KEC International Limited (KEC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the KEC International Limited Q4 FY '21 Results Conference Call. We have with us today from the management, Mr. Vimal Kejriwal, MD and CEO; Mr. Rajeev Agarwal, CFO; Mr. Pankaj Kalani, Senior VP. [Operator Instructions] I now hand the conference over to Mr. Vimal Kejriwal, MD and CEO. Thank you, and over to you, sir.

Thank you, Ayesha. Good morning to all. I welcome you to the Q4 earnings call of KEC. I hope that you and your family are safe and healthy during these challenging times. Let me start with a brief update on operation amidst the pandemic and lockdown scenario across many regions. All our manufacturing units and project sites continue to be in operation with strict implementation of COVID-19 protocols and government guidelines. Over the last few weeks, amidst fears of even more stringent restrictions, we have witnessed some migration of workers. However, we are better prepared this year owing to the learnings of last year's impact and continue our focus on deploying new mechanization, automation and digitalization initiatives to improve productivity with reduced labor strength. As a responsible corporate citizen, we continue our commitment to serve the local communities in these difficult times. Our training center in Butibori, Nagpur has been converted into our COVID quarantine center, which we are running with the help of a local hospital. We are also distributing food, oxygen concentrators, ventilators, PPE kits and even ambulances to the underprivileged, police authorities, government hospitals and social service organizations. Now coming on to the financial performance. We commenced the financial year amidst global upheavals due to COVID-19 and witnessed one of the biggest slowdowns during the year. The environment continued to be challenging throughout the year due to COVID headwinds leading to sporadic lockdowns at project sites, delaying award allowance and steep rise in commodity prices in the later half. Even with these challenges, we recovered strongly with revenues of INR 13,114 crores for the full year with a robust growth of 10% vis-à-vis last year. This was a result of our concerted efforts toward accelerated ramp-up in execution, increasing labor strength and deployment of mechanization, automation and digitalization initiatives to improve productivity and quality of execution. The growth has been largely delivered by our non-T&D businesses, namely Railways and Civil. Despite the significant issues, we have achieved an EBITDA margin of 8.7% for the year. The margins are slightly lower due to the extra cost incurred on account of COVID-19 costs and time escalations in SAE Brazil amongst -- amidst the pandemic and a continuous increase in commodity prices globally. We continue to maintain a double-digit EBITDA margin at stand-alone level of 10.4%. We have delivered a PBT margin of 5.8% and a PAT margin of 4.2% for the year, aided by a significant reduction in interest cost and optimization and tax costs. We achieved a PAT of INR 553 crores, which is largely in line with the last year. On the order intake front, we have secured orders of INR 11,876 crores in FY '21 with a growth of 5% over last year. The order intake could have been higher, but for the delay in ordering activities and conversion of L1 amidst the global slowdown. We have also been very cautious on our order intake on account of the large volatility on the commodity prices to maintain our margin levels. Additionally, we have also been very selective to protect our cash flows, considering the stress which is being faced by some of the clients, especially state utilities. We have a strong order book of over INR 19,000 crores as on 31st March '21, along with an L1 position of over INR 6,500 crores. With concerted efforts, we have been successful in bringing down both our interest costs and debt levels for the year. Our net debt as of March 31, '21, stands at INR 1,679 crores, which is a significant reduction of close to INR 1,000 crore vis-à-vis the last quarter and a reduction of over INR 500 crores vis-à-vis last year. Our interest cost at 2% of sales has seen a vast improvement with a reduction of 60 basis points vis-à-vis last year. Additionally, there has been a reduction of 15% in absolute terms, notwithstanding a revenue increase of 10%. Coming to the Q4 financial performance. We have achieved revenues of INR 4,361 crores with a robust growth of 19% vis-à-vis Q4 last year and a growth of 33% sequentially. The Railway, Civil and Cable businesses have been the primary growth drivers. EBITDA margins for Q4 stand at 8.1%. We have maintained double-digit EBITDA margins at stand-alone level of 10%. Our interest costs for the quarter as a percentage of sales has come down to 1.4% vis-à-vis 1.8% last year. We achieved a PBT margin of 6.1%. Despite the challenging scenario, we have delivered a PAT of INR 194 crores, a marginal growth vis-à-vis Q4 last year and a growth of 34% sequentially. The PAT margins stand at 4.5%. Now coming to specific businesses. Our core T&D business witnessed a progressive ramp-up across all project sites in domestic as well as international locations. Despite the intermittent challenges due to COVID, especially in international locations, the business has been successful in largely maintaining the revenues in line with last year. The business witnessed significant traction in terms of order intake, both in domestic as well as international locations. The business reinforced its leadership position across several regions and secured orders of over INR 7,500 crores with a growth of over 75% over last year. The overall tender pipeline in T&D continues to be strong, especially in international T&D. In the case of domestic T&D, the revised bidding of the Green Energy Corridor projects Phase 2 has been concluded for most of the schemes, and we have been successful with significant orders of around INR 1,500 crores. As announced earlier, I'm happy to share that we have signed project innovation agreements for the Essel project with Adani Group for INR 477 crores to complete the balanced work of the transmission line. We have already received a significant portion of our dues and work on the project has already restarted. In Brazil, the pandemic has impacted the economy significantly. The availability of steel, which was already a problem due to the Vale Dam burst, got impacted hugely by the downturn in the economy due to the COVID scenario. The localized lockdowns have played havoc in the availability of manpower for EPC projects. The shortage and steep price rise of raw materials has impacted execution of the EPC as well as tower supply projects in Brazil. These challenges have also resulted in significant time cost escalations, which have impacted the margins. Further, the steep depreciation of the Brazilian real over last year has also impacted the revenues post-translation. Despite these hurdles, we have commissioned one project during the year and expect to complete the balance 2 projects by Q2 this year. We had started work on another project in Q3 last year, which we also expect to complete in Q2, Q3 this year. We have also secured 3 new EPC projects this year, one of which is SAE's foray into the substation EPC segment. Our Railway business continued to be one of our key growth drivers and delivered a stellar performance as it surpassed revenue of over INR 3,400 crores for the year with a robust growth of 34% over last year. The business demonstrated robust execution due to a rapid and consistent ramp-up across project sites despite COVID-19 hurdles. I'm also happy to share that the business has been successful in achieving double-digit EBITDA margins for the year. In line with our diversification strategy, we have expanded our presence in the technologically enabled areas and are now executing OHE Third rail Balastless track works for metros and next-generation signaling and telecommunication systems for dedicated grid corridor. Additionally, we have also diversified into the new and emerging areas such as speed upgradation for high-speed rail, construction of depots and workshops for urban infra projects and also tunnel ventilation. Over 50% of our order intake this year in Railways comprises of orders from these new segments. We have also secured a technically challenging composite project for a private sector player, including ground stabilization, track laying, signaling and telecommunication and associated works. The railway center pipeline continues to remain robust with a blend of conventional, technologically enabled emerging areas as well as international opportunities. With our continued thirst on execution and an order book plus L1 of over INR 7,000 crores, we remain confident that Railways will continue its growth trajectory. In line with our growth plan, the Civil business has achieved a revenue of INR 1,080 crores this year, an impressive growth of approximately 3x compared to last year. In line with our strategy, the business widened its portfolio to enter new high-growth areas this year and secured breakthrough orders book, L1, in the warehouse, water pipeline, airport sectors and reinforced its presence in the industrial sector by forming into chemical, hydrocarbon and FGD segments. With a robust order book plus L1 of INR 4,500 crores, we are confident that this business will continue to be one of the key growth drivers for us this year as well as going forward. In Cables, after a muted H1, the business has rebounded strongly with a revenue growth of 9% for the year vis-à-vis last year. The business is progressing well on the development of additional new products for railways and exports and is on track to commercialize few new products in FY '22. The profitability of this business has been under pressure with a steep rise in the raw material prices such as XLPE, PVC, et cetera. In Solar, we are on track with the execution of the 20-megawatt carport project for a reputed automobile manufacturer. The second phase of the carport is now ready for commissioning. The execution of the recently secured 14.6-megawatt rooftop solar project for a corporate client has also commenced. In Smart Infra, the execution of the existing smart city and defense projects are on track with Aurangabad and Bengal smart city projects now nearing completion. We have commenced execution in the recently secured project for constructing an integrated command and control center for a greenfield city and installing other smart city components. There is a growing consensus that sustainability and ESG aspects of doing business are critical for long-term resilience and success of an organization in today's challenging and disruptive world. We are working towards developing a strategic sustainability road map in collaboration with a reputed consultant to lay down our aspiration and action plan towards conducting our business in a more sustainable and responsible manner. This will not only help in showcasing financial value creation but also provide our internal and external stakeholders an all-inclusive depiction of our nonfinancial performance as well. The detailed road map will be a part of our integrated report this year. On a concluding note, I would like to reiterate that the business environment continues to remain uncertain with the current pandemic scenario and the prevailing headwinds on account of commodity prices. Having said that, with a robust order book plus L1 of over INR 25,000 crores, we are confident of delivering a good growth in FY '22. Thank you. I'm happy to take your questions now.

