K.P. Energy Limited (539686) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the KP Energy Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Harsh Patel from Share India. Thank you, and over to you, sir.

Thank you, and good afternoon, everyone. I would like to congratulate management on a decent set of numbers. On behalf of Share India Securities, I welcome you all for Q1 FY '27 Earnings Conference Call of KP Energy. We are pleased to have with us the management team represented by Mr. Affan Faruk Patel, Whole-Time Director; Ms. Shabana Belim, Chief Financial Officer; Dr. Alok Das, Group CEO; Mr. Vinod Jain from IR team. We will have the opening remarks from the management, followed by Q&A session. Thank you, and over to you, Vinod.

Thank you. Good afternoon, everyone. Myself, Vinod Jain, Head of Investor Relations at KP Energy. On behalf of management team, I would like to extend a very warm welcome to all of our investors, analysts, stakeholders and other participants for today's quarter 1 FY '27 earnings call and for your continued interest and support. Joining our call today are Mr. Affan Patel Whole-Time Director; Dr. Alok Das, Group CEO; Ms. Shabana Belim, CFO; and our incoming Group CFO, Mr. Kapil Kriplani. We are delighted -- I would like to brief -- I briefly touch upon 2 important leadership development during this quarter. We are delighted to welcome Professor Sunil Maheshwari as Vice Chairman. He carries 4 decades of experience across strategy, governance, business transformation and organization leadership, thereby further extending the depth and capability of our Board as we enter the next phase of growth. He has advised organization across power, energy, infra, banking, health care on strategic transformation, leadership development, organizational effectiveness and governance. We are also pleased to welcome Mr. Kapil Kriplani as our incoming group CFO. His extensive experience in finance, capital market and strategic growth initiative will be a valuable addition as we continue to scale the business and strengthen our institutional platform. Please note that company has published its results and already uploaded the investor presentation yesterday. I trust all of you have opportunity to review the same. Before we begin, I would like to remind everyone that certain statements made during this call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which may cause actual results to differ from those anticipated. While these statements are based on management's current beliefs and assumptions, investors are cautioned not to place undue reliance on them while making their investment decisions. With that, I now hand over the call to Mr. Affan Patel, our Whole-Time Director, for his opening remarks. Thank you, and over to Mr. Affan.

Thank you, Vinod ji. Good afternoon, everyone. On behalf of KP Energy, I would like to thank all our investors, analysts and stakeholders for joining us today. I would like to begin by putting our performance in the context of the larger opportunity we see in India renewable energy sector. India's energy transition is no longer just about adding renewable capacity. It is increasingly about building the ecosystem required to support that capacity. With the country progressing towards its 2030 target, we see significant opportunity across wind, hybrid project, transmission, evacuation infrastructure and O&M. Wind, in particular, has an important role to play in complementing solar and supporting a more balanced renewable generation profile. We believe the next phase of growth will be increasingly execution-led, and this is where KP Energy sees a strong competitive advantage. At KP Energy, we have built capabilities across the project life cycle from development and balance of plant execution to evacuation infrastructure, commissioning and O&M. Our current order book of 2.16 gigawatts valued at over INR 2,250 crores provides us with strong revenue visibility. For us, the opportunity is not simple about securing orders. It is about converting those orders into commissioned asset efficiently and on time. Our recent commissioning experience, including the 50.4 megawatt Vanki wind project in Kutch in July 2026 is another demonstration of our execution capabilities. Coming to quarter 1 financial year '27, we delivered consolidated total income of approximately INR 520 crores, reflecting strong year-on-year growth. We have seen some moderation in margins compared with certain earlier quarters. This is something we are conscious about, but we believe it is important to look at this in context of the scale and stage of execution, project mix and the operating environment. Our priority is to execute project well, control cost, improve predictability and deliver sustainable return over the project cycle. We remain confident that as execution efficiency improves and the project mix evolves, the scope for growth is tremendous. There is one area where we remain watchful, the pace of grid and transmission infrastructure development. As renewable capacity grows rapidly, evacuation and transmission infrastructure needs to keep pace. However, we see this more as a timing challenge rather than a structural concern. What gives us comfort is our strong order book. We have adequate execution visibility while the broader grid infrastructure continues to stabilize and expand. This allow us to sequence our projects appropriately and remain productive without being overly dependent on the commissioning time line of any single project. In fact, we believe a strong order book at this stage of the industry cycle is a strategic advantage. Our confidence in the future comes from 3 things: industry growth, order book visibility and execution capabilities. We also see meaningful long-term potential in our upcoming IPP of 200-plus megawatts and O&M businesses, which can progressively add recurring and annuity-like revenue streams to the business. As the renewable ecosystem evolves, we believe companies with strong execution capabilities, project management experience and the ability to operate across the value chain will be best positioned to benefit. Our focus for financial year '27 remains clear: execute the existing order book and quality opportunity, improve execution efficiency and progressively strengthen our recurring businesses. To conclude, while we remain watchful about near-term challenges, our conviction in the long-term opportunities remain strong. Our confidence is not based only on the growth of the renewable sector. It is based on the order book we have built, the projects we are executing and execution capabilities we have developed over the years. We remain committed to creating sustainable value for our stakeholders and to playing a meaningful role in India's renewable energy journey. Thank you. Over to you.

