KEC International Limited (KEC) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the KEC International Limited Q2 FY '22 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Vimal Kejriwal. Thank you, and over to you, sir.

Thank you. Good morning. I welcome you all to the Q2 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 our recent acquisition and thereafter talk about the overall performance for the quarter and half year and each of the respective businesses. We had launched our oil and gas cross-country pipeline business in line with government's thrust in this sector and our vision to strategically expand our business portfolio into adjacency. To accelerate growth in the business, I'm happy to share that we have completed the acquisition of 100% equity in Spur Infrastructure Private Limited in October '21. Spur Infra is now a wholly owned subsidiary of KEC. Spur Infra incorporated in 2016, is an EPC company engaged in setting up cross-country oil and gas pipelines and city gas distribution networks. In the last 3 years, Spur has an annual revenue in excess of INR 100 crores each year, a profitable track record, technical expertise and experienced manpower. It has an order book in excess of INR 600 crores, comprising of cross-country pipelines and city gas distribution network projects from marquee customers. The acquisition is in line with our strategy for adjacent growth. This acquisition will enable us to capture the lucrative growth opportunities in the oil and gas cross-country pipeline EPC sector in India as well as in the international markets, especially in MENA and Africa. Now coming to the performance for the quarter. We have achieved revenues of INR 3,587 crores, which is a growth of 10% on a consolidated basis and 18% on a stand-alone basis vis-a-vis Q2 last year despite the challenging environment which we are all seeing. The growth has been delivered by good performances in all our businesses, such as T&D excluding SAE, civil, railways and cables. The growth could have been higher but for the intermittent COVID challenges faced at some of our projects, especially in international locations and volatile raw material prices. We continue to consciously regulate the supply of towers and conductors to some of our projects where the schedule permits. Notwithstanding this, considering our current order book and L1 position, we are very confident of our continued good growth for the balance half of the year. Despite significant challenges, we have achieved EBITDA margins of 9.4% at the stand-alone level and 7.1% at the consol level for the quarter. The consolidated EBITDA margin for the quarter has improved by 80 basis points sequentially. During the quarter, we have an exceptional write-off of INR 43.6 crores towards the legacy arbitration case in South Africa, which has been decided against us this month. This was an unfortunate development. We had won this legal case at 2 different levels. Unfortunately, at the final level, we lost this case, and this came as a big surprise to us all also. Excluding the impact of this exceptional item, we have delivered a PBT margin of 6.7% at the stand-alone level and 4% at the consol level. Our stand-alone PAT margin stands at 4.9% and consol PAT margin at 3.1%. The margins have been impacted primarily due to the elevated commodity prices globally and the continued cost time escalations in S.A. Brazil amidst the pandemic. We continue to have good order inflows. Our YTD order inflows stand at INR 7,386 crores, including the recently released order of INR 1,829 crores. This is a strong growth of 70% vis-a-vis last year. The largest contributors in the order intake have been our international T&D and civil businesses followed by railways. Our order book, including L1, as on date stands at an all-time high of INR 28,500 crores, including Spur Infra of INR 600 crores and L1 position in excess of INR 7,500 crores. We have a well-diversified order book across businesses with an equal share in both T&D and non-T&D business. Our net debt as on 30th September 2021 stands at INR 2,801 crores. While the closing borrowing is slightly elevated due to some delays in collection from railways, our average borrowing continues to be largely in line with our targeted average borrowing levels of INR 2,500 crores for the year. Our interest cost continues to show a declining trend and has improved to 2.0% for the quarter of sales against 2.1% in Q2 last year. Now coming to specific businesses. Our core T&D business, excluding SAE, has delivered a growth for the quarter despite the various headwinds. The momentum in T&D order intake continues with new orders of over INR 3,000 crores, led by significant orders in the international market, especially in the Middle East and Americas. We have expanded our international footprint further with our first T&D EPC order in Europe. The overall tender pipeline in T&D continues to be strong in the international market. In Afghanistan, the situation continues to remain fluid. We currently have 5 projects under execution, all are funded by international funding agencies and are critical for the country. We are in constant touch with the various governmental authorities and the multilateral agencies and expect resolution in the next few months. In Brazil, as conveyed in the last earnings call, the 2 legacy projects are expected to be completed within this quarter, Q3. Additionally, work on the 3 recently secured EPC projects are going on as per schedule. We have also secured a few large tower and hardware supply orders in Brazil. Execution of one of the supply orders has already commenced during this month. Our Railway business has achieved a revenue of INR 1,000 crores for the quarter, delivering a strong growth of 20% vis-a-vis Q2 last year. The business has secured orders of over INR 1,200 crores YTD in conventional OHE as well as orders in the new areas of speed upgradation, port connectivity, OHE and Third Rail for metros. The railways tender pipeline continues to remain robust with a blend of conventional, technologically enabled emerging areas as well as international opportunities. With the continued thrust on execution and an order book plus L1 of over INR 6,500 crores, we remain confident that railways will continue its revenue growth trajectory for the year. Our Civil business has delivered another quarter of strong performance with revenues of INR 450 crores, an impressive growth of over 2x vis-a-vis Q2 last year. The growth has been delivered on the back of robust execution in metro and industrial projects. I'm happy to share that we are on the verge of completion of our first metro civil project for Kochi Metro. We have already handed over to wired-up portion and work on the stations are nearing completion. The business has also commenced execution for the recently secured order for Chennai Metro. Additionally, the business is L1 in a second wired-up tender in Chennai Metro. The physical progress achieved in all our metro projects reaffirms our confidence of this segment contributing to our growth significantly going ahead. In line with our strategy to diversify new growth areas in civil, the business has secured a breakthrough order in airports, which marks our entry in the growing public spaces segment. Additionally, the business has also reinforced its presence in the water segment and in the industrial segment with orders in metals and mining, data center and FMCG segments. With a robust order book plus L1 of over INR 6,000 crores, we are confident that this business will continue to be one of the key growth drivers for us in the coming quarters. Our Cables business achieved revenues of INR 356 crores with a robust growth of about 40% vis-a-vis Q2 last year, contributed by the growth across all segments. The business is progressing well with the development of new products. It has received approvals for a few new products during the quarter. In solar, we have successfully completed and commissioned one of Asia's largest carports, a 20-megawatt peak solar carport project for a leading automobile manufacturer. Additionally, we have also successfully charged a 13.6-megawatt rooftop solar projects for a corporate client. In smart infra, the Aurangabad and Bidkin smart city projects are on the verge of completion, and the execution of the projects for integrated perimeter security system for defense airports is on track. Overall, we are pleased with the growth in revenues and order intake despite significant challenges. The business environment continues to be uncertain with the prevailing commodity prices and pandemic scenario. On the positive side, we are witnessing a gradual revival in the outlook in Brazil as the 2 legacy EPC projects, which have impacted our performance in the recent quarters, are scheduled for completion shortly. On a concluding note, I would like to convey that with the traction in order intake, a robust order book plus L1 of INR 28,500 crores and a strong tender pipeline, we are confident of delivering a continued good growth in the coming quarters. Thank you very much. We are open to questions now.

