ET NowIn an interview with ET Now, Vimal Kejriwal, KEC International, shares his business views. Edited escerpts:
ET Now: You must be really happy with the operational performance. This is the highest EBITDA margins by KEC in the last 19 quarters! This is exemplary. What has led to this?
Vimal Kejriwal: If you look at our numbers, basically we had a 32% rise in PBT and 21% in EBITDA. The basic reason is - first it is obviously the commodity that has been on a downside, so it helps us a little bit. The second one is - on the T&D business, which are core business - we had done a lot of work on transformation of project excellence and that is very clearly showing in our numbers. The third one is - if you remember we have a US subsidiary which get bad last year - that has turned around and has posted a profit. So these three factors put together have helped us in posting this record EBITDA.
ET Now: Let us talk about the internals. There were some cost controls which led to this EBITDA growth but execution growth was not as strong. Please correct me if I am wrong - revenues were up just 1.6%, so are there still issues relating to sluggish environment or is it due to some other reasons that the revenue number has been the way it is?
Vimal Kejriwal: Actually the physical growth has been almost 20% in terms of volumes but it is basically the commodity prices. I will give an example - we used to sell towers let us say at around Rs 75000 tonne, we are now selling them at Rs 55000 because the steel prices have crashed. Same thing happened to the aluminium, the conductors have come down, cable copper was $7000 in my budget and we were selling at $4500. So it is basically the commodity impact which hit the top line adversely. At bottom line it was positive because the cost went down. That is the basic reason. I do not think it is sluggishness at all. It is just the pricing impact because in most of our contracts especially in India we have a price variation clause. So even though we had contracts in a particular value. Because the prices went down, the per tonne values went down as well.
ET Now: Inflows for the quarter, they stood at around Rs 1900 crore which is slightly below the street expectation but L1 has increased to Rs 4000 from the earlier Rs 3000 crore. Is this an indication of a bit of a delay in conversion of L1 into final orders?
Vimal Kejriwal: Two things I will say - one is our announcement talks about Rs 1150 crore of orders which we have received in April. So out of the Rs 4000 crore, Rs 1150 crore has already come in April by way of models. So that is the positive part. The negative is - yes there is some slowdown which we did see in some parts but that is now getting converted slowly. So I do not think I am worried. In fact if you look at the numbers and if you look at the Middle East and all, there is probably just 10% of the L1, rest is all India, where I do not see any risk off non-conversion.
ET Now: In your press release you have also indicated disruption of projects in Libya. What is the plan? are you completing these projects or is it a write off which has been planned?
Vimal Kejriwal: These projects have been on a standstill for the last four years. Now that there is a mixed government in place and we are seeing some action. Contracts have been technically extended or are getting extended. For the first time in five years, the client is talking to us saying that why do not you come and discuss with us as to how do we complete these projects. So we are still hopeful. We did make some provision in the current year on account of these projects. The client is already in touch to see how do we complete these projects. So I do not think there will be a write off, we will still wait and watch.
ET Now: What about your total order book situation? Where is it currently, how do you think it is going to change till the balance off the year?
Vimal Kejriwal: Our order book currently is Rs 9449 if I am correct and we had an L1 of Rs 4000 that is on 31st March. So if you look at the Rs 1100 crore of orders which we have announced minus whatever revenues, we will do this in April. Our order book should be close to Rs 10000 crore as on April and we are looking at a decent growth for this year. So I think the order book should grow by at least 10% during the year.
ET Now: Conservative out here because everything that we see points towards an extremely strong uptick for T&D players by and large. Are you being conservative when you say 10%?
Vimal Kejriwal: As I said if you look at my last year’s results, we got impacted by commodities. So we will have to wait and watch how the commodity plays around. Like in cables, from 7000 to 4500 now copper is at around 5000. Aluminium too has picked up. So if steel, aluminium, copper picks up maybe we can see a better thing but otherwise I will say based on the current order book and the current values, we should do around 10%.
ET Now: I believe your balance sheet shows that the borrowings have come off, so what is the current debt situation? Is there a debt reduction plan for FY17 already in place?
Vimal Kejriwal: If you look at our overall borrowing which is debt plus bank acceptances, there has been a marginal reduction this year already. We are working at our AR numbers. In fact our AR receivables had actually gone up in March which have now come down because there were some marginal delays from some of the players, some of our clients which we got in April. We were very clearly planning a reduction in debt. If you look at our interest cost, we already had a 10% interest cost reduction this year from 3.6 to 3.3%. Clearly we are looking at targeting it to go below 3%. So at least a further 10% reduction in our interest percentages.
ET Now: Can the tax rate taper lower for FY17 and two any guidance that you would want to leave your viewers or investors with?
Vimal Kejriwal: The tax rate will definitely taper lower because in the last two years we have been having some issues. As I said earlier India is not the only country which looks at retrospective taxation etc. So we had some problems in some of the other countries where we had to end up paying a higher rate of taxation. Which is why our tax rates are higher than the standard 35. Next year we do expect it to come down to at least 35%. As far as the guidance is concerned, we have just said that we should be doing a 10% increase in our top line. As far as margins are concerned, we have been talking about a 50 bps increase. So from 8% which we touch this year hopefully we should be doing around 8.5 next year.