Thank you, Mr. Affan Patel. I will now request Ms. Shabana Belim to talk about the financial and other performance.

Thank you, Vinod ji. Good afternoon, ladies and gentlemen. On behalf of the Board of Directors and the entire KP family, I extend a very warm welcome to our Q1 FY '27 earnings conference call. I am Shabana Belim, CFO at KP Energy Limited. Thank you for joining us today and for your continued confidence and support. I will quickly take you through our Q1 FY '27 financial performance, the factors that impacted profitability during the quarter and importantly, why we remain confident about the underlying growth and long-term potential of the company. Let me begin by saying that Q1 FY '27 was a quarter of very strong execution and revenue growth, but also one that tested our ability to manage an exceptionally challenging cost and operating environment. The renewable energy opportunity in India remains extremely strong. However, during the quarter, the industry faced an unusual combination of geopolitical disruption, supply chain constraints, fuel and logistic pressures, labor availability challenges and increasing right-of-way costs. Despite these challenges, KP Energy continued to execute at a significant higher scale, remained profitable and strengthened the foundation for future growth. I'm pleased to share that our consolidated total income for Q1 FY '27 stood at INR 520.97 crores compared with that at INR 220.6 crores in Q1 FY '26, representing a growth of approximately 126% year-on-year. I'm also equally delighted to state that the revenue from operations stood at INR 519.46 crores compared to INR 219.54 crores in the corresponding quarter last year, with infrastructure development continuing to be the growth engine with revenue of INR 504.75 crores compared with that of INR 208.25 crores in the Q1 of FY '26, an increase of approximately 142%. Our O&M business also continued its growth trajectory with revenue of approximately INR 2.94 crores compared with INR 1.16 crores last year, while revenue from sale of parts stood approximately at INR 11.78 crores compared with INR 10.14 crores in Q1 FY '26. So from a business volume and execution perspective, the quarter has been an exceptionally strong one. Some of you might have noted a moderation in the margins of Q1 FY '27 compared with Q4 FY '26, and I would like to address this. Our gross margin in Q1 FY '27 was approximately 20% compared with that at 28% in Q4 FY '26. This is a sequential contraction of approximately 8 percentage points, and we believe it is important to explain this. Q4 FY '26 was the highest quarterly revenue reported by the company at INR 633.93 crores and Q1 FY '27 delivered INR 520.97 crores, approximately 82% of that exceptional base. Consequently, our absolute gross profit reported in Q1 FY '27 was approximately INR 102 crores, reflecting approximately 56% of the exceptional base. The pressure was therefore, primarily on project execution economics rather than on the ability to execute the projects. There were 3 major factors behind this pressure. The first was the West Asia geopolitical situation and resulting disruption and uncertainty around the Strait of Hormuz. The impact was not restricted to energy prices. It extended across LPG availability, fuel, procurement, transportation, freight, logistics and manpower availability. India's dependence on LPG imports through Hormuz region made it particularly vulnerable. During this period, the imports declined materially, while India also had to source LPG from alternative markets at higher cost spot purchases. For an infrastructure business, the significance of this was much broader than LPG itself. The disruption affected the availability and mobility of migrant labor and created challenges across the logistics ecosystem. Again, for an EPCC business, labor availability is as important as material availability. When manpower availability becomes uncertain, plant work fronts can be disrupted and manpower and equipment may need to be demobilized and subsequently remobilized. In the prevailing environment, such remobilization came at a higher cost due to elevated costs on various accounts like accommodation, manpower costs, et cetera, and also towards constrained availability of specialized resources, which added further pressure. Importantly, our execution teams were able to largely make up for the productivity challenges and maintain the project progress. However, the associated cost impact could not be completely avoided. Further, any prolonged execution cycle would have resulted in continued absorption of fixed project and site overheads, making timely execution critical, not only for revenue conversion, but also for protecting the project economics and their profitability. The second element was the volatility in fuel procurement and logistics, which had a direct