[Operator Instructions] Mr. Bhoomika, please go ahead with your questions.

Sir, just wanted to understand the margin profile given the current escalation in raw material prices. Why SAE will kind of get settled into the third quarter? But as we move ahead, I remember we had kind of indicated earlier that these kind of restricted our conductor supply. So with the kind of movement in aluminum prices, what is the kind of impact in terms of margin profile? And could there be an impact if we continue to delay our conductor supplies in terms of revenues? And if you can talk about how the new order bids are happening? And what is the competitive intensity across segments in view of this escalating raw material prices?

So Bhoomika, the margin profile on non-T&D is clearly right now better than T&D. Because in T&D, we are executing many of the older projects. And many -- quite a few of them do not have a pass-through clause. Whereas in civil and railways, generally, there is a pass-through clause. So with a 46% non-T&D business, I think our revenue profile -- our margin profile will improve further. But even if you look at order book also, there's a same change with our non-T&D improving. But that's one part of it. As far as aluminum is concerned, I think the good part is, if you look at the overnight rates today, aluminum has come down by almost $300. So today, it's now 2,600-odd against the 3,000 which it was a day before itself. As far as the conductor supplies are concerned, whatever is required for our project progress has been supplied or is being supplied. So in a way, nonsupply is not going to impact any project progress. It is definitely impacting revenues, which is why you can see a slightly lower growth of revenue this quarter. We could have done much more had we supplied conductors, but we do not want to take losses today when we don't need them badly. Coming to the new projects and all that, we are clearly bidding at the current margins, current costs and all that. And so I think from Q4 onwards, we will start seeing execution happening of the newer projects, which will obviously pull up the entire margin scenario. You had one more question, Bhoomika. Sorry, I missed the last one.

So maybe could you comment on the competition, how competition across various segments? So if you can talk about that, particularly in terms of railways where the order inflow has been slightly muted? So from that perspective.

So Bhoomika, I think the competition is a challenge, especially wherever there is a much larger civil portion. So in railways, if you look at, let's say -- let's just stick to metros. Most of the electrical OHE signaling, there will be 3 or 4 parties or maybe 5 parties maximum. Wherever there is a civil portion involved, we are seeing a huge number of civil contractors, especially from the road sector and Tier 3 contractors. Because as of today, I think there is no requirement for a bid bond. I think it's expiring on 31st December. I don't know what the government wants to do. So we are clearly seeing that since there's no bid bond required, I know recently of a railway tender where we had not bid, which was a pure civil tender, there were 53 players coming in, 5-3, but that was a pure play civil. If it becomes a technologically intensive or EPC where engineering and all is required or let's say the size is about INR 200 crores, INR 300 crores, then the number of competitors start tapering in, and many of our larger projects like our viaducts and all that, we are seeing 2 players, 3 players, 2, 3, 4 maximum. If you look at water projects, we have been having 8, 9 competitors, but on the larger ones, restricted to 3 or 4. So project size-wise, we are still seeing quite less competition. It is 300, 400, 500 below that. On the civil portion, a lot more competition. But if it is technology, lower. Internationally, the competition continues to be similar, 4, 5, 6 players. I have not seen any increase in intensity. I hope I have answered that question.

Yes, sir. Sir, just one more if I may squeeze in terms of outlook, in terms of order inflow. Obviously, there has been an improvement, and we have a very healthy L1 position. But what is the kind of bid pipeline across various segments and particularly transmission in the international and domestic market?