[Operator Instructions] The first question is from the line of Renu Baid from IIFL Securities.

Sir, my first question would be wanting to understand, given the last 6 months we've seen unprecedented inflationary impact on commodities, especially steel, so how are we looking at the business profitability, especially for the core T&D business, given the fact that the fair share of TBCB orders in the last quarter and also the stack execution on Essel or now the Adani project has started? So including the impact of these projects, what do we expect for -- or what should we expect for FY '22 in terms of margin performance?

So we are clearly seeing a headwind in terms of raw material prices and especially steel, as you rightly put it. As far as the TBCB projects are concerned, we are facing some challenges on the steel cost especially. However, I would like to say that these are, in a way, lump sum projects where the towers and the foundations and everything get designed by us. So we are seeing, I'll say, a reasonable amount of savings in the quantum of steel and in the foundation, et cetera, which our design teams have been able to optimize. We're also looking at some different methods of execution given the fact that these projects are in Rajasthan and most of them are, let's say, within 100-kilometer radius of my Jaipur factory, which will help us in some ways of optimizing and working on these projects differently. Clearly, one thing I would like to say that even with the current prices, et cetera, these projects are still profitable. They are nowhere close to double-digit margins, and I'm saying that based on the current steel prices. Another thing to keep in mind is that the steel has to be supplied over the year. These are 15-month projects just starting, okay? So we do feel that there are opportunities and we do expect that -- of late, if you see, generally, the steel prices have sort of stabilized. And with the lockdowns and all that, the availability has improved significantly. The rebar prices are coming down. The problem which we see is with the oxygen shortage. The secondary and the rerollers are facing some issues. Once those capacities are commissioned again, we do expect that, at least on the construction side, we will see a decent correction aided by the monsoon obviously. So I think that's where we are on the TBCB. As far as the Essel project is concerned, I think we already have some towers in stock. And those are, again, projects which are ranging from 14 to 18 months. So we are in no terrible hurry or need to supply towers today at elevated steel prices, that is number one. Number 2 is that we had already made some provisions for the receivable from Essel. Obviously, that provisions will now help us in a sort of, let's say, minimizing or reducing the impact of steel prices if we have to supply at a higher price.

Got it. But on the TBCB projects, you don't see any requirement of creating provisions the way some of your other competition has done who had won similar projects? So no requirement of creating any buffer going on?

So the way the accounting CTC and other concepts work is that if you have already booked revenue and margins at a higher price and then the prices of, let's say, your costs have gone up and your margins are coming down, you will have to reverse earlier margins and take it down to the lower levels. Since these projects have just started, let's say, execution, what will happen is that you will be booking the revenues and the margins on the current costs. If in an event that you become negative on the projects, then the concept will come in where you'll have to start providing for any foreseeable losses, which you see in the project. So as of now, we did not see the need for providing any losses today. As and when the projects are getting executed, you will be booking the revenue and margins at the current cost. And if at any point of time, the projects, let's say, turn negative, okay, then obviously, whatever is the losses which you anticipate or negative plus whatever profits you have booked earlier, those will have to be provided.

Okay. Sure. Secondly, on your non-T&D business, Rail and Civil, given that now we're expanding into newer segments which require more capabilities and investment, so are we planning any significant investments both in capabilities as well as equipment for these type of projects in Civil and Rail? And how do we look at these portfolios starting up in the next 2 years, both in terms of revenue scalability as well as margins?

So we generally have a capital expenditure plan of around INR 200 crores, generally, okay? We would take INR 25 crores, INR 30 crores here or there. This year, again, we have planned for a similar amount, slightly higher than INR 200 crores, and a large part of that CapEx would go into Railways and Civil business, okay? So that's one part on the physical capability of this. We have also hired a large number of people who have the capability to deliver on these new projects. The third piece is that many of these projects have been won in conjunction with one of the large OEMs, multinational OEMs, where they are doing a part of it and we are doing a part of it. And we do expect that, that would also help us in building capabilities in these areas.

Sure. And one last question, if I can ask. We have seen a reasonable improvement in working capital. So what is the outlook going here, both in terms of debt numbers? Can we expect the debt numbers to continue or reducing as the growth comes back in the next 12, 15 months? Or it should stabilize at these levels?

Rajeev, you want to answer this?