bearing on the equipment utilization. While the overall national fuel stocks remained adequate, temporary measures were introduced by the government to manage abnormal demand and diversion of the bulk and commercial demand towards retail channels. For a business like ours, where execution involves large cranes, hydra cranes, excavators, trailers, DG sets and other ancillary equipment, continuous fuel availability is an essential for productive utilization. Any disruption can result in high-value specialized equipment remaining idle while associated hiring, manpower supervision and other overheads continue to accrue. Similarly, demobilization and subsequent deployment of equipment can entail additional costs. Thus, the combined effect of labor, fuel, logistic disruption was not merely an increase in individual input costs, but a broader increase in the overall cost of execution and resource utilization. Further, any prolonged execution cycle would have not protected the project economics and profitability. The third and significant factor was the increasing cost of right of way for transmission infrastructure. As renewable projects increase in scale and evacuation infrastructure becomes more extensive, ROW, which is the right of way, become an increasingly important component of project economics. Since late Q4 FY '26, we were already seeing higher expectations from landowners and farmers regarding compensation for transmission corridors and tower locations. This subsequently received greater attention following the developments in Gujarat, culminating in the revised compensation framework notified at a later date. The escalation in ROW cost and changing expectations around the compensation were already visible during Q1 and had already been factored into our cost assessment. When we put these factors together, the financial picture becomes clearer. We delivered INR 520.97 crores of total income compared with INR 220.60 crores last year. The exceptional operating environment, however, resulted in pressure on project level margins. Despite this, our profit before tax stood at INR 37.44 crores compared with INR 34.75 crores in FY '26 Q1, while profit after tax stood at INR 26.08 crores compared with INR 25.42 crores last year, similar quarter. So while the percentage profitability has come under pressure, we have continued to deliver absolute profit growth while scaling the business by more than 2x. Depreciation and finance costs stood at INR 9.18 crores and INR 15.43 crores, respectively, reflecting the increase in the scale of business. I would like to emphasize one important point here. We are witnessing increasing demand for renewable energy and also envisage the same in our project pipeline. Our order book at the end of Q1 FY '27 stands at 2.16 gigawatts, providing a strong revenue visibility. The renewable energy sector continues to benefit from India's long-term decarbonization objectives, increasing electricity demand and government's renewable capacity targets. India added a record 6.05 gigawatt of wind capacity in FY '26, taking cumulative installed wind capacity beyond 56 gigawatts. I'm proud of our execution team to have continued to demonstrate their ability to navigate a difficult operating environment while maintaining project progress. Timely completion is critical because it enables revenue conversion, protects against prolonged fixed project overheads and allows us to redeploy our resources efficiently. The ability to maintain execution momentum despite external disruptions remains one of the KP Energy's key strengths. I would like to summarize stating that the scale of the business has changed materially. Crossing INR 500 crores of quarterly revenue, which is equivalent to approximately 1/3 of the entire FY '26 revenue demonstrates our ability to execute substantially larger volumes and multiple projects simultaneously. We also have a strong revenue visibility with order book in hand, and we are also developing additional capacity of about 200-plus megawatts of IPP portfolio, which will add recurring revenues alongside our core EPCC business. We remain extremely bullish about the future of our business and the company and conclude that FY '27 Q1 was a quarter of exceptional growth in scale. Our focus is very clear: to convert scale into quality growth, protect project level profitability, increase recurring revenues and improve the predictability of our earnings. In short, Q1 has tested our resilience, but it has not changed our conviction. We remain confident in the long-term growth trajectory of KP Energy and in our ability to create sustainable value for our shareholders. On behalf of the entire leadership team, I thank our investors, customers, lenders, vendors, employees and all our stakeholders for their continued trust and support. Thank you. We will now open the floor for questions.