ET Now: You must be really happy with the operational performance. This is the highest EBITDA margins by KEC in the last 19 quarters! This is exemplary. What has led to this?
Vimal Kejriwal: If you look at our numbers, basically we had a 32% rise in PBT and 21% in EBITDA. The basic reason is - first it is obviously the commodity that has been on a downside, so it helps us a little bit. The second one is - on the T&D business, which are core business - we had done a lot of work on transformation of project excellence and that is very clearly showing in our numbers. The third one is - if you remember we have a US subsidiary which get bad last year - that has turned around and has posted a profit. So these three factors put together have helped us in posting this record EBITDA.
ET Now: Let us talk about the internals. There were some cost controls which led to this EBITDA growth but execution growth was not as strong. Please correct me if I am wrong - revenues were up just 1.6%, so are there still issues relating to sluggish environment or is it due to some other reasons that the revenue number has been the way it is?
Vimal Kejriwal: Actually the physical growth has been almost 20% in terms of volumes but it is basically the commodity prices. I will give an example - we used to sell towers let us say at around Rs 75000 tonne, we are now selling them at Rs 55000 because the steel prices have crashed. Same thing happened to the aluminium, the conductors have come down, cable copper was $7000 in my budget and we were selling at $4500. So it is basically the commodity impact which hit the top line adversely. At bottom line it was positive because the cost went down. That is the basic reason. I do not think it is sluggishness at all. It is just the pricing impact because in most of our contracts especially in India we have a price variation clause. So even though we had contracts in a particular value. Because the prices went down, the per tonne values went down as well.
ET Now: Inflows for the quarter, they stood at around Rs 1900 crore which is slightly below the street expectation but L1 has increased to Rs 4000 from the earlier Rs 3000 crore. Is this an indication of a bit of a delay in conversion of L1 into final orders?
Vimal Kejriwal: Two things I will say - one is our announcement talks about Rs 1150 crore of orders which we have received in April. So out of the Rs 4000 crore, Rs 1150 crore has already come in April by way of models. So that is the positive part. The negative is - yes there is some slowdown which we did see in some parts but that is now getting converted slowly. So I do not think I am worried. In fact if you look at the numbers and if you look at the Middle East and all, there is probably just 10% of the L1, rest is all India, where I do not see any risk off non-conversion.
ET Now: In your press release you have also indicated disruption of projects in Libya. What is the plan? are you completing these projects or is it a write off which has been planned?
Vimal Kejriwal: These projects have been on a standstill for the last four years. Now that there is a mixed government in place and we are seeing some action. Contracts have been technically extended or are getting extended. For the first time in five years, the client is talking to us saying that why do not you come and discuss with us as to how do we complete these projects. So we are still hopeful. We did make some provision in the current year on account of these projects. The client is already in touch to see how do we complete these projects. So I do not think there will be a write off, we will still wait and watch.
ET Now: What about your total order book situation? Where is it currently, how do you think it is going to change till the balance off the year?
Vimal Kejriwal: Our order book currently is Rs 9449 if I am correct and we had an L1 of Rs 4000 that is on 31st March. So if you look at the Rs 1100 crore of orders which we have announced minus whatever revenues, we will do this in April. Our order book should be close to Rs 10000 crore as on April and we are looking at a decent growth for this year. So I think the order book should grow by at least 10% during the year.
ET Now: Conservative out here because everything that we see points towards an extremely strong uptick for T&D players by and large. Are you being conservative when you say 10%?
Vimal Kejriwal: As I said if you look at my last year’s results, we got impacted by commodities. So we will have to wait and watch how the commodity plays around. Like in cables, from 7000 to 4500 now copper is at around 5000. Aluminium too has picked up. So if steel, aluminium, copper picks up maybe we can see a better thing but otherwise I will say based on the current order book and the current values, we should do around 10%.
ET Now: I believe your balance sheet shows that the borrowings have come off, so what is the current debt situation? Is there a debt reduction plan for FY17 already in place?
Vimal Kejriwal: If you look at our overall borrowing which is debt plus bank acceptances, there has been a marginal reduction this year already. We are working at our AR numbers. In fact our AR receivables had actually gone up in March which have now come down because there were some marginal delays from some of the players, some of our clients which we got in April. We were very clearly planning a reduction in debt. If you look at our interest cost, we already had a 10% interest cost reduction this year from 3.6 to 3.3%. Clearly we are looking at targeting it to go below 3%. So at least a further 10% reduction in our interest percentages.
ET Now: Can the tax rate taper lower for FY17 and two any guidance that you would want to leave your viewers or investors with?
Vimal Kejriwal: The tax rate will definitely taper lower because in the last two years we have been having some issues. As I said earlier India is not the only country which looks at retrospective taxation etc. So we had some problems in some of the other countries where we had to end up paying a higher rate of taxation. Which is why our tax rates are higher than the standard 35. Next year we do expect it to come down to at least 35%. As far as the guidance is concerned, we have just said that we should be doing a 10% increase in our top line. As far as margins are concerned, we have been talking about a 50 bps increase. So from 8% which we touch this year hopefully we should be doing around 8.5 next year.
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