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    KEC International expects order book to nearly double by FY25

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    KEC International expects order book to nearly double by FY25


    KEC International is aiming for its order book to nearly double by 2025. Also find out what is affecting the company's margin and whether they can go back to double digits.

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    KEC International intends to have an order book worth Rs 40,000 crore by the end of FY25, almost double the FY22 order book of Rs 23,716 crore.
    MD and CEO Vimal Kejriwal said the targets were achievable if the engineering, procurement, and construction (EPC) company continued to grow at 15-20 percent year-on-year.
    Shares of KEC International were up 2.8 percent as of 10:30 am, trading at Rs 447.90, backed by strong order pipeline news. The stock is down 6 percent for the year.
    "The way we look at order intake is that it should be 1.2 times the revenue forecast. If we have a decent growth of 15-20 percent, we can have an order book by two years ending at Rs 40,000 crore," he told CNBC TV-18 in an interview.
    The company is looking at an order intake of Rs 20,000 crore for the current financial year after having the highest order intake of Rs 17,200 crore in FY22. Based on the previous order wins, KEC's order intake in FY23 stands at Rs 6,838 crore. It recently won new orders worth Rs 1,108 crore across various businesses. The orders are spread across its Transmission & Distribution (T&D), Railways, and Oil & Gas Pipelines business.
    KEC International has various business interests ranging from power T&D to railways, civil, urban infrastructure, solar, smart infrastructure, oil and gas pipelines, and cables. The company is currently executing projects in over 30 countries.
    Contribution from railways
    KEC International planned on diversifying its revenue stream a decade ago when it forayed into areas like railways, telecom, water, and cables. Until then, the transmission lines business was the only contributor to the company's revenue. As of FY16, 83 percent of the company's revenue came from the T&D business, with the rest coming from the railways and others.
    Currently, KEC International's non-T&D business contributes half of the overall top line, with 28 percent of the non-T&D business coming from the railways. However, the pandemic halted major orders from the railways, which according to Kejriwal, are now starting to pick up.
    "This year, railways has surprised us," he said. Almost 40 percent of KEC's most recent order win is also from the railways.
    Debt worries
    KEC International currently has debt levels to the tune of Rs 6,000 crore. Brokerage firm Nomura highlights that collection issues within railway EPC contracts, Rs 250 crore stuck as receivables in Afghanistan, a rise in inventory levels by Rs 250 crore due to higher commodity prices and losses in the Brazil business are behind the company's increase in leverage.
    Kejriwal intends to bring down the net debt level of the company to Rs 5,000 crore by the end of FY23. From the current working capital days of 150, the management aims to bring the number down to 130 days.
    Legacy issues and margin
    On a consolidated basis, KEC International reported EBITDA margin of 5.1 percent in the first quarter of FY23 due to elevated commodity prices, logistics costs and underperformance of its Brazil unit.
    Most of KEC International's overseas orders are fixed priced, so the company's Brazil unit is losing money. However, Kejriwal expects these legacy projects to end by October or mid-November, ending the impact on the company's margins. He also expects margins in the current quarter to be at levels similar to the one gone by, with improvement starting to reflect from the October-December period.
    "By FY24, we should inch back to our normal, double-digit margins," he said. Nomura views the 10 percent EBITDA margin guidance as "realistic."
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