[Operator Instructions] The first question is from the line of Shikha Mehta from Time & Tide Advisors.

I just actually wanted to understand the margins a bit better because we've seen a very sharp reduction on the gross margin front, which, of course, has impacted our EBITDA margins, et cetera. I understand that cost pressures were there because of the war and labor issues during Q1. But are we seeing the same issues exceed in Q2? Or are we seeing a reversal? And can we expect our margins to revert back to Q4, Q3 levels? Or is this seeming like a new normal for us currently?

Thank you, Shikha, for your question. While we would not consider Q1 to be an exact representative going forward, but at the same time, we would also not want to make an assumption on immediate normalization of the environment. We have been seeing that the environment has been continued to remain the same, and we are trying to rationalize our planning. We are trying to optimize our execution so that we can contribute to the orders that are already on hand and protect the margins.

So for example, our operating margins for Q1 were around 12%. In all of FY '25, we've been around that 22%, 21% mark. But going forward, could we at least expect to revert back to, say, a 15%, 16%, 18% kind of number? Or would we want to refrain from giving any kind of guidance?

As of now, I would also like to draw attention to the fact that margins also depend upon the project stage and different category of projects that we are executing. So while there are some projects which have just begun and there are some which are on the peak and there are some which are to end. So it's a combination of the stage mix at which the projects are being executed. And it will not be right at this very moment to give you a number because there will be several factors which will be affecting this margin. As I said, that we have already started facing the impact since the end of Q4, and that is the reason why we have already covered it into our cost at quarter 1. Going forward, we again, as I said, we'll try to compensate it more and more with our operating efficiency.

Understood. And anyway, Q2 is a bit of a damp quarter for us because of the monsoons, right? So I mean, from a growth point of view and from a margin point of view, do we have any guidance to give for that?

So while we have always -- if you see the past quarters also, monsoons are not something which are new. But then yes, it indeed is a little damp quarter considering the rains and the seasonal effect. But we have always tried to cover up our revenue, seeing the possibilities of different milestones under each project where we can take the advantage of revenue generation and we can bag the revenue.

And could you quantify the order book? I think last quarter was around INR 3,000 crores. What would it be?

Could be currently. Yes, at 2.16 gigawatts, we currently stand at about INR 2,250 crores.

Got it. And we had guided for around 40% to 50% growth on the top line in FY '27. Are we still holding on to that guidance?

So while we already have a substantial order in hand, we would like to stay at about 30% to 40% as a guiding time line -- I mean, guiding amount -- I mean, guiding number so as to give you an insight about at the levels at which we would grow. So we are not limiting ourselves in terms of what we have on hand. But then we are giving a number which seems appropriate in the planned way that we have worked out.

So 30% to 40% is what we're currently running on? And out of our current order book, which you said is 2.16 gigawatts, how much would be from KPI?

Yes, just a moment. If you can give me a moment, I have the details handy. I'll just have to -- so about in terms of value, about 50% is related party and the balance 50% is non-related.

The next question is from the line of [Kanishk Gupta] from [SS Family Office].

I have a question regarding Faruk bhai. We have not seen him participating in the recent conference call. So could you please clarify whether we should expect him to be involved in the company's conference calls going forward?