The pipeline continues to be around INR 60,000 crores, INR 65,000 crores between the various businesses, of which half of them -- typically have been bid, half of them are yet to be bid. India pipeline is slightly weak, but I think international pipeline continues to be very strong, especially on the Middle East. And now we are seeing something happening on the far east side. So Thailand, et cetera, where there was a huge impact of COVID. Bangladesh, there are a large number of tenders, which have been quoted and which are going to be decided in the next few days. So I think tender pipeline on T&D international, we are pretty happy. India, we have to wait and watch. There are quite a few TBCB projects, which are now getting into bidding and all that. So we may see some improvement happening in India pipeline also, but it's a little bit, I'll say, far, far away.

We'll take our next question from the line of Ajinkya Bhat from Macquarie.

Sir, 2 questions from my side. Number one, if you can give us some sense of what is the composition of our order backlog in Civil segment in terms of private versus central, state governments and PSUs? Because it seems like you have been doing a lot of industrial factories and these kind of projects for many other clients. And any comments on related margin profile in private orders versus government? That's the first question for Civil segment.

So Ajinkya, I don't have the exact breakup. But I think ballpark, industrial orders would probably be around INR 1,000 crores or so. Maybe Abhishek can later on give you, but I'm just giving a ballpark number. It should be around INR 1,000 crores or so. Margin profile does not change so much because what happens is the industrial projects are all -- people [indiscernible] factories yesterday once the Board approves it. So they are all 6 months, 9 months. Max would be probably the 12 months projects. So margins will typically be between 8% to 10%, 12%, depending upon the size of the project. PSU projects and all that, which are probably 90% -- sorry, 80% of our profile, largely because of 2 major jobs which we have. We are doing 6 metro viaducts, and we are doing right now 4 water pipeline projects. So water would be roughly about INR 1,000 crores. And metro, I don't know have exact unexecuted value, but it would probably be around INR 2,500 crores, INR 3,000 crores plus we've got some L1s also. That's the broad number, plus we've got a few defense orders on civil side. So you can take it around, let's say, 80-20, 80% public, 20% private.

Okay. Okay. Understood, sir. And sir, secondly, I just wanted to understand any guidance on order inflow because YTD order intake has been about INR 74 million, your L1 came in another INR 74 million. So we are already reaching INR 15,000 crores as on today with second half to spare with INR [ 65,000 ] crores of tender pipeline. So is it possible you can take maybe INR 17,000 crores, INR 18,000 crores, INR 19,000 crores kind of order inflow? Any broad sense on that? You don't have to give exact number.

So Ajinkya, if you ask me internally, we would love to do around INR 18,000 crores. That's a broad number which you've been thinking [Foreign Language] Now whether we will be able to convert everything into orders or not? But I think with quite a few tenders now opening in L1 et cetera, I'll say that order intake plus L1 should reach around that number or maybe slightly higher if we add both of them together. Order intake by itself with INR 7,000-odd crores and INR 7,000 crores of L1, I think at least INR 14,000 crores, INR 15,000 crores should definitely happen. Our target is to go to INR 18,000 crores. Let's see if we can reach there. Otherwise, we'll have some large L1, which should probably get converted into in Q1.

We'll take our next question from Vivek Ramakrishnan from DSP Mutual Fund.

I have 2 questions. I'll just ask them sequentially. First one is on the T&D international business. Going off from the first questioner, you said that the competitive intensity is not very high in the business and it's normal, but everybody -- all the suppliers have been bleeding with the raw material margins. Is there a better way of doing this business? Is there any change that can be done in terms of hedging your raw material margins or moving to a floating price contracts, for a lack of a better word? That's the first question. The second question is in terms of working capital. I guess you stuck to a broad guidelines, but is there any sense that there will be any enough -- the funds from railways will be released shortly? Or has there been any movement in the receivables? Those are my questions, sir.

