity, we'll declare further.

The next question comes from the line of Parikshit Kandpal from HDFC Securities.

Congratulations on a great quarter in a highly restrictive geopolitical uncertainty. So first question is, now we have given order inflow guidance of INR 13,000 crores, which we have maintained. And this year maybe we'll touch INR 27,000 crores, INR 28,000 crores on revenues. So which is a very big base to grow from here on. So how are you looking over the next 2, 3 years to grow at least 15% from here? So what capabilities, what pipelines, what markets are you looking to add to continue to keep growing at 15% given that our balance sheet is on a very strong level, so hardly you have any debt. Technically maybe in a year's time, you'll be debt free. So how does one model growth from here on?

So Parikshit, 3 or 4 aspects going beyond the current year to look at growth, and we started working on all of them. The first aspect is taking a few of our businesses international, which have delivered extremely well in the country over the last one decade, right? So whether it is Water, whether it is Urban Infra, whether it is larger projects in Oil & Gas and whether it is TL itself getting to newer geographies. So that's one thing which we are exploring continuously for the businesses, which could give us a much higher growth compared to what we are doing here. The second aspect, as I mentioned earlier, is to look at backward integration wherever we can, which will help us not only achieve higher growth, but also give us profit improvement if you do backward integration on our projects. Third, within some specific areas, whether you look at B&F or you look at Urban Infra, right, from where we started to where we are today. We started from only being a residential, commercial. Today, we are qualified in data centers, airports, industrial, all of them. Now all of them together, the opportunity is huge, and we have nearly -- we have never looked at it except for a few projects in the past. So within the value chain where we exist, we are qualifying ourselves through our design expertise, through our execution expertise, through CapEx to make sure that we can target bigger sized projects. Our average sized project today is more than INR 500 crores, and we are wanting to see how we can further increase that. So enhancing value chain within our offerings, looking at international markets and backward integration, it's a combination of all 3, by which we believe that growing at, at least a 15% minimum should not be a challenge even for the next few years. Besides this, our international subsidiaries, Sweden Linjemontage has been on a good growth journey. Last 3 years, they've done very well. Although current year, we do not see them doing extremely good, but they should also be in good shape to look at further growth opportunities going forward. So combination of all of this and with great opportunity in the market today, right? All the segments where we are today, whether it's T&D, look at the numbers, including today's newspaper, you would have seen some further CapEx additions being planned, B&F across the segments, Oil & Gas, Middle East. With all of this, we believe that we're getting well positioned to look at larger projects, complex projects, margin-accretive projects and growth should not be a challenge at least for the next couple of years. Even where we sit today, if you look at it, we have closer to 2.5 year visibility on order book, right, including L1. So where we are today, plus visibility, I see that it's going to be a mix of all of this to make sure that we achieve what we have targeted.

Other question is that we are already -- including L1, we have INR 15,000 crores financial year-to-date. So that would [ make the ] case for the rest of the year to increase your order inflow guidance? And secondly, on the Middle Eastern clients like ADNOC, Aramco; so beyond the pipeline projects, so in terms of capability upgradation, so what are we looking at? What kind of further mining can we do with them in terms of new order wins and new capabilities being developed to win new tenders?

So Parikshit, yes, we might have a revision, upward revision, but we'll have to come back to you at the end of Q2 because there are a lot of delays happening in some parts of the world in placing orders. We also believe as an organization that given that we have INR 15,000 crores already in our hand, we might be able to do better than this. But you have to give us some more time, maybe end of Q2 by which we might be able to revisit our guidance. As far as capabilities in Oil & Gas is concerned, we continue to keep on further building on process plants, on stations which we are doing, on high-end projects, on pipeline projects, all of that, and we're expanding through CapEx investment also. Right now, we are not exploring offshore in any form, but onshore, everything from plants to process lines to pipelines is what we are looking at. We've already built a strong team on it, and we already have the credibility. So it's only a matter of bidding for the right projects, winning it and then focus on delivery.

Anything on the hydrocarbon side, hydrocarbon, new energies? So anything there that you can do?

So we have created a small team which is looking at those opportunities. We had also recently bid for some projects for power grid from something on BESS. We were not successful in that. But yes, the exploration part has started. But do we have that clarity where which we can say that we will do this much in the current year is going to be difficult? Yes, but we've created a team which has started exploring BESS as well as hydrocarbon projects, but it's just the beginning. So give us some more time before we come back to you with a clear picture on this.

Okay. And one last question on KEPL. So I assume NHAI as got some reprieve from the court. So if you can help us understand like what -- to the context and what was the expectation on awards we could have realized and now the scenario changes? And what kind of worst hit can be possible -- could be there on the cash flows, if at all, everything been provided in your P&L [indiscernible].