Sure, Vimal. So Renu, basically, as we are expecting a growth in the coming year as well on the back of a strong order book that we have, so our guidance would remain, let's say, close to about INR 2,500 crore debt level. This is what we are targeting. Even last year, if you look at my average debt level was around debt level only. It is only towards the end that we got a significant collection from various customers and that helped me to reduce my debt to a significant amount. But by and large, with the growth numbers that we have in mind, we expect the overall average debt level to continue at about INR 2,500 crores, plus or minus, let's say, INR 200 crores here and there.

The next question is from the line of Lavina Quadros from Jefferies.

I just wanted to understand from you with this -- I mean, how has the pricing landscape changed, especially post the budgets? So there's a lot of sentiment improvement. I know right now with COVID, there is a bit of a halt. But in general, post the budget, there was a lot of expectation that spending will move up. So I just wanted a sense, has that reflected in pricing trends on the ground? Or is competitive intensity higher or lower? If you can share your thoughts there, please.

Lavina, there are 2 developments which have taken place. One is the competitive intensity has increased significantly in India because as part of COVID plus Atmanirbhar Bharat, what the government did was that in most of the PSU tenders, they have taken out the requirement for providing a tender bid bond, okay? So today, we are seeing very, very small players coming and starting to bid for INR 1,000 crore projects because they don't need to give a bid bond. So that's one piece. If you look at, let's say, railways and some of the -- especially transmission, I've seen in some of the projects, 25 bidders coming in, okay? Most of them would be -- would get into grief later on, but that's the reality of the situation today on the number of bidders, et cetera. Obviously, the serious bidders continue to be the top 3 or 4. As far as the tender pipelines are concerned, I think we are pretty happy with what we are seeing on the tender pipeline, but I don't see an immediate impact of the budget happening, okay, immediately because normally, what we have seen is whatever announcements are made in the budget, they do take 3 to 6 months to get translated into hard projects and all that. So as of now, based on this, I don't see any immediate bids. But overall, the tender pipelines are critically decent, especially in the railways and also on the metro side. T&D, right now, we are seeing some traction on the state side. Power grid has already been approved. There are some more TBCB projects which are now coming up for bidding, I think next week or this. So there will be some minor traction on the TBCB front.

Okay. And sir, lastly, has the working capital become an issue for smaller companies? So that is incorrect, is it? Because that is a sense that we have got.

No, no. So that -- again, there will be 2 parts here. One is the bank guarantee for bid bonds and performance bonds. So the requirement for bid bonds has been taken off, but performance bond continues, which has been reduced from 10% to 3%. So on the nonfinancial, let's say, noncash limits, bank guarantees, et cetera, the smaller players are better off, but on the cash side, when you require hard cash, we still see a very strong stress on the smaller players. So that's the true situation as far as the smaller players are concerned.

The next question is from the line of Swarnim Maheshwari from Edelweiss.

Congratulations for your refinement of T&D. Sir, a couple of questions. Sir, first one, on the SAE side. Now if I look at FY '21, will it be fair to say that SAE has basically made EBITDA or PBT loss of closer to about INR 100-odd crores?

Maybe more than that.

Maybe more than that. Now, sir, if you can just help us, and we do need to understand that this is all happening because of the restrictions imposed by the local government over there, but I just wanted to understand, if you can just break up that loss of INR 100 crores, INR 125 crores, whatever that number is into the currency depreciation? And also with respect to if there is any time overruns on the project, if you can just help us with that?

Swarnim, on the currency side, I will not say there's much of currency depreciation loss in that part. In fact, the loss would have gone up had the currency remained stronger, okay? There is a loss of almost, I'll say, close to $30 million, $35 million. I don't have the exact number, close to INR 200 crores plus on the revenue side because of translation. The Brazilian real went down from 4.1, 4.2 to 5.3. So roughly around INR 200 crores of revenue, which would have happened to -- which would have been accounted here if the currency non-depletion would have been there. Loss, I don't see any major impact except there is some impact locally because they also have to buy some items in dollars, et cetera, where they had to pay a slightly higher amount. But I don't think the currency has played a major role in the loss part of it, okay? Most of the losses have happened on 2 accounts. One is because the steel prices went up, we did have some losses on the steel supply. Generally, we manufacture around 50,000 tonnes of steel there, okay? I don't have the breakup of how much went into my EPC projects and how much was supplied to third parties. But generally, there was a clearcut loss happening on the tower side. And on the construction side, because you had to keep on shutting down the offices and shutting down project sites, et cetera, demobilizing, remobilizing, people who are leaving, you have to hire them back, equipments were getting -- were been taken away because of stoppage of work and all that, and all that led to delay. So there is both an increase in cost because of the COVID piece where the labor became scarce, equipments became scarce, and second was because of the cost because of time overruns. So both of these factors, and obviously, we did supply some towers for our own projects also. So the steel price, all 3 of them have combined for this.

Okay. Got it. So now, sir, you had taken 3 new projects in FY '21. So first of all, are this all fixed in nature or they are cost pass-through?

So first of all, these projects have been taken recently, okay? So they are all at current prices. So that takes off one piece of it. The second piece in Brazil generally is there is an annual reset of prices contractually as for the government numbers. And until now, that had worked very well because normally the price increase was actually slightly lower than that increase, okay? It's only in the last year and the current year now that there's governmental -- it's called IPCA or something, IPCA regulation, that the actual increase in steel was much more than the IPCA permitted, okay? But as far as I remember, all these 3 contracts, one is they are at current prices. And second is, I think, all of them have an IPCA adjustment which will come in if you supply anything beyond April. So the IPCA adjustment trigger gets triggered every April.

Sir, just one more question related to SAE. So when do you expect the normalization of margins really or the losses in the SAE side? Is it -- can we expect it by H1 end?

So Swarnim, our target for SAE for the year has been a 0 loss for the year target. I'm honestly not very sure whether we'll be able to achieve that or there will be a marginal loss because we still see problems which we thought would get over by March have been there in April also. So I don't expect a major loss of something like what we had last year because the new projects are also now finally in execution, okay? So whatever losses, and all which we may have now, which were not sort of planned or figured will definitely should get set off from the margins from the new projects and the new tower supply orders which are coming at the current pricing. So hopefully, we should see a 0 or maybe a marginal loss, I don't know. I'll probably still stick to the 0 numbers.

Okay. Okay. And sir, finally, any growth guidance for FY '22?

I don't -- I think it's very difficult right now to give a growth guidance, but I can say and I'll stick my neck out with my order book of L1 of 25,000. We should definitely be able to do double-digit growth.

[Operator Instructions] The next question is from the line of Priyankar Biswas from Nomura.

Sir, my question is regarding that in this particular year, that is FY '21, we have seen some bit of lower ordering for railways, I mean, order inflows. I mean, traditionally, we have been seeing something close to INR 3,000 crores or something in order inflows. So what is your, like let's say, view on the railway tender pipeline as it is? And maybe some expectations of what type of order inflows we may be looking at, particularly from this division, let's say, in FY '22 or beyond?