So Vivek, on the second one, receivables, I think apart from railways, that also in the last couple of months, we have seen some delay. Already this month, we have seen a lot of inflows happening from railways. We have not seen any stress on working capital otherwise that way. Yes, there have been requests from suppliers and all that, so that MSME and SME and other suppliers still continue to be under stress. So we do keep on funding them, so there is a large increase in acceptances more to accommodate suppliers and then because we need them. As far as international is concerned, what you need to understand is that we have got orders, which are divided into transmission and substations. Substations are not facing that much of a problem on the cost side because more or less the tenders are -- when you bid for them, you get fixed prices, et cetera. But there is copper variation, but normally it's okay. So I don't see a major issue. And fortunately for us this time, we are already -- I think our order intake has 5 or 6 substations. Almost 50%, I think, our international order intake is from substations this time. Coming to your main question, saying, can you change? Very difficult, the way that contracts are bid. I think what has gone also wrong this year, especially on the numbers, has been an unusual delay in award of contracts because of COVID last year. So many of the contracts which we had bid in, let's say, March '20 and all that, got awarded by December '20 or Jan '21, by which time, the commodity prices have moved significantly. That is not a usual practice. As a company, our practice is very clear. Where the tenders are open and we are L1, we go and hedge, at least whatever is hedgeable. Still it's not hedgeable, but at least aluminum and copper, we would definitely hedge it. But if the tenders have not been opened, then there's a problem because you do not know whether you will be L1 and if you hedge and then the prices come down, you have another issue. So what we're trying to do is we're trying to see if we can limit our exposure as a percentage to such contracts, which are not opened and all that, so I think we're trying to rework some of our hedging strategy. Unfortunately, this time, the entire metal, let's say, intensity has been for a much longer period. Generally, we have not seen cycles continuing for so long and over the life of a project, if the prices have gone up, they do come down by the time we finish. This time, they had continued for longer. Hopefully, we have started seeing meltdown happening, copper meltdown to 9,500; aluminum is 2,600 and all that. So I think they're coming in the normal cycle. Honestly, we do not see way of -- getting out of this unless we decide to quote only for price variable contracts, which are not -- generally not done. Middle East doesn't have it. Africa doesn't have it. So SAARC and all -- countries which are near India and all that, that's an area where typically we have seen pricing variation. But otherwise, normally, we have not seen price variation in international contracts. The other part which I would like to say is that if you look at the component of our transmission line, the items which are hedgeable are only aluminum and copper, which will be 30%, 35% of our total cost versus steel and construction. So it's not that bad. It's unfortunate that we had a year's backlog in opening of contracts and simultaneous significant change in the pricing. And I think we are now getting over it. Most of our -- I'll say 60% -- 70% of our steel has already been supplied over the last 2, 3 quarters. We only have now 30%, 40% of fixed priced contracts. And also, with the new contracts coming in, we will start seeing an upward movement in this [ space ].

Sir, if I can squeeze one more question. So contracts -- door-to-door transit contract, what is the time line that you take for a typical contract, average is fine, sir?

Average would be probably around 15 months or so; maybe from 9 to 24, but average, I'll say, it would normally be around 15 months.

We'll take a next question from the line of Khushboo from Quant Mutual Fund.

My question would be, if you would give -- if you could give the bifurcation within -- like revenue mix between the different segments of the company?

I thought we have given it in the investor presentation. Do you want anything beyond that?

Actually, I couldn't find.

The presentation has breakup between various businesses? Is there anything specific you're looking for?

Actually, I couldn't find it in the investor presentation. I'll have a look at it again.

Please have a look at. Our non-T&D was 46%, T&D was 54%. So we have given it business-wise also. So have a look at it. If you need something more, please talk to Abhishek. We'll be happy to give it.

We'll take the next question from the line of Priyankar Biswas from Nomura.

So my first question is regarding Brazil. So as you said that by 3Q, legacy projects would be over. So my question is how much in the order backlog right now is of legacy, so that we can like that see how much revenues we can expect from that? And lastly, since the legacy contribution would be much lower in size for the season 3Q, so can we expect a meaningful jump in EBITDA margins, let's say, in the third quarter itself? So what's your assessment on that?

So Priyankar, the order book for these projects is very less. Most of it has already been exhausted. Now we are incurring cost to complete that, okay? So I don't see -- I don't have the exact number, but maybe INR 50 crores or INR 75 crores [Foreign Language] there won't be revenue from these projects. There will definitely be some costs being there. We have got claims and all that, so we are working on that. Will there be a margin improvement from Q3 on this? I doubt about it. It should be from Q4. But we do expect that there will be some reduction in losses in Q3 because we are now on the verge of completing that. But a meaningful turnaround of Brazil becoming positive, if that's the question, it should probably happen from Q4 or even if it doesn't become positive, I don't see any significant losses or anything coming in Q4. I think Q3 should be the end of it.

Sir, this is pretty helpful. So another question from my side is, like you had highlighted that in this particular quarter, there were some challenges, especially on the supply chain and other constraints, especially for the international. So if such constraints were not there, let's say, you did not have to regulate the supplies for fixed price contracts, so can you give a rough ballpark idea like how much higher the sales could potentially have been?

Probably another 10%. We should have had -- we could have easily had a revenue of -- we could have done at least another INR 300 crores, INR 400 crores of revenue.

Okay. And sir, the last question from side is, like in the industrials, you are doing -- you are getting some -- like in the civil side, you are getting some industrial projects and that segment has been picking up for you over the past -- the evolution that we see. Now one of the largest civil construction companies has highlighted that probably from FY '23 onwards, we could be seeing a meaningful revival in private CapEx and private investments. So what's your take on that? And how big can the -- specifically this industrial segment can flow for you, I mean in the [indiscernible]?

Industrial segment is already seeing green shoots, so I do not know why -- I don't want to wait till FY '23. Because we have already -- I think in this quarter, we actually got 5 or 6 new orders from industrial segment. And slowly, slowly the segments are getting diversified. Earlier, we were -- we have become more a cement company where any -- so all our initial orders were for setting up cement plants. Then we now are working with, I think, all the steel companies. Now we also have got -- this quarter, we got order from 2 more metals and mining companies, 3 orders at least from metals and mining. Then data centers, and we've got an order to set up a new carbon black unit. So I think we are slowly seeing -- plus, I think, one1 we are getting in a chemical also. So I think we're slowly seeing the CapEx cycle spreading over many of the industries.

Sir, any estimation like what sort of growth can we see, like, let's say, in the next couple of years, any ballpark?

