Knowledge Marine & Engineering Works Limited (543273) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Knowledge Marine & Engineering Works Limited Q1 FY '27 Earnings Conference Call hosted by [ Systematix ] Group. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectation of the company as on date of this call. These statements are not a guarantee of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. [ Sudeep Anand ] from Systematics Group. Thank you, and over to you, Sudeep.

Thank you, Danish, and good evening, everyone. And thank you for joining us today for the Q1 FY '27 earnings call of Knowledge Marine & Engineering Works Limited. On behalf of Systematics, I would like to thank the management for giving us an opportunity to host this call. We are pleased to have with us today Mr. Sujay Kewalramani, CEO; and Mrs. Kanak Kewalramani Director and CFO. First and foremost, I would like to extend our [indiscernible] to the entire Knowledge Marine for delivering an excellent set of results. With that, I will now hand over the call to the management for the opening remarks, following which we will proceed with the Q&A session. Thank you, and over to you, [indiscernible].

Good afternoon, ladies and gentlemen. Thank you for joining us today for the quarter 1 FY '27 Earnings Call of Knowledge Marine and Engineering Works Limited. I'm pleased to report that KMW has started FY '27 on a very strong note. More importantly, we believe that the performance of this quarter demonstrates the operating leverage that can be created when specialized assets, technical capability and disciplined project execution intersect. For quarter 1 FY '27, our revenue from operations stood at INR 115.41 crores, representing growth of 138% year-on-year. EBITDA stood at INR 73.41 crores, increasing 258% year-on-year with an EBITDA margin of approximate 64%. Profit after tax stands at INR 62.75 crores, representing growth of 66% year-on-year with a PAT margin of approximately 54%. Further, our business is project driven. Revenue recognition and profitability can therefore vary between quarters depending upon the nature of the projects under execution, asset deployment project mix and the technical complexity of the work performed. The main hero of our revenue this quarter was our trading segment. The strong performance during the quarter was primarily achieved due to the execution of 2 key projects, the capital drag dredging project at JNPA, and the maintenance dredging project that could only carry port the technically complex nature of the JNP assignment in particular, together with efficient asset deployment and execution across these projects contributed meaningfully to the revenue and profitability achieved during the quarter. Coming to the operational performance. Let me now give an insight on the operations of the company. Dredging remains the core segment of KMW and continues to be 1 of our strongest competitive capabilities. Over the years, we have developed a diversified dredging fleet rather than relying on a single category of equipment. Today, our dressing capabilities span trailing section hopper dredges such as action rigor, self-propel grab bridges, by code rages and hopper barges. During the recent execution cycle, 2 projects are particularly important from a capability perspective. The first is the capital dredging assignment at Naval Neruport Authority executed using our self-propel backhole rederive fee. The project has been medcompletely executed the significance of this project extends beyond its contract well. It strengthens our credentials and complex dredging environment and demonstrates our ability to mobilize specialized equipment and technical expertise for difficult marine conditions. We also completed, the maintenance hedging assignment at Bonita Report, we are River Pearl [ 18 ] our trailing suction hopper dredge was deployed. The project was successfully executed despite the challenging environment and operational conditions at the site. Our second vertical charter and hire continues to provide an important recurring revenue component to the business. Our portfolio today includes tugboats, mooring boat, pilot boat, speed [indiscernible] boat, survey vessels and other support esters. A significant proportion of these assets operate under multiyear contracts with leading Indian ports and maritime authorities. This creates a different earnings profile from project-based dredging and gives the group greater visibility across cycles. An increasingly important part of this vertical is our entry into green marine assets. The third pillar of KMW's growth strategy is shipbuilding -- we believe this segment can become an increasingly meaningful contributor over the coming years as the development of our new shipyard at Saphale, progresses from Phase I to Phase II which will enable us to build approximately 18 vessels per annum. We intend to focus on segments where we already purses operational knowledge and technical expertise specialized marine craft dredgers are both Green Tug hybrid vessels and other postal vessels. During the quarter, we also secured a significant shipbuilding contract from the Inland Waterways Authority of India. For the design construction supply of 10 hybrid electric passenger ferries each with a capacity of 20 passengers along with associated maintenance and support commitment. The contract is valued at INR 62.40 crores and has an execution tenure of approximately 10 months. Importantly, these series will be constructed at our new Safala shipyard marking an important step in the scale-up of our shipbuilding platform and the utilization of the new facility. This