Yes.

We have, Affan sir. He will answer your question.

Myself, Affan. So on behalf of Faruk sir, I am available here. And for that -- for that purpose only, I'm always in the call. I think I'm from last con call, we are available. promoters, we are available -- all execution related and all business segment about wind, P&L related, I'm available to answer. If you have any questions to us, we can give you your answer.

Also, Kanishk, to add on to what Affan sir has been telling, Dr. Patel has already been involved in the entire group's activity. He is present -- very much present. He is focusing more on strategic and future developments. And we, as a team of professionals have been handling the entire scope at KP Energy and as well as other companies in KP Group. And we will definitely convey your greetings to him.

Definitely, ma'am, no worries. And my second question would be on given the government's renewable energy targets for 2030, what kind of targets is the company giving itself for FY '30? So could you give us a sense of the revenue ambition that the company is working towards and key milestones you expect to achieve along the way?

So while we have been very candid in expressing our group targets, we've been talking about 10 gigawatt by 2030 in terms of the entire KP Group, that's majority covering KPI Green and KP Energy. And we are very pleased to inform that we are very close to that 10 gigawatt achievement. And in the near future, we are about to revise our group target, and it will be published soon.

So ma'am, can we expect company-specific targets in the same document?

Sure. We have already been working on it. And soon enough, you will have the company specific as well as the group targets.

The next question is from the line of Murtaza from PinPoint X Capital.

I just have 2 questions. Firstly, we've been observing a very strong on-ground activity and healthy momentum in the wind energy segment. And however, we really haven't been announcing a similar pace of order inflows. So could you just explain what exactly is driving? Or is the difference or the part we're not really understanding? Is it a function of our strategy? Or are there some sort of execution constraints or any other factors? First question is...

Okay. I'll answer your question. So while we had already banned about 230-plus megawatts of orders in the last quarter, Q4 of FY '26. And we have been going around, but we have been selective in picking up the orders that are being available to us. yes, wind has definitely garnered a lot of momentum, but we take our own time to evaluate each and every order because there is plenty to supply, and we are being very picky and choosy in terms of what we pick up in terms of our cost components, in terms of our execution capabilities, in terms of the pace at which we have to execute in terms of the region because a region plays a very important role in terms of cost as well. While one region might not be having a lot of ROW cost, there might be specific regions where the cost may be very high in terms of grid availability and in terms of connectivity that we have there. So that is the reason why you are really seeing a slightly slower pace in terms of order intake. But be rest assured that we -- everything that comes in the market is not escaping our eye. We are keeping a vigilant eye and we are making choices in picking our orders.

Understood. And my second question is on the stand-alone for the KP Energy Limited stand-alone current IPP portfolio, what exactly is the current portfolio size or capacity? And how do we see it evolving over the next few years?

So currently, we are at 48.5 megawatts of IPP capacity, which is fully operational. Out of this 48.5, 11.5 is solar and the balance 37 megawatt is pure wind. Going forward, we are looking for an addition on KP Energy stand-alone at about 200 megawatts with the sovereign entities. And we already have entered into PPAs with -- for both these 200 -- I mean, it's 100 each. So for both these going forward PPAs, we have already done with the government. And there are different time lines for commissioning of this project, roughly about 24 months from April onwards, April '26 onwards.

Understood. Just one final just reconfirmation. As you had earlier mentioned you had given a very detailed explanation regarding the margin erosion we have seen in Q1 -- so just wanted to kind of reframe and ask a question, have the margins bottomed out? And going forward, we can expect at least a bit better than what we really happened to do in Q1?

Murtaza, at present, whatever we have the visibility in terms of the projects on hand, we have already factored that cost into our current working. And we do not envisage any kind of an immediate further fall. But well, as I said, there are factors beyond our control, which we have to rely on, and we try to make up the best by optimizing our operating efficiencies.

The next question is from the line of [Subhash] from Value Investments.