So Priyankar, you are absolutely right. We are quite disappointed with our railway order intake for this year, okay? We were expecting to get more than INR 3,000 crores. However, 2 things have happened. One is because of COVID and a lot of changes in the government regulations. Most of the orders for the H1 or tenders were recalled and re-tendered, et cetera. So there was a generally bunching of tenders which started happening in H2. What that did was that people who have got much lower order books in railways actually went pretty aggressive on the railway bidding, okay? And somewhat, we were not in that queue. We did not want to pick up orders at lower than our target margins, plus we were seeing a lot of volatility in the commodity prices, although in railway generally that commodity prices are a pass-through. But still, many times, what happens is that if there is commodity volatility, you may still -- maybe the price relation formula may not work exactly the manner in which you want to do it. We were a little bit, I'll say, conservative as we are traditionally. So we did not go very aggressive in bagging the fewer orders which came. Unfortunately, what we are now seeing in March, April is that there have been a large number of COVID cases in the railways because of which opening of tenders and a lot of tenders and even new tenders have got a little bit postponed. There's a large tender pipeline. Let me be very clear with you. But there have been some delays and we do expect that from -- probably from next month onwards, most of these tenders would have been bid. The advantage with railways is generally in a month or so, they open the tenders and then once the tenders are opened, they do award it. Unfortunately, because of COVID, there has been some delay. We do expect that we will be able to get some good share of tenders. We have also started doing a little bit on international. We are right now L1 on a few tenders in international. But again, they have also been hit by COVID. So there have been some delays happening there in converting them into this. Our metro non-civil portion, which is what my railway business does, has been seeing some good growth. We have gotten to some new avenues. And I think that's the area where we will see more order inflow. And clearly, that's area where the competition is pretty, pretty less. So you normally have a better chance and hopefully better margins in that area.

Vimal, if I may add that in Railway business, we were slightly unlucky this year that a couple of large orders we missed by a very, very small amount. So that also was sort of unlucky situation for Railway business this year.

Yes. Rajeev, that happens in every business. So I didn't say that. Yes, Priyankar, yes.

So essentially, like it's not something that the tender pipeline has gone away. It's not like that. So maybe in the future, we may still get back to that INR 3,000 plus crores that we were doing possibly?

Priyankar, I had a revenue of INR 3,400 crores this year. And I have a growth plan for next year for FY '22. So I need to get more than INR 3,000 crores, okay? Although right now, we have an L1 plus order book of INR 7,000 crores, so my FY '22 revenues are all secured, but we need to get more than INR 3,000 crores in railways in the order intake.

And sir, my second question is regarding -- you have put some slides on ESG. So any specific commentary, like when is the company planning like, let's say, to be like carbon-neutral or, let's say, the initiatives they are taking maybe for a greener transportation? So what are the things that you are considering at the moment?

So I think it's a little bit early for me to comment on all those things. What I can say is that we have drawn up a 5-year road plan, okay, road map of 5 years on what we want to achieve. And we are in the midst of finalizing our, let's say, KRAs and what we want to do on carbon neutrality or zero-water consumption and so many other things, et cetera. And I think probably some part of it, you will see when we release our annual report because last year also we had an integrated report, but it was not that detailed. This year, we do expect to have a fairly detailed IR. And I think by that time, when we finish it, we will have much more clarity on what exactly we are doing. But we started this initiative, I think, around 3, 4 months back. So we are closer to finalizing, but not yet finalized the exact targets, et cetera. So you'll have to wait for some time for us to give you the more specific details. And if you have some specific questions, talk to Abhishek because Abhishek is part of the task force which is involved in the ESG.

The next question is from the line of Nisarg Vakharia from Lucky Investment.

Sir, 2016, '17, when we used to discuss, we have done exactly what we had guided for in the last 4, 5 years despite several challenges. 80% of your business from T&D has now come down to 50%. But in those days, we used to say that when our company crosses INR 10,000 crores top line, we will see a serious expansion in EBITDA margins. Now I understand the current state of affairs. I had 2 very simple questions. The first question is that have we seen the worst of EBITDA margins in this quarter due to commodity and commodity pressures? Or do we expect any more negative surprises, one-offs that may emerge in the near future? Second question is that structurally because our business has now de-risked from T&D, which is a higher-margin business, is it possible to imagine that the company can do 11%, 12% EBITDA margin at some point of time, which we had envisioned 2016, '17 or so? Or you think this EBITDA margin of 9.5%, 10% in a normal state scenario is a reasonable assumption to ask?

Nisarg, you have asked very difficult questions. I was hoping no one will ask me those questions. Okay.

It's my job to ask you those questions.

And it's my job to answer. So I think I don't see that we have seen the worst of the quarter, okay? Because last quarter, Q4, we did have a lot of material which was there with us from the earlier quarters also, let's say, stocks and all that. Now whatever we are manufacturing has been procured, I'll not say at very current prices, but near or a little bit earlier. We did see some anticipation in March that this may continue and we did, if you look at our inventory figure, inventory figure is higher than last year because we did procure quite some steel, et cetera, in the month of March, okay? We definitely see the headwinds to continue in Q1 on the steel side, okay? As far as others are concerned, like aluminum, et cetera, I think we have enough time to play the waiting game. I hardly am going to supply any conductor, et cetera, for the next 9 months. All my projects are doing reasonably well and whatever we had required for the physical execution and to ensure that the projects are delivered in time, we have enough of that. So aluminum, I am -- whatever we have not hedged, I do hope that in the next 8 to 9 months or next 2 to 3 quarters, the aluminum prices would come down to a more reasonable level and we will not have to face any headwind on that account. Steel, we will continue to face some headwinds. I'll not be able to tell you because I don't know the exact numbers what will happen in Q1 or this, but the other thing what I would like to say is our non-T&D EBITDAs are now close to, I think, 8% or so on an overall basis. That is Railways, Civil, Cable, everything Smart Infra and all other smaller businesses put together. Railways, as I said, has already touched 10%, okay? The other good part of it is, in Q4, the non-T&D was 49%, whereas for the year, it was 44%. And -- but the good part is most of our businesses -- most of our orders in these sectors, Railways and Civil, either have a clear pass-through clause on commodities or at least in Civil, most of the clients like to supply the cement and steel. So while we may see some headwinds in the P&D on account of steel, whereas in the other businesses, we do expect that there will not be any significant headwind on account of raw material prices. I think that's the broad outlook which I can give you. The third question was on overall long-term margins and all that. I think we have -- we are very clear and we have said that every year, we would have loved to increase our margins by 50 basis points. That is what I've been saying consistently for quite for many years. And we had been able to achieve it, except for the last year when we really got hit by COVID badly. So I think our target is, as I said, Railways is already touching is 10%. Civil at INR 1,000 crores is reasonably close. It's not a double-digit, but reasonably close. And you know how other people are struggling to even reach those sort of margins. So we have been very choosy on what orders we take in Civil. It's -- for us, right now, Civil is not a top line-driven business, okay? Otherwise, I could have got a lot more orders than whatever I got last year in Civil because Civil, fortunately, has orders coming in. But we were very choosy because at end of the year or 2, like the like we did with Railways, we want Civil also to go to 10%, at least double-digit, okay? And that's how my Civil team has been very unhappy with me on this saying that you are not letting us grow this business. Our competition is doing this and that. And we said, no. Right now, Civil is not a top line. We will grow it decently, okay, and -- but we will grow it with profits. So our target definitely is that how do we take it to 11%, 12% margins and all that. It's unfortunate that this COVID and this volatility in raw material, I don't think anyone would have anticipated that raw material prices will go like this, okay? So we'll probably -- this whole thing will probably get postponed by 6 months, 1 year whenever upward trajectory for EBITDA starts again. I think the other good part is that at least on the PBT side, you're seeing a lot of improvement by Rajeev and his team, cash flows and other things. So there, we are getting some bump-up on interest and tax also. And now that our Dubai factory is also running at full capacity, we will see some improvements happening overall. I hope I have answered all.