project is also closely aligned with the government of India's [ Harris Noko mission ] which seeks to accelerate the transition of inland waterway transportation towards cleaner, low-emission and green vessel technologies. Our broader ongoing project portfolio includes 10 accommodation boards, 10 [indiscernible], 4 [indiscernible], 260-ton Blau Green Tug and 10 hybrid electric passenger ferries. Historically, KMW has been an honor, and operator of Marine assets by strengthening our shipbuilding capabilities, we are progressively creating an integrated maritime platform. where we can design, build, own, operate and maintain and charter specialized marine vessels. Coming to order book and revenue visibility. Our order book now, turning to our detailed order book schedule reflects a balanced order book of more than INR 1,300 crores, comprising approximately INR 240 crores towards dredging charter and higher and INR 240 crores in shipbuilding. This is spread across 8 dredging contracts, 15 charter and hire contracts and 4 shipbuilding contracts. This excludes the intercompany order book of INR 200 crores, which Knowledge Marine has placed to knowledge shipyard for construction of Green Tug and petrols. This diversified mix provides strong visibility and reinforces our confidence in the company's growth trajectory while reducing dependence on any single project or buses vertical. At the same time, we remain selective in bidding as well. We evaluate opportunities based on technical complexity, availability of the appropriate asset, contract conditions, execution risk, expected returns and the ability to generate sustainable cash flows with EBITDA margins of 35% to 40%. That discipline has been an important part of KBW's development and will remain so as the company grows. Looking beyond the existing order book, our current pipeline is approximately INR 3,500-plus crores. Trading stands at 1,200-plus schools, charter and hire stands at INR 1,100-plus crores and shipbuilding stands at INR 1,400 plus cores. Coming to capital allocation and fleet expansion. Another important area of focus is capital allocation. Going forward, we are evaluating additions across larger trailing suction hopper dredges, satisfaction dredges, backhoe ridges, water injection ledgers and other specialized more -- as of our fleet expense, it should progressively allow us to address a wider opportunity set and participate in higher-value projects. During the period, we also strengthened our capital base to INR 150 crores preferential issue which saw participation from marquee institutional investors, including [ 36151 ], FLC in Wesco LLC and Bank of India [ Motal ] Fund. In addition, INR 100 crore block in secondary market was undertaken with SBI Funds Management. We view this institutional participation as a strong endorsement of KMW's growth strategy. execution track record and long-term opportunity in the maritime sector. The enhanced capital base provides us with greater flexibility to support our next phase of growth, including fleet expansion, shipbuilding, capacity development and participation in larger value opportunities while maintaining a disciplined approach to capital allocation. Coming to future growth drivers. Looking ahead, we see 2 key growth drivers that can meaningfully expand KMW's operating scale. The first is dredging, we expect our dredging volumes to scale progressively as we expand the size and capability of our fleet. Our strategy is to complement our existing diversified fleet with larger capacity versus which will allow us to undertake significantly higher volumes and participate in larger value and more technically demanding contracts. The second growth driver is shipbuilding. We expect this business to scale significantly from quarter 4 of FY '27. Supported by new order inflows and the commissioning of Phase 1 of our Saphale shipyard. As the yard becomes operational and our order book expense, we expect to progressively increase vessel construction actively across specialized marine crafts, braces, workboat, Green Tug, hybrid electric vessels and other coastal and inland waterway vessels. Together, the expansion of our dredging capacity and the scaling of our shipbuilding platform, are expected to broaden KMW's addressable market, strengthen our ability to pursue large opportunities and propel the company towards limitless growth. Before I conclude, I would like to acknowledge our employees, vessel cos, engineers and project teams Marine projects operate in demanding environment and the results we report today are ultimately the outcome of their expertise, commitment and execution on the ground. I would also like to thank our clients, both authorities, government agencies, business partners, lenders and shareholders for their continued confidence in Knowledge Marine. We have entered FY '27 from a position of strength. We have a substantial order book, a growing opportunity pipeline and expanding fleet, increasing shipbuilding capabilities and exposure to some of the most important structural developments taking place in India's maritime sector. Our responsibility now is to convert these opportunities into execution into sustainable value and sustainable value into limitless growth. That remains our focus always. Thank you once again for joining us today. We will now be happy to now take your questions. Thank you so much.

[Operator Instructions] The first question comes from the line of Sandeep Agarwal with [indiscernible] Investment.

My question is regarding -- sir, what is our financial year '27 growth guidance, including the shift from last quarter -- last year quarter.