So Civil business by itself, let me put it this way, this year, we should be doing [ 2,200 ], which will be a 100% growth. Next year, we expect the business to grow by at least another 50% or so. Private, we honestly do not pick too many private orders because of the pressure on execution. And then later on, most of the private sector, we do see a lot of hassles on getting the last mile payment, et cetera. So we have been a little bit choosy on private sector. I think our private sector will also grow similarly in the 20%, 40% or at least this -- now it's at a lower base. This year or from next year, it may go by 50%. After that, we'll have to see how it shapes up.

We will take our next question from the line of Swarnim Maheshwari from Edelweiss.

First, if you just highlight what's the total project size of the 5 projects in Afghanistan that we have, which is halted right now?

I don't have the exact number. [Foreign Language] as far as I remember. I can give you later on number.

Not a very big number?

No, no, no. I think most of all -- what I know is, Swarnim, out of 5 projects, I think the completion varies from 60% to 80%. So it's only -- basically the construction piece of most of the supply is balance to be done. So this is normally much lower in value.

Right. Yes. Sir, second thing is on the balance sheet side. Now there is a sequential jump actually in our working capital by almost about 10%-odd. So this is just owing to the delays in the collection from the railways or is there something else?

Rajeev, do you want to answer this question?

Yes. Okay, Vimal. So basically, half of the railways delays, the working capital slightly is limited due to [ 3 ] reasons. One is that, there has been a significant increase in the prices of [ raw materials ]. So that has also led to the increase in that inventory levels in terms of the price. In terms of the volume, more or less, it continues to be the same because there is also -- in between there's a shortage of raw material. But the price increase itself at 30% to 40% had led to the addition in terms of the value -- or volume of the -- sorry, value of the inventory. Second it that there has been losses in the [ inventory ]. So that has led to the additional funding for SAE business. And the third one is, the Afghanistan collections have slightly now -- taking time because we had received the last payment around 17th or 18th of August. Since then, the collections were virtually stopped, and we are in touch with the various funding agencies who have completed projects in Afghanistan as well as the client. So they are responding positively, and they are working out ways and how they can clear some money [ indirectly ]. So these are a few other reasons, which have actually led to the elevated working capital during this quarter.

So Rajeev, is the receivables from Afghanistan sizable?

So we will -- we are likely to visit -- so right now, we are working out the modalities with our funding agencies to receive the payment. Because, as you know that right now, U.S. has choked all the funding lines to Afghanistan. So earlier that payment routing used to be through Afghanistan for these payments. But since Afghanistan is currently blocked, so we are working out the alternative methods with our various funding agencies how we can realize our payment for the various progress bills and other bills that we have reached.

We'll take our next question from [ Saket Kapur ], an Individual Investor.

Sir, firstly, as you articulated about this change in the commodity pricing, sir, can you work out with a new normal now [Foreign Language] aluminum prices going down by $400 -- $300. So now this has become a new normal that $200, $300 up and down movement can happen within a fortnight. So if commodity has fallen by $400, it can move up by another $300, $400 in a fortnight. So how is our company now going to align itself to the new normal with respect to these commodity prices, sir, if it happens for a sustainable period of, say, 1 or 2 years down the line?

[Foreign Language] which I don't think is practically possible. Second piece is that you can fix up a risk management limit and say 10%, 20% [Foreign Language]. And the third one, which is probably more practical is, you will start building a much larger cushion in your tender costing. [Foreign Language] Now in the normal course, probably you would have taken 2,600 if I have to quota a tender today, 2,700. Now when we see today [Foreign Language] so we may start quoting at 3,000. [Foreign Language] The markup or the firming up, as we call it, will become much higher if the volatility continues. But as I said earlier, regularly [Foreign Language] We're still losing money for the older contracts. But I now have contracts which I've bid at 2,900 and 3,000. Now I'll supply them at 2,600. So generally [Foreign Language] over a period [Foreign Language] unfortunately [Foreign Language] last year March, the prices had gone down significantly [Foreign Language]. And then suddenly, what happened is, there was a shortage and price went up to 3,000. You won't see such swings [Foreign Language] that you can absorb in a tender costing. So I think this was a very unusual swing because you suddenly have very low prices at start of the COVID, March, April, May, June [Foreign Language] the metals and all were at the bottom. And suddenly, it went to the top. I don't think we have seen such swings generally for the last 18, 20 years I've been in this industry. [Foreign Language] I think we are realizing some of our risk management policies to ensure that these do not happen. The second piece also is that last year, because of COVID, the market and the tender pipeline had slowed down. Because of this, to protect revenues, what we also decided is that [Foreign Language] So the circumstances are changed. So I think you will see a significant change in the way tendering is happening in all these markets.

Sir, for the Spur Infra execution, sir, can you -- on an order book of INR 600 crores, what kind of execution are we expecting for the current year and the ForEx impact also for this quarter? And lastly say, the SAE contribution for the second quarter in terms of -- the revenue, I have the numbers. How was the bottom line [Foreign Language]

[Foreign Language] They will do around INR 150 crores. [Foreign Language] so roughly anything between INR 60 crores to INR 75 crores of revenue will come in our books and consolidation of Spur this year.

Right, sir. SAE [Foreign Language]

[Foreign Language] Q4, I think hopefully, we should start seeing a neutral or positive number. [Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] Third quarter, it would be...