You answered it really well. Just to add, nobody knows how and when the commodity cycle will reverse. But whatever happens, happens very fast as the rate has gone up. Now, when that happens, does that also mean that we enjoy a phase of 1, 1.5, 2 years of slightly extraordinary margins because we have suffered when the commodity prices have been higher? Does it also mean that we enjoy a lottery for 1 year, 1.5 years? Or that does not happen generally in our business?

100%. It will happen 100% if, let me just complete, if you have bid the projects at current prices. The problem which I'm seeing, Nisarg, is that there are a lot of people who have been bidding currently and taking orders at anticipating that the commodity prices are going down, okay? So there, you will not be able to get extraordinary margin. If today I'm bidding a project with steel at INR 55,000 let's say, and then steel goes down to INR 45,000, I will make that INR 10,000. I'll give a simple example. I have seen and I've been in this business now for 19 years. I've seen orders where, let's say, aluminum was at -- we have bid at INR 2,200, it has gone up to INR 3,100 and we have finally bought it at INR 1,400, okay? It's a question of at what stage your project is? Can you play a waiting game in the project? How smartly you can execute your project, too? In a way, time is some part of your purchases. See, steel, I can't time too much because if I time steel, then my factories will shut down, okay? So steel, we have to have a continuous run to keep the factories at least its optimum capacity. But others, I think it's a waiting game which you have to play.

Right. Okay. Just a small question, if I could squeeze in, sir, if I have your permission. Sir, the size and scale that you have reached now in the EPC business, honestly, other than L&T, in our country, we have seen several companies that have reached the size and scale and then have made mistakes and faltered, and ones which were the next L&T has sort of collapsed due to several reasons. If you have looked at these case studies, what are the key risks that you see in your business now since you are almost reaching INR 14,000 crores, INR 15,000 crores sort of top line next year? And what are the risk management systems? I know it's a very broad question, sir, but I hope you get the drift of my question and where I'm coming from.

So I think one major issue which we saw from most of the companies -- you take the name, whether it's IVRCL, or whichever company you want to take, everybody went into what they call BOT projects, that's one thing, where people stretch their balance sheet a lot. And that, I think, created havoc with many of them. Second is that, I think, many of them took a top line-driven approach where they said that their top line drive company, which we hold job. So I have seen many companies which took orders in anticipation that they will be able to manage, okay? And the third piece was that most of these companies had significantly delayed order execution, okay? And any delay beyond your estimate from the original will cost you a lot of money. So I have seen many of these companies which have come in, NCLT and all that, and we have filed an expression just to understand what is going wrong and what has happened, and most of them we have seen has gone wrong because of the extreme delay in project execution, which is why I think our focus has been you complete the projects in time or ahead of time. I think that's the mantra which we have. In any project which comes to me for bidding, my first question to the tender team is that, how much early will you complete this project from the client stipulation? And if the team says -- when the team says, no boss, it is difficult, we will have delays, we don't even bid, okay? So to me, apart from margins and all that, the doability of the project in the client's given time frame is one of the most critical factors in our risk management apart from all others on margins and all that, okay? I think there are a lot of people in the queue.

[Operator Instructions] The next question is from the line of Chetan Vora from Abakkus Investment.

In relation to the SAE, can you update how much of the order is still to be executed of the fixed cost?

Sorry, come again, Chetan?

I would like to understand, of the total order book of INR 19,000 crores, order book pertains to SAE, which is reeling under the pressure...

I don't have the exact number, but it should not be more than INR 1,000 crores of SEB orders if you're asking. You wanted SEB orders, right? Hello?

The Brazilian order, sir?

SAE?

Yes.

Yes. I think the orders, which are the old ones, are hardly -- I think value would be less than INR 100 crores, okay?

Okay. So is it fair to assume that from next quarter onwards, the margin pressure, what we saw in the SAE, should subside -- should start subsiding?

Q1, under pressure, okay, because we are still seeing pressures continuing on the COVID and other front. I think we could start seeing the pressure subsiding from Q2 because what has also happened is we just started one more -- one new project execution also has started in Q1. By the end of Q1, all the 3 new projects would be under execution. So even if there are some losses from the existing project, you will start seeing margins from the newer projects. So my view is that Q1, we'll still see some pressure. Q2 is a quarter where we will -- we should see significant improvement or less pressure.

And you guided, if I'm not wrong, that at the EBITDA level, it should breakeven, right?

Yes, yes, yes. For the year, yes.

Okay. And then coming to the domestic side, the margin pressure, what we saw on the stand-alone side, on the preceding quarter, we -- it was nearly about 11%. And this quarter, it stood at 10%. So should we see a further pressure on the margins? How should one...

Difficult to say right now, but there will definitely be some pressure continuing, okay, because of the -- especially the steel prices. We are taking a lot of steps to minimize the impact by other means. I can't control the steel prices, so whatever the market, we'll have to pay for it. As I said, we are trying to optimize designs, work on other options, seeing if we can reduce our logistic cost and other items we're trying to this. But to me, at least in Q1, this pressure will continue because largely for Q1, most of the steel has already been procured, okay? So whatever we can do by means of non-steel cost and all that, we are trying to see. But the other thing is that our non-T&D revenues are going up, as I've been mentioning. So it will depend upon, finally, what is the mix of revenue which we are able to achieve in this quarter, that will decide the margin part of it. But I think, honestly, Q1 will continue to have some pressure, okay?