So I mean I see that the revenue has increased significantly, that is over 136%. I mean since you are guiding only for 30% to 40% of growth over FY '26, I'm thinking it's Q2, Q3 and Q4 will be -- I mean, we will not be seeing much growth because in Q1 itself, you have achieved more than 130% growth, right? So at least in the top line, I mean, I understand that you explained all the reasons for the lesser margin. But at least at the top line, do you expect more than 60% growth for FY '27?

While we do look forward to complete the entire order book that we have in hand during this financial year. But as I said, the range that we have given about 30% to 40% is in consideration with a lot of situations on ground, which may or may not work in our favor. So while our internal targets are definitely to have completed the substantial portion of the orders that we have on hand, but the scenario that we are giving right now is a bit cautious scenario considering the on-ground situation.

I mean since you have achieved more than 136% in Q1, I think that seems like very less than 30% to 40%. But, I mean definitely Q3 and Q4 will be your strongest quarters, right? I understand Q2 is strong.

Yes. We look forward to it, our internal.

And also due to geopolitical tensions, I mean, you might be cautious about the bottom line, but what about the top line? Do you still think -- I mean, do you still want to stick to 30% to 40% only? And also, could you specify the amount of order book that you have in hand, which -- which you want to complete this year in value terms.

Sure. Subhash, one small instance I would like to mention here is that, as I indicated in my earlier speech as well, that the ROW factor has been something which has been bothering us. There were farmer protests across the Gujarat region and which eventually, I would say, compel the government to issue a framework whereby the ROW costing was revised. Now in such a situation, if the process lasts longer, while we still intend to deliver the top line and we still stay committed to achieve at least, I would say, 40% to 50% growth in terms of whatever we have achieved last year. And we are capable, positioned and we are planning to achieve that. But then if these kinds of factors do come up, we really will not be in a position to execute despite of being mobilized there and we wanting to do so. So that is the reason why we are going a bit cautious on the top line. Rest assured that we are well planned to execute a major portion of the order book that we have on hand. Coming to the order book value that you asked, it's about INR 2,250 crores that we are currently holding as on 30th of June 2026.

Okay. Great. I mean if you're able to achieve the whole order book in this year, I think that gives us much more than what we have targeted. And also, my other question was -- and what is the mix of CPP versus IPP and KP Energy? The reason why I'm asking this question is because I'm a shareholder of KPI Green as well, and I attended the investor call today. So in KPI, the IPP share of the revenue out of the total revenue is 18% to 20%. But I think in KPEL last year, it was only about 1% to 3%, right? So I mean, the advantage of having IPP is that even though the margins are down even in KPI Green, they were able to sustain the EBITDA margin same as last year because of the IPP because IPP has larger margins, right? So what are your plans for KP Energy Limited, right? That is my first question for CPP versus IPP. And also due to this margin compression now, like do you want to revise the IPP execution speed -- what are your plans, if you could comment on that?

Sure. So current percentage in terms of the revenue, we still stand at 2% of my total revenue being that from IPP as against 1% in the last quarter. Yes, we are currently a bit low on IPP. Predominantly, our focus was on EPC business. And going forward, as I mentioned to you that we already have 2 IPP projects lined up. The PPAs have been signed in -- one is signed in April and another is signed in June, June, July, yes, if I'm not wrong, it's in July. And we have a 24-month execution period for this. Of course, we would definitely want to enhance the execution at a faster pace, not only to reduce the IDC, but also to have a quicker generation and revenue booking on the same. With both these projects being commissioned, we expect approximately the top line to increase by INR 200 crores in the IPP segment. This is what we expect going forward if both these projects get energized.

Okay. But that is after the completion, after 2 years, you expect INR 200 crores increase in IPP.

So we have -- we also have -- I would like to elaborate a bit here. We also have a possibility of partial commissioning under the PPA. And we would also try to see if we can start putting to use the asset in partial capacities. And that way, we can quicken the -- I mean, the entire 2-year period won't go dry, but we can start expecting some revenue 1 year afterwards.

Got it. I think by FY '27 end, you are targeting 100 megawatts IPP, I'm not wrong.