[Foreign Language]

[Foreign Language] Only the delta, whether it would be in the similar way or we will be positive or neutral or...

It should be lower than the first 2 quarters, definitely.

Okay. And lastly, the ForEx part, sir. How was the ForEx contribution?

[Foreign Language] Rajeev?

Vimal, you are absolutely right. So for the 6 months' period, it is about INR 40 crores. And for the quarter, it is roughly about INR 5 crores.

We'll take the next question from the line of Deepika Mehta from Axis Bank.

Can you elaborate on the activity that you're seeing on the airport side and also on the smart city side, particularly looking for -- what airports and what smart cities are in momentum?

Deepika, in airports, I'm not seeing much activity right now happening. I think government was more on privatizing and all that.

Sir, your comments mentioned airports?

So what I'm saying is that we've got a first airport. We have bid for a few more, which are more on the Northeast side and all that. We did lose -- I think we had bid for Rajkot which we lost. For some time, there has been a little bit of a flux in the airport, but now government has again announced that they want to build some 220 new airports and all that. Then also, there was a change in airports authority management, et cetera, and new minister has come. So now I think we expect to see a lot more action on new airports being built. And the second one?

Smart city.

Smart city, unfortunately, the way I'm looking at, I think most of that money has got diverted to COVID relief and health care and all that. So obviously, smart side, we are not seeing much, much happening. Hardly, one tender in 2 months or something. To me, I think, right now, there's not much action, let me tell you very frankly.

Okay. Okay. So just to understand, in smart cities, how's the funding -- how does the funding happen?

Funding is a mix of -- part comes from the state, part from urban development, center.

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

Sir, on the working capital bit, you did mention that railways is one of the issues. So is it because of some fund crunch at the railways, you're not getting paid or there is delay in certification? Because what I actually see is their contract assets have gone up, which might indicate that maybe there is delay in certifications or there is more [ funding ]. So if you can just highlight that?

Ashish, the first one, basically, there is some delay happening, I think, in the raising of funds and all that. Maybe they are looking at how to raise because passenger trains are not running regularly. So cash was a little bit impacted. And delay in certification is a consequence of that. Because I'll tell you, in many of the railways, PSUs with whom we work, they have a practice that they will keep only 1 bill in the pipeline. So if they have not paid my previous bill, they will not upload the second bill in the pipeline. So it remains sort of, what you can, unbilled or in contract under execution. So the second one is the consequence of the first one.

Got it. Do you see that improving anytime soon?

Definitely. I think it has improved already. In this month, we have collected more than INR 200 crores in railways already. So I think it started to improve. There must have been some, I don't know, crunch or whatever happens. But otherwise, we've never faced a problem. And I don't think we will face the problem. It should get resolved.

Sure. So can you leave us with some guidance that you can for the full year in terms of what revenue growth you might be looking at consolidated level? And what is the kind of margin that you may expect?

Revenue, as we have been talking about, 15% growth. And for the half year, we are at 12%. So I think we are reasonably confident that we will be able to grow a 15% growth with the current order intake, which we -- order book which we have. Margin looks difficult to give the number right now. We were at 6.3% in Q1, 7.1% now. I think we probably would like to go to -- I don't know if Abhishek can come with the numbers or not because metal prices and all are in this. Definitely, we feel that H2 will be much better than H1 in terms of margins. Whether we'll do 8% or 7.75% or 8.25% or 8.5%, I'm not sure. But it will definitely be much better than the current H1 numbers.

Our next question is from the line of Harshit Patel from Equirus Securities.

Sir, could you give any idea on the HVDC pipeline on the domestic T&D front? So do you see any new projects coming there? What could happen in 3 to 4 years? And the follow up to that would be what is our margin profile in this kind of projects? Do we get to earn significantly better margins that the usual T&D business?

You're talking about HVDC lines? I have not seen any new HVDC lines being not except, I think, there are 1 or 2 private lines coming up in Mumbai on HVDC basis. That is right now -- right now, there's no other HVDC on the -- there is a talk about the Leh-Ladakh ones, one is a solar project at Zanskar. And there's a large talk about [ at ] being an HVDC line. But as of now, I don't think they have firmed up or whether it will be HVDC or not. So apart from couple of private sector HVDC lines, I don't think we are seeing any significant HVDC line coming up, no. The margins would be, I'll say, better not for us as an EPC contractor. We'll be generally okay with similar margins. For us, it's like bidding any other line. But for HVDC equipment suppliers, obviously, that's a monopoly business between -- I think in India, we're only 2 of them. So they will probably have a much better margins.

Right. And sir, the second question would be on the railways front. So you earlier indicated that we had already started bidding for a few projects on the international arena. So has there been any significant movement in the L1? Which of these countries would be? And when do you think we can get our first order on this front?

So we've bid in 3 or 4 countries, I think 4 or 5 -- sorry, I think 4 countries we've already bid. So we do expect that during this financial year, we will end up with at least 1, if not 2 orders in the international.

So is there something in L1 at the moment on this front?

Yes. There is 1 L1 in this. Yes.

Our next question is from the line of Rita Tahilramani from Invesco Mutual Fund.

One question is in terms of this [ net indebtedness acceptances ]significantly increased in this particular quarter. What could be the expectations by the end of the year? One. And secondly, also wanted to understand cost of debt.