The next question is from the line of Ravi Swaminathan from Spark Capital.

Sir, you had mentioned that, so basically, certain countries outside India, so basically, the traction for T&D has been pretty good. So if you can talk about the geographies, regions where traction is good, so basically in India.

So Ravi, one thing is on the order book. I think our order book -- order intake grew 4x from last year. I think the year before, we had some INR 800 crores, INR 900 crores of orders. This year, we've got around INR 3,700 crores of orders from the international. So that's one part on the numbers. And we do expect that international business will start growing well this year. A large part of the order intake basically come from Middle East, okay? We are seeing a lot of traction in Middle East now, currently, okay? Oman and -- Saudi has just announced large tenders last week, okay? Then UAE, we are seeing some tenders, not that large as Saudi or Oman, but we are seeing some tenders, a few tenders coming out of the North Africa, which is part of MENA as we called it, what we call Morocco and other countries and all that. So that's one piece where we are seeing huge demand. Second is also on Africa where we are taking a lot of orders, tenders, et cetera, from Africa. So to me, those are the 2 large regions this way. And the third one obviously has been the SAARC region, which was not a great performer in terms of order intake last year. Because of COVID, one of the large orders of ours got stuck where we are L1. So I think this year, we should see some better ordering from SAARC, from Middle East, Africa. Far East, I think we have generally been getting INR 500 crores, INR 600 crores of orders in which we have got this year also. And we do expect that we will continue to get that. Brazil has done better last year as compared to the year before. I think we got roughly INR 900 crores of orders against INR 600 crores or something a year before. So those are the broad geographical countries of our orders.

Got it, sir. And the profitability of these orders would be better than overall T&D level for basically -- or company level, so in general?

Difficult to say that because what happens is it will depend upon when you have quoted and what was the commodity that time. See, one thing, most of the international orders are fixed price. And what is the assumption if you're taking on commodity, what is the assumption of taking on dollar rupee, some of them are in euro and all that. So generally, the profitability used to be higher, but of late, the variability has increased. And the other part, what has happened is that the cost of capital earlier used to be much lower internationally than in India. So the international cost of capital continues to be low, but India has come down significantly in cost of capital. So the large delta which we used to have in international orders has now come down, okay?

Got it, sir. Got it. And what is the proportion of fixed price and variable price contracts in our overall portfolio, sir, any sense?

See, the numbers can be very misleading, but the reason I tell you is that I think broadly fixed price would be around 35%, 40%. But when you take that 35%, 40% and if you look at the metal piece of that, which is what we are looking at, could vary from 10%, 12% to 14% depending upon whether it's a conductor, whether there is -- how much of steel is going and all that. So broadly, if you ask me, if you're trying to put a number to the metal piece and all that, I think the overall metal exposure which is exposed to pricing could probably be around 10% or so -- around -- a very broad number, 10% of our total order book, very, very broadly.

[Operator Instructions] The next question is from the line of Bhavin Vithlani from SBI Mutual Fund.

Question is on the working capital. We saw a considerable increase in payables, about INR 1,200 crores. Could you guide us how should one think about the working capital cycle? And what has driven this significant increase in trade payables?

Rajeev, will you answer this? I'm a bit surprised, yes.

Sure. So Bhavin, basically, what we have done is, if you recall earlier, we used to have a payable in Railway division where we were paying them very, very fast because most of the vendors were MSMEs. So the payable -- the credit period was very low, so ranging from 30 days to 60 days was generally the credit period from most of the vendors. So over a period of time and since railway turnover is also increasing at a very healthy rate, last year we grew by almost 34%, so we really worked on looking at the vendors, large vendors who can fulfill, one, our supply requirements because our supply requirement was going up. So we went to the -- some of the large vendors. We asked some of the vendors to develop the railway product and get it approved from the railway. So with the result that our credit terms in the Railway business has improved from what it was earlier. Let's say, 45 days to 60 days from now, we are getting almost similar credit terms ranging from 90 to 120 days in the Railway business. So that helped us to have the better payable on the liability side. That is one of the major reasons for, let's say, the working capital management this year. Of course, apart from that, we have continued to work on the -- reducing the DSO days. But to that extent, we have not really got the success this year, but definitely now with the Essel project now starting, so one of our large debtor issued a stock. So that, also we have started realizing. So in fact, in the month of April, we have already secured substantial amount. We have already realized from the customer. So with the -- in the next couple of months, I think we will be current on that project also. So last year, the working capital was largely managed through the better credit terms with the vendors and moving to the large suppliers. Now this year, we expect we should be able to manage our working capital by reducing our DSO days.

The last question is to Vimal. You have seen 19 years, as you said. And we have seen 4 commodity cycles over the last 19 years. And you have been able to manage in the band of 10 -- 8% to 10%. What is your thought process now? And besides one measure that you highlighted about design optimization, what are the other measures that you and your team are working on? And do you see that worst-case band of 8%, you can manage this time around as well?

So to me, the way it works out is, as I said, how can you time your execution, Bhavin. Simple example is that, let's say, you have to supply conductors, and the aluminum is today at INR 2,500 versus, let's say, you've taken INR 1,800 in your budget or in your tender. Normally, our normal practice is that whatever we quote in the tender, we will go and hedge it once we are L1. Now unfortunately, because of COVID and all that, in many cases, the L1 was declared pretty late. So that's what has caused the basic. Otherwise, as per our risk management, we have hardly had exposures to base metals before, okay? So what we've been doing is timing the project execution in such a manner that we can probably buy at a time when we want to buy rather than buying whatever is available at whatever price. That's as far as the base metal is, Bhavin. And we have been generally been able to manage the commodity cycles that way on this. As far as steel is concerned, I don't think we can honestly do very much about it because steel is something that towers and all are required and they are the first part of the project. And also that if you don't do it, then your factories run empty and your other fixed costs come and hit you. So we normally try to do a balancing between what would be my increase in my factory cost if I reduce my load and wait for the steel to come down and -- but you don't know when the steel would come down. So on the steel side, I don't think we have too much control on the timing piece of it, except that we do time it for the project's completion and all that as per the requirements. But otherwise, if it's difficult, we have seen difficult times. And also as one of the earlier participants asked, what we have also seen is that, yes, you should have the capacity to absorb it for a few months because we have always seen that the fall has been very, very sharp in all the cycles if you look at it. If look at steel and all that, the falls have been very sad. So at some point of time, the fall will compensate for the rise which we've had. So you may have some volatility. Let's say, with Q1, you may have volatility, but when you probably come to Q3, you'll see a sharp escalation in -- elevation in the margins and all that. Hopefully, if the cycle pans out in the same quarter -- in the same year, sorry, it should even out the numbers. If it doesn't pan out in the same year, then you may have some volatility in the numbers.