So the guidance initially given -- good afternoon, Sujay here. So the guidance initially given was 30% to 40% year-on-year. We believe the order book is streaming up well, and there is a potential in northwards of 60% for the current year now.

Okay. And sir, just last, regarding the -- sir, what is the current status regarding the INR 16 crores due to BCI Mangara project?

So we have received all the funds now.

Our next question comes from the line of [ Pankaj ] with [ Excess Capital ].

Firstly, lots of congratulations for extended results for Q1. I know there was a spillover from last quarter also, which actually helped us building this momentum, but this is great. So not so congratulations to the management team for the same. My quick question is that we -- you just heard there is an order book of around INR 1,300-odd crores, which I'm given to understand that bridging portions out of that is almost like INR 240-odd crores. In my understanding, Bridging enjoys the rest of the margins. So I just wanted to better understand, one, how much of INR 1,300-odd crores execution is expected to happen in 2027? And secondly, what is the likely impact we are expecting on the margin front?

So thank you, Mr. Pankaj. The out of INR 240 crores, we are presently expecting to execute INR 200 crores for this particular year itself. I would like to add to it that from the current bid pipeline, we are very confident that this is the second quarter ongoing, which is the monsoon season and all the tenders are analyzed during this second quarter. In the month of September, early October, post monsoon, all the maintenance dredging and capital dredging works will begin on the West Coast as well as East Coast. So we are expecting that out of the bid pipeline, several of the bids that we have made will get converted into a real business, which will add to the potential revenue that we will generate from the trading business this year. Could you please repeat the second question that you had?

My second question was, what is the likely impact of the litter quantum of bridging in this year's revenue, which seems like it's going to be the case. The impact on the margin, sir?

So the dredging revenue by the time the year-end will not be less but will be higher than what we have achieved last year. Secondly, the margins, if you see, will expand and not contract demonstrated the first quarter results. It will not be the 63% operating margin is not the guidance, but it will -- we've always guided between 35% to 40%. But with volumes in terms of dredging, the numbers -- the operating margin numbers are going to expand.

Next question comes from the line of [ Dhananjay Bagrodia ] with [indiscernible].

Firstly, congratulations on a fantastic set of results. Again, just wanted to understand, mainly on the core dredging business, while the leader seems to be -- margin keeps on decreasing, as on increasing. Any thoughts on that? What's happening because we don't have much information about the lead. I just wanted to understand.

So could you name the leader?

[indiscernible] [ Corp ]?

So our business is not exactly...

I know the des capital hedging, but I'm just saying, is this -- so I wonder why is his margins reducing us and trade any thoughts on that?

So we believe this year and the last year, last financial quarter of the last year, DCs numbers have improved, and this is also showing a turnaround. There is an all-around push for the sector. And DC has equipment, which is much older than our equipment and requires refurbishment. We are in a position to better sweat our equipment in terms of efficiency. And that is why the numbers are better. our margins are better.

Okay. And sir, just one more thing regarding our capital allocation. Other promoters looking to -- any stake which they would be comfortable with now to being at the same level or would they look to dilute more?

So presently, we are very comfortable where we are with percentage of 50% above and we have raised whatever the capital that was required. We are fully capitalized to achieve our turnover of a top line of INR 1,000 crores, which is in the near future. And after which, we believe that our cash flows will easily support future growth.

Okay. So no more. And sir, just 1,000 is on which are we expecting that?

So we have projected in the year '29.

Okay, fine. Understood. And sir, total CapEx would be for [indiscernible] I missed that, sorry.

Say again?

What is the total CapEx expecting from [indiscernible] FY '29?

So currently, we are undergoing a CapEx of close to INR 1,000 crores, which will be between now and within the next 1.5 years.

Next question comes from the line of Shubham Kadhi of Financial Services.

Sir, first of all, congratulations on a great side of numbers. I had just a couple of questions. First of all, was this quarter, if I take Q4 and Q1 together, you would still see PAT margins north of 40%. So is it like a onetime thing? Or we aim to achieve these sort of margins throughout the year? And my second question was that with the new CapEx you're going to buy new dredges. So what would be the total TAM expansion that you can see? And what sort of order would be bidding more now?

So as -- if I understood your question right, the first question was, you asked whether the PAT margin is 40%. Is it correct?

Of Q4 and Q1 together if we add those 2 together.

So our EBITDA margins, we have been guiding at 35% to 40%. Our PAT margin has been usually between 25% to 30%. So of course, I mean, if we add the numbers for the last quarter of the last financial in the first quarter, the EBITDA margin -- average EBITDA margin stands at 57%, and the PAT margin stands at 48%. That's what my understanding is.