Rajeev, you want to answer this, please.

Yes. So basically, Rita, these are the -- we are trying to elongate the period for the various trade creditors by -- through this acceptance route, wherein we are able to reduce the interest cost significantly. Whereas a lot of smaller vendors, they need the cash, so we are able to discount those bills with the banks at a significantly lower interest rates. So that is the reason this interest -- this acceptance amount has gone up. So that is -- it is helping us to increase the payable days as well as meet the requirement of the vendors in terms of the [ good ] payment with a minimum cost of funding.

Okay. And what could be the -- ending debt maybe, say, by FY '22 end?

My sense is that this acceptance level should continue at around INR 1,500 crores or so, which is actually at the current level.

Okay. And gross debt basically?

Gross debt right now is, let's say, close to about INR 3,000-odd crores. And we expect a better collection in the second half in railways. As Vimal has already mentioned that we started in some green shoots and started getting more collections. So I think the overall guidance for the borrowing level is about INR 2,700 crores. We should be able to maintain within that in the second half.

Okay. And what is the current cost of debt for us?

The cost of debt varies from 1%, 1.5% to going up to 5%, 5.5% depending on the instruments that we are using for -- taking the working capital borrowing. Because largely, our borrowing is for working capital, and there are various instruments that we use for taking this working capital from [ PCFCs ] to working capital demand loan. We use a lot of commercial people in the market. So rate varies from the issuance instrument. But generally, it is in the ballpark of less than 5%, average cost of borrowing.

[Operator Instructions] Our next question is from the line of Harsh Bhatia from Emkay Global.

I just had 2 questions. Sir, what sort of projects are we booking under the spec-enabled emerging metro segment? Because this is the first time that this restriction has popped up. So I think you have already alluded to the sort of new opportunities that are coming up in the metro and the railway electrification part. So if you could provide some more granularity about this project that we have reported?

So Harsh, this will be basically what we call power supply contracts. This could be what we call Third Rail OHE. This would be Balastless track. So also signaling and telecommunications. All of them are to -- for metro. Apart from metro, there is a train collision avoidance system, which is a new thing, which is coming up in the conventional Indian Railways. That is one. Then there are some very smart modernization things happening on signaling and telecommunication and Mission Raftaar for increasing the speed of trains on the conventional piece between some of the metro cities, which require a different type of OHE and signaling. So all those come into that.

That's helpful, sir. Just one last question from my side. Regarding this Spur Infrastructure acquisition, we already have an order about of INR 600 crores, INR 700 crores approx. So would the current management continue to oversee the operational aspects or would KEC management take over the entire operational aspects of the business? Because this is sort of a new business for us, right? So what sort of thinking does the KEC management has over there?

So Harsh, 2 things. One is we have been trying to get into this business for the last 1 year. So we have built in reasonably, I'll say capability. We have our business head and we have operating head and others who are already part of KEC. So it's going to be a mix of both, the existing Spur team, except for the promoters are continuing full time. And the promoters -- there were 4 promoters, 2 of them were actively involved in the business and both of them are going to be there with us for some more time.

We'll take our next question, that's a follow-up from the line of Ajinkya Bhat of Macquarie.

I just wanted to understand in one of the earlier conference calls, when you talked about diversification thing to Civil segment, you mentioned that you don't have a lot of complex engineering capability in-house and you have an ambition to build that in-house. If you could elaborate on the progress on that front? And related question, how is it being done currently? So do you engage with external consultants and seek the design diagrams before you start execution? How does it happen at the moment?

So Ajinkya, 2 things are there. One is we have hired a CTO, which is a new position for us, a Chief Technology Officer, a gentleman who spent his lifetime with Shell U.S. So he has joined us as a CTO, and he is helping us in upgrading our engineering capabilities across all our businesses, specifically more in railways and civil because T&D, we had a decent engineering strength and capability. So the last 2 businesses, we are now upgrading. We are also trying to see how do we improve our entire engineering, the way we do it and all, not just the capability but on the front end of it and the back-end of it. So a lot of effort is going on on the engineering front. Coming to your second question. Traditionally, I think almost all the companies, I don't know, maybe 1 of 2 companies may be an exception, but in India, traditionally most of the construction companies have always outsourced engineering. So there are enough engineering consultancy companies available which basically do the entire basic things for you. And then what you need to do is you need to develop capabilities to ensure that you check what has been done is right, what has been done is commercially what you want to do. You don't add extra safety factors to increase costs, et cetera. So most of the construction companies I know of and we have dealt with so many EPC companies, most of them prefer to outsource engineering. And so I think right now for us also, for some time in businesses like civil, we will probably continue with outsourcing, while developing capability of at least checking and optimizing them. Over a period of time, we definitely also want to build our own. It will take some more time, but we are moving in that direction.

And just one final thing. So when you build out this capability on engineering, is it more about hiring more engineers? Or is it largely driven by seeking licenses to specific software, which allow you to handle that job? And could all of this lead to increase in fixed costs materially from current levels?