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

So just to reconcile, so you said during this quarter, there has not been any major impact of the raw material prices you have provided in the P&L, right, for the stand-alone? Hello?

Yes.

Yes. So my question was now on that one. So you said that 10% of the metals exposure in the order book, so if I say -- so what would be the steel open exposure right now which has gone over and above your projected costs? So can you quantify what will be that exposure which may come in, say, first quarter or maybe 6 months?

I don't know what will come in Q1 or Q2. But I think overall, our steel for this year's budget, I think, for the -- which is on fixed price, would be probably close to 100,000 tonnes.

Okay. So the prices on this would have escalated -- by any sense, like on this average pricing, which was -- these were quoted at so...

Average pricing would be different, Parikshit, for different centers, which is why it's difficult to say or difficult to say how much you will lose on each one of them or how much -- and if the prices come down, what happens. So that's a difference because they are quoted a different timing. So there are different price levels -- cost level, sorry.

But whatever is the damage which may come in, so that will be largely recorded in the first quarter. So is it the right to assume?

No, it would not be recorded in the first quarter because on raw materials, et cetera, you don't record it that way. What happens is that you will -- because raw material, nobody knows that the steel will continue at 55 or steel will go at 30. What happens normally, when you talk about loss recognition, et cetera, very clear that, let's say, you're taking a lump sum contract and the quantities have increased or something else has gone up or you have already bought at a higher price for that piece. So there's a lot of things which go into that to decide on when the impact comes. Whatever is the actual cost, that impact will come in that particular quarter. Beyond that, we have to decide whether it's a permanent cost, which you cannot recoup, or it will not happen. Depending upon that, then the proceedings are done.

The next question is from the line of Saket Kapoor from Kapoor & Company.

Sir, if I could sum it up, sir, Vimal, it is the impact of -- the inflationary impact of the higher steel prices are going to percolate for the next financial year. And that depending upon the execution of the orders, we are going to see the dent in the margins in the way forward.

Saket, I think what you should look at is Q1 may definitely [Foreign Language], okay? [Foreign Language] the question which we are all working on. Q2, Q3 [Foreign Language], okay? So to make a statement [Foreign Language] would be a little bit premature because I honestly don't know. [Foreign Language]. What has changed today, the prices are high, but steel is available, okay? If you would have gone 2 months back in March before the lockdown, the prices were high and material was not available, okay? But the seller market in terms of price, but not in terms of quantity [Foreign Language].

How has ForEx played its part, sir, for this quarter, sir, because I think the ForEx also is a good contribution to the...

ForEx this year has not been very favorable in terms of our EBITDA numbers and all that because at the start of the year, we had borrowed a lot in foreign currency. So we had created a natural hedge by not selling forward, okay? So normally, [Foreign Language]. So part of the, I'd say, interest gain and all that is also attributable to low-cost ForEx borrowing which were not hedged because we had an actual inflow against it. But now that the Indian costs have come down, [Foreign Language], you will definitely see an improvement on the ForEx gain side, which would come in your EBITDA in the top line, Saket.

Sir, if last part is, if you take the stand-alone and the console part, I think it is the Brazilian impact only that has given a dent to the PBT numbers. And as per our understanding and your summary in the call, SAE is going to perform better than what it has done for this year. And therefore, this gap between the stand-alone and the console number should even out just on the turnaround in the SAE not contributing negatively to the bottom line. This should be a fair assumption, sir?

This is a fair assumption. The only caveat I will say is, one is on the stand-alone number, you will have some raw material headwind, okay? That's what we should keep in mind. [Foreign Language] raw material [Foreign Language]. Otherwise, I think you are fairly okay. SAE [Foreign Language] we are expecting it to be neutral. It could be a little bit here and there, but I don't think we are expecting [Foreign Language].

The next question is from the line of Abhineet Anand from Emkay Global.

My question is more for -- yes, sir, more from an inflow perspective. The last 2 years, we have been doing somewhere around INR 1,200 crores. And maybe 2 years back in '18, '19, we are clocking at INR 14,000 crores, INR 15,000 crores. So how do we go to those levels? Or do you expect that to happen in '22, '23, sir?

No. I think there are a couple of things which are there, okay? One is, I think because of the volatility in the entire market scenario, we were very careful, and we are happy we are very careful because a lot of people are losing a lot of money now on the orders this year. Second is that we are very clear, we are still having a INR 25,000 crore order book plus L1. So I think we are pretty comfortable for whatever growth, which should happen this year and maybe even for 2 quarters, in FY '23. The third is that I think Railways and Civil are going to be large drivers. And as I mentioned that this year, our transmission grew by 4x international transmission, okay? In fact, if you look at our entire order book, order intake, I think if I'm not mistaken, almost 75% has come from the transmission business, okay? And so I don't think we are worried about order intake. To me, as an EPC company, order intake is not a major issue. I can always drop my margin by 1% and pickup as much order as I want to do. So what we do is that we keep it lack of my executable order book, my planned turnover and ensure that we have a reasonable amount of traction or 1.2x, 1.1x, whatever number we have in mind and ensure that we keep on having that on a -- let's say, on a floating basis on an operating basis. And I think we have never had a major issue saying that because of orders, we are not able to deliver revenue. I think that's what we are keeping in mind.

Okay. But the rail, which has not performed this year, as you rightly said, we'll be targeting around INR 3,000 crores. So that itself should be a bump-up of 10% over the last year, right?

Yes. Right. Completely agree.

The next question is from the line of Jonas Bhutta from PhillipCapital.

Congratulations on a great set of numbers. Sir, 2 questions. Sir, in the stand-alone, noticed that investments have gone up by INR 190 crores between September and March. What of that is for Dubai and how much of that is to support SAE? One question is that. And the second one, I'll just come back once you answered.

Rajeev, you want to answer it?

So Jonas, basically, majority of this amount has gone to Dubai for acquisition of the factory. And then we had to spend some amount on the restarting the plant. So we had to do some renovation et cetera. So I would say 60%, 70% of that amount has gone to Dubai. Roughly about $5 million support we have sent it to basically Brazil because they were falling short of capital because of the some losses. So we have infused $5 million additional capital there.

Got it. Got it. Sir, my second question was, sir, if you see the closing order book of SAE, and I'm sorry to harp on this, is at about a shade below INR 600 crores, so which is sort of half of value close FY '20? Now given that you plan to have a near 0 loss, sir, wouldn't SAE lead to a negative leverage? Or are you controlling costs in such a way where even with sort of a sharp drop in revenue in FY '22, you will still be able to manage at a PBT level of 0 loss?