Yes, sir.

So I don't believe that 48% is the correct guidance going forward. But we would have significant expansion in our EBITDA margins because of the volume business, in dredging that is expected in the current year and the next year.

Okay, sir. And my second question was regarding the TAM expansion.

So the CapEx that we are incurring is not just on Regal. It is throughout the 3 business sectors that we have, the chartering business, the dredging business, and the shipbuilding business. So with the CapEx that we are planning to incur in the trading business, we believe that we will be able to address the larger maintenance dredging market to the tune of for the current year, at least INR 100 crores to INR 120 crores in addition to our ongoing business and commencing next year that would surpass more than INR 250 crores from the maintenance dredging side. In the capital dredging business, we should be able to add about INR 70 crores for the current year and about INR 150 crores in the next year. So this would be the business that we will do with the CapEx that we would do in the dredging.

Okay. Sir, if you can classify the break, give the breakup of the INR 1,000 crores of CapEx and aging ancillary services and [indiscernible]?

So approximately INR 250 crores is going into the construction of green dark and green vessels, close to will be in the trading business and the balance will be in the ship creation of the shipyard and the shipbuilding business.

Okay, sir. And if you could specify or give an approximation of the hit rate that has been for us historically for the bid pipeline?

So in the past, we have always had in the last 11 years, a hit rate in excess of 50%. That's been the history.

And do we expect such a hit rate to continue?

Well, we always aspire but we can't really expect. So we will know very soon. So once all the bids that are there in the pipeline start showing results.

Our next question comes from the line of [ Yash Master ] with [ Finacle Family Office ].

Congratulations on the good set of numbers. Sir, my first question was on the line with previous participant. Can you talk a little bit more about order book pipeline in driving segment because our order book has decreased from INR 750 crores to around INR 240 crores this quarter. Now as you said, this year, you will execute around INR 200 crores more from dredging. So how much order inflow do you expect from dredging segment? And what kind of projects are you bidding for and aiming for?

We presently have an order book pipeline -- a bid pipeline of INR 1,200 crores in the dredging business. These bids have already been made and are at various stages of evaluation, these bids are going to be spread over a period of next 3 years. And we believe once in the upcoming 30 to 45 days, the results for these bills start showing up, they will add to the current turnover of the company in the trading business.

Okay. Got it. And can you explain what is the nature of subcontracting expense in your P&L? Because if I look at the cost it was more than 40% in FY '23 and FY '24 and it significantly dropped in FY '25. You don't have the FY '26 number, if you can give that also? But what are the kind of projects that we are subcontracting or what are the kind of work that you are sub contracting?

Yes, I would like to answer for that. subcontracting charges in the year '23, '24 were higher because the contracts were being executed under a joint venture. So we were the lead partners, the billing was being done through us to the client and the second partner was building it to us. So that is why the subcontracting charges were high. Since we are doing all the contracts now individually, there is no joint venture partner. So the subcontracting charges will be lesser in year FY '26, you will see a contracting charges of not more than 5% to 6% of our turnover. From '26 onwards, the shipbuilding contracts that are being subcontracted to our shipyard company, that will only be the subcontracting expenses. Apart from that, small boat like survey boards or the [indiscernible] that are acquired that are ancillary craft for executing the dredging contract are the subcontracting expenses. So you will see hardly apart from the shipbuilding contract, there will be only 5% to 6% will be going into the subcontracting.

Okay. Got it. And currently, your dredging and shipbuilding mix is 80-20, right? So what do you expect this next to be, let's say, 2 to 3 years down the line? And also if you can touch upon the margin profile of both the segments individual?

So going for -- currently, the mix is 80-odd percent with the treating business, 80-plus chartering is between 3% to 5% and shipbuilding is at 9%. 2 to 3 years from now, we believe that dredging will contribute between 45% to 50% of the revenue mix. shipbuilding will be between 40% to 45%, and the chartering business will be at 5%. The margins across the 3, the operational margins across the 3 will always be between 35% to 40%. And as the dredging business growth in volumes. We believe the dredging margins will expand.

Okay. So because I ask you this question because shipbuilding margins are typically 15% to 18%, right? So if our mix is increasing from, let's say, currently 10% to 15% in 2 years, it should be a drag on our margins, right?

So you are considering shipbuilding margins, pre-subsidy or both subsidies a question free subsidy, yes, they are between 15% to 20%. Both subsidies, they will easily go beyond 35%.