It will be both. You will get -- you'll be buying or hiring more licenses, which you were not using before; new technologies, which are developing and all that. So you will definitely spend a lot more money on licenses. And then you'll also have people who can use those licenses or either retrain your existing people. But to me, what happens is that a large part of that or I think all of that or more than that will get recovered from the optimization, which you will see in your cost. I can give you one simple example. We were quoting for a railway line where there had to be a soil strengthening to be done. And initial client estimate was more than INR 100 crores. Then when we went through it and then we called some of these consultants and we put our teams to look at it, we finally could bring it down to the INR 50 crores. The client was also very happy, and we were also happy. So obviously then a part of that cost which we incurred will get recovered through that. So although you may look at this thing on the OpEx side the cost may improve, but that will result in a much higher value coming to the margins.

Our next question is from the line of [ Kunal Sharma ] from SMP Private Wealth.

Just a couple of questions I have. So could you please share some light on the domestic and the international orders as we -- as you said earlier that we are quite bullish on the international market than domestic? So what's the reason behind that? We are not confident on the domestic market, whereas the infrastructure industry on the civil and the government have a good CapEx plan in the domestic market as well.

I think, Kunal, somewhere, either I did not speak well or you did not understand it well. We were talking about transmission and distribution only. Civil and Railways [Foreign Language] So I think today, if you look at our order breakup, probably than 50% of our orders are from India in any case even now. So I think maybe I miss -- I did not spell it out well. We were only talking about T&D in India where we are not seeing right now too much of order tender pipeline.

Okay. Understood. And the second one, like what would be the margin profile on the consol basis as we have done the Spur Infrastructure Private Limited acquisition?

That is too small to impact our margin profile. [Foreign Language] it will not move the needle, yes. That will not change. Although Spur has a slightly better probably or even similar profile, I don't see Spur changing our margin profile for a few years.

Okay, understood. So we'll maintain the margin as we have done earlier?

Yes, whatever.

Our next question is a follow-up from the line of [ Saket Kapur ], an individual investor.

Sir, for the cable business part, if you could give some more color on the same how is the order booking and how is commodity compressing the margins for the cable segment also?

Saket, cable, what is happening is the demand is high. Let us be very clear, there's a lot of inquiries, a lot of demand, which is happening. Unfortunately, because the raw material prices were very high, clients have not been closing the transactions. [Foreign Language] So now, now that the prices have come down of copper and aluminum, I definitely see there will be a huge spike in the orders for cable. Notwithstanding that, I think our order intake and revenue for this business has never been so good as has been for the last 6 months. It's been highest. I think 30%, 40% increase over last year. But even otherwise, generally, if we see, I don't think we have ever done INR 600 crores of revenue in the first half for cable business. So that is one part on the demand. Demand, there is enough demand. There was some slowdown in ordering because of commodity prices being high, which I think now people will start ordering. As far as margins are concerned, generally, if you look at the metals, aluminum, copper and all that, they are normally pass-through. [Foreign Language] So we don't see a major impact of metals on the margin per se in the sense that percentage margin [Foreign Language], but the absolute margin remains where it is. I think the problem in cable industry, which is hitting many players in cable, is the rise in price of the plastic material. I think XLP, PVC and other insulation materials is something which normally is not hedgeable. And normally, people have never seen large movement in those materials. And whatever we saw in the performance of some of the cable companies, I think it was not more from metals but from the plastic side. I think that is what has hit a lot of people. [Foreign Language] And that has also been a slight problem because of logistics issue and all that because it normally comes from Japan, Korea and all that. So there have been -- and China. So there have been some problems. So there has been some increase on the plastic side, which was not expected, which has impacted the cable margins. Otherwise, I think it's one of the best half year we had in terms of business for cables.

And going forward also for the H2, there's is a likely trend -- and if you could give the order book position for the cable segment and mainly if it state utilities that have been -- the category also, if you could give?

[Foreign Language] So order book will not be much on the cable side. [Foreign Language] I don't have the exact number, Abhishek [Foreign Language]. If you look at where the orders are coming, I think we are seeing a lot more happening on underground cabling. So we clearly see that EHV cabling will significantly pick up in H2 and going forward. I think after the cyclones and other issues, which are having a right of way, and the Supreme Court order in that GIB case in Rajasthan, we are clearly seeing that many of the companies and DISCOMs and all are -- not DISCOMs, transcos and all are now looking at doing underground rather than doing overground wherever it is feasible. So clearly, EHV [Foreign Language] We are not seeing too much happening on the housing side. And industrial [Foreign Language] every new industry will have at least 20 crores, 30 crores of cables. So industrial demand, solar demand and EHV cabling. Those 3 sectors -- and I'm sorry, fourth is the railways. Our biggest increase has been from the railway side for the conductors and cables and all that. So I think these are the 4 sectors where we are clearly seeing a large demand for improvement in cables.

Yes. A very small question. In EHV, what is our market share currently?

[Foreign Language]

[Foreign Language]

[Foreign Language] but EHV will be used to supply to metros. The metro line [Foreign Language].

Didn't get the last point?

It is generally 33 kV.

33 kV?

Yes.

I would now like to turn hand the floor back to Mr. Vimal Kejriwal for closing comments. Over to you, sir.

I'd just like to thank everyone for their continued interest and would like to tell the team that we have a good order book and all that. And Q2 had been a slight blip on account of raw materials and South Africa. I think we are pretty confident of future growth. Thank you so much. Thank you, everyone.

Thank you, members of the management. Ladies and gentlemen, on behalf of KEC International, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.