So to me, there are 2 issues. One is what you rightly said that your scaling or looking at controlling costs. So in from operating the factory at 50,000, can you operate at 30,000 with the same returns. So that is one thing, which is clearly happening. The second thing is that there was so much of volatility in the prices there, so much volatility that we actually stayed away from the market for some time. We did not take orders. It was a very conscious decision, but obviously, we are putting in bids, but the bids are at such a high price that we now we will not get it. We didn't want to be out of the market, but we were doing that. Of late, we are seeing some stability returning on the prices front, some stability returning, okay, which is why we have taken a few orders. I think of the number which you have -- we have not yet announced a few orders where we are L1 or we are about to sign. So this number of INR 600 crores, will go up and will be sufficient for us to take care of our -- we do expect that the revenue numbers would be probably similar to what we have done this year. So FY '21 to FY '22, we may not see growth, but the numbers would be similar. So we have some orders which we are L1, some orders which we are negotiating. So I think those orders will come in time. And second thing, we really wanted to time the orders to ensure that we take orders, which come in when we finish our existing orders because there is a clear pressure on manpower and equipment availability there. And we didn't want to run 3 more projects simultaneously, okay? So they have been timed pretty well, which is why I said in the earlier part of my -- of the call that we expect 2 or 3 new orders to start to work at the end of Q1. So I think that's the way it has been planned. Unless something really untoward happens in Brazil, I think -- otherwise, I think the game plan is reasonably well laid out.

The next question is from the line of Varun Ginodia from AMBIT Capital.

Congratulations on good set of numbers. My -- I have 2 questions. Firstly, on the interest cost part as we had -- as you said that we had hedged our debt into foreign currency as we had a natural hedge in terms of inflows coming in from international T&D revenue. Now given that we are gaining traction on the international tower T&D side, do you plan to increase the share of foreign currency debt in total debt? And hence, the interest cost as a percentage of revenue, there we still have room to lower that number further down to 1.3%, 1.4%, 1.5%. So just wanted to get a sense there, how much more room do we have to take interest costs lower from current levels, if you can give some on that?

So Varun, Rajeev can talk about it, but my view is that we are, right now, not looking at increasing the foreign currency debt because for us, the Indian currency debt also is coming at a very reasonably -- the marginal borrowing is at a reasonable good rate. So I don't think we intend to increase. But maybe, Rajeev, you want to add something?

Yes. Sure, Vimal, you are right. Actually, we are not increasing the foreign currency debt right now. In fact, we are reversing some of the foreign currency that we are prepaying that and taking the rupee debt because rupee debt, as it is, the cost has come down significantly this year. And by freeing up the -- or by repaying the foreign currency debt, it is giving us the opportunity to sell a surplus foreign currency in the forward market and which has given us almost 5% plus kind of a claim. So right now, the economics is not working out in favor of the foreign currency note, and that is the reason we are reducing our foreign currency loan book and converting that into the rupee book.

Okay. So any number on the interest cost as a percentage of revenue, where do you see that number settling down going forward? Or are we already at the bottom right now, like any color on that?

Definitely, there will be further efforts to improve this cost, but I don't see a significant improvement from the current number, but definitely, there will be at least 10, 15 basis point further improvement from the 2% cost that we have achieved this year.

Got it. And second question was on the working capital side. So as you mentioned that payables cycle improved in your favor as the cycle was the -- longer cycle was there in the Railway segment. With second wave of COVID coming back in and as we have seen that last year, last couple of years, you were acting as bankers to your vendors in the supply chain because of which payable cycle was shrinking and providing your stress on the working capital side. So do you see that stress emerging again in FY '22 and maybe the working capital would not improve overall in FY '22? Like any sense there on the cycle side in FY '22 based on the current situation?

I don't think that because, see, the difference between the couple of years back and the now, as I mentioned on the call, that we were dealing with a lot of small vendors. So they didn't have the capacity to really ramp up the production and they were asking for the advance payment and there was so much of demand in the market. Now over a period of 2 years, what we have done is we have really developed vendors who are into the large category. They are people like Aditya Birla and other things. We have doubled those kind of vendors who are much better equipped to handle their own working capital. So that has, let's say, where we have been able to improve our credit terms with these vendors. Second, already last couple of years, the MSME Act came into force. So we are already paying all the MSME vendors within 45 days. So I don't think that it can cause any further disruption in the current COVID year because the supply chain is very well established. And some of the things we have already moved within our own factory. So we are doing a lot of manufacturing of structures, which is required for our own project. We are doing catenary wire conductor. So large part of the supply chain which we are actually procuring from the external vendors earlier, we have already started manufacturing in our own factories. So I don't think that this COVID can disrupt my supply chain any further now. It's pretty stabilized.

The next question is from the line of Ashish Shah from Centrum Broking.

Sir, just a question on the India business. You do -- I mean, we did say that the -- most of the India businesses have the price variation close. But are the underlying indices keeping pace with the change in the commodity prices? Or you think there is going to be some lag of maybe 3 to 6 months by the time the catch up? That's it for me.

Difficult because I'll tell you all, let's look at this way. The indices which the transmission industry follows are fairly, fairly current, okay? So they keep -- as far as railways are concerned, again, the indices are generally okay. In fact, some of them are more favorable to the contractor. Civil is one place where in some time -- and unfortunately, in Civil, what happens is all the clients are different, so they have different indices. So on Civil, I will not be able to make a straight statement that in every case, we're getting a positive thing. There may be some cases are slow to catch up. That's where we are -- I talked earlier about the timing, the -- when you want to procure, what you want to do and all that. The flip side or the other side of the coin there is that wherever the indices are slower to catch up, they are also slower to fall down when the prices go down. And our experience has always been that way, that over a period, the indices get neutralized because they go up slowly, they come down slowly. So when the prices come down, you make a lot more money on the price variation. So to me, wherever there's a price variation clause, unless it's a very extreme clauses, some clients do have very, very different clauses where they may say that if is not more than 10%, we'll not pay you. So those are almost like fixed price contracts. That's the way we look at it. Otherwise, generally, whatever may be the index, over a period, the impact will definitely get neutralized.

The next question is from the line of Swarnim Maheshwari from Edelweiss.

Sir, just one question. So on this [indiscernible], what was the provision that you had made earlier that we can actually use it as a cushion? And what is the quantum that we have received in April? Rajeev mentioned about that.

Swarnim, I would not like to give the amount because they are private clients. We're still discussing with them. There was a provision made, which will get reversed. Not a large provision, but there will be some provision, which will help us. And I think roughly, we have got, out of our exposure, I'll say probably almost 35%, 40%.

Okay.

Yes. Swarnim, that was an agreement which we had on how the old outstandings would be paid. And as part of that agreement, the payments are being done.

That was the last question. I would now like to hand the conference over to Mr. Vimal Kejriwal for closing comments.

Yes. I think, thank you, everyone, for your participation and your continued interest. Please stay safe. Thank you so much. Thank you.

On behalf of KEC International, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.