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Edited Transcript of KEC.NSE earnings conference call or presentation 8-Nov-19 11:30am GMT

Q2 2020 KEC International Ltd Earnings Call

Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of KEC International Ltd earnings conference call or presentation Friday, November 8, 2019 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Rajeev Aggarwal

KEC International Limited - CFO

* Vimal Kejriwal

KEC International Limited - CEO, MD & Director

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Conference Call Participants

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* Abhineet Anand

SBICAP Securities Ltd., Research Division - Analyst

* Ankit Soni

KARVY Stock Broking Limited, Research Division - Research Analyst

* Ankit Babel

* Inderjeet Singh Bhatia

Macquarie Research - Head of Research

* Jonas Hemant Bhutta

PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst

* Renjith Sivaram

ICICI Securities Limited, Research Division - Assistant VP

* Saket Kapoor

* Swarnim Maheshwari

Edelweiss Securities Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the KEC International Limited

Q2 FY '20 Results Conference Call. (Operator Instructions) I would now like to hand the conference over to Mr. Vimal Kejriwal. Thank you, and over to you, sir.

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [2]

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Good evening to all of you. Welcome you all to the Q2 earnings call of KEC. Our revenues for the quarter of INR 2,809 crores has grown by around 17% vis-à-vis Q2 FY '19 with an EBITDA growth of 16% and margins of 10.5%. PBT has grown at a faster pace than the revenues at 21% Y-o-Y, improving by 20 basis points to 6.4% in Q2 FY '20 on account of improvement of interest as a percentage to sales.

PAT has grown by 42% Y-o-Y, the PAT margins improving to 5%. (inaudible) inflows are touch INR 3,766 crores, including the latest quarter announcement of [INR 806 crores]. Our order book as on September 30, 2019, is at INR 18,085 crores, while we still have a large L1 position of INR 5,000 crores plus. This L1 is majorly from domestic T&D, railways and civil.

Coming to businesses. T&D revenues, including SAE has grown by 30% this quarter on account of exhibition on large international order book as well as significant revenue contribution from the execution of all the 3 EPC projects in Brazil. Both T&D revenue growth has kept up our expectations. The slowdown in T&D order inflows on account of elections and the format of how the international vendors have not made up to our expected pace.

Railways continued its revenue growth momentum with INR 568 crores of revenues for Q2, a year-on-year growth of 35%. With continued thrust on execution, order book at plus L1 of more than INR 6,000 crores and actual revenue of INR 1,000 crores plus. We remain confident that railways should continue its revenue growth trajectory for the year.

We have added some new subsegments to the railway vertical this quarter with entry into RRTS and civil works for railways. Our civil business has faced strong headwinds on account of generally prevailing muted industrial CapEx cycle. However, we are working on scaling up the civil business with additions of new subsegments for growth. Similar security government orders in civil defense metro this year, which are longer in different cycle. We are currently, L1, in a very large metro project was INR 350 crores plus. This order, once secured, will strengthen the civil business further during the year.

Cables business has maintained its volume growth, however, there is a marginal value [of growth] due to lower commodity prices. Solar and smart infra, are yet to pick up momentum on the back of mixed signals by the economy. Smart infra has commenced execution of the orders that had secured last year. We are being very selective in bringing for orders in solar and are focused on select international markets.

Our borrowings plus interest-bearing acceptance have reduced significantly by INR 400 crores over Q2 last year, despite a 17% revenue growth on account of improved receivable days. Our foreign borrowings mix has improved from 37% in Q2 FY '19 to 64% in Q2 FY '20, the total borrowings on a year-on-year basis. Hence, we expect the interest cost to decrease further in the coming quarters. Our interest cost in the current quarter as a percentage to sales is lower at 2.9% versus 3.2% in the corresponding quarter last year. Saudi receivables position has normalized with low ordering positions as on date. We have received more than INR 600 crores from Saudi (inaudible) this year.

MENA market, especially Saudi, is returning to normalcy with new tenders coming up at reasonable intervals. With the Saudi outstanding very normalized, this market is expected to start yielding revenues steadily as the intensity of local competition reduces. Based on our current order book, strong L1 and significant tender pipelines, we expect to maintain our revenue growth and EBITDA margin guidance for FY '20 and a similar revenue growth for the next year.

Thank you so much. We can now move on to question/answers.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Renjith S from ICICI Securities.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [2]

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Yes, congrats for good set of numbers. Yes, I just wanted to touch upon our order intake. We had, I think, shared a guidance of close to around INR 17,000 crores. So is that still on or you are re-looking at that number?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [3]

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I don't think in the current circumstances, we can keep that on, to be very honest, okay? We have a large L1-plus order by tender pipeline. So maybe, I think, in a couple of months, maybe by December end or so, we will probably revisit it. As of today, I think, INR 17,000 crores looks a little bit tall because we had expected that [we'll have full] selections of large number of orders will come up, but both have seen at a central level in power grid as well as on the industrial side in civil, the growth is not happening. I think we are facing some challenges. So I think we will wait for a couple of months to come back with our revised guidance. But INR 17,000 crores right now looks difficult.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [4]

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And so will that impact our execution in FY '21? Or you are confident that these delays will get captured in the first half of FY '21? So even in FY '21 growth direction will continue?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [5]

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That's our numbers. What we have said is that we have orders of 18,000 in hand and another 5,000 plus of L1. Plus we have a decent pipeline asset in the pipeline. So to me, today, if you ask me, and I don't see any issue at all in maintaining our growth in FY '21. At most, if I don't get anything at all, maybe Q4 of FY '21, okay? This is something which will be -- we will start a little bit worried, if we don't get anything. But as of today, I think we are pretty comfortable with our numbers and our guidance.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [6]

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Okay. And when we look at the cash flows, the cash flow from operations continue to be negative. And one of the major things is this payable reduction. So what is your outlook on that? And when do we -- when can we see that normalizing?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [7]

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I think it will only normalize if the whole banking system gets normalized because today what is happening is that most of the large companies are becoming bankers in case of NBFCs. That's what is happening. Most of the vendors still don't have money. So especially in businesses like railways are all there, where there are still -- actually, many of our vendors are still mom-and-pop shops. And even in (inaudible), we have seen lot of names where they're having significant problems in getting units and funding from bank. So that's impacting. In fact, if you look at our overall numbers, debt has gone up by hardly INR 200 crores in spite of a 17% increase. The entire impact on the working capital is coming only from the reduction in payables, which I've been talking over the last 2 quarters, we have been making efforts, we have been slowing switching over to larger vendors. But the issue is that where is my railway business growing, okay? The number of vendors, which we have there is limited. And that's falling. I think other -- sorry, we are trying to take care of it. But in overall, what is also happening is that also impacting what is negative, with numbers improving. Our interest costs are going down. And in spite of everything else, the overall interest costs have gone down.

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Renjith Sivaram, ICICI Securities Limited, Research Division - Assistant VP [8]

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Okay. And lastly, on the Saudi receivable, how much is pending in our...

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [9]

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I don't still think [that that's in our area]. I think it's now -- whatever is left in our revenues for the quarter, per year is hardly INR 150 crores or INR 70 crores. I think our total receivables are around INR 540 crores. A large part of it is retentions on the current contracts, which are under execution. So either when the contracts get completed, the retention get due. But as of today, we don't have a single rupee or riyals of outstanding money there. As I think, everything current has been paid off.

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Operator [10]

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

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Jonas Hemant Bhutta, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [11]

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Congratulations on a great set of numbers. So one question that was interrelated. One, if you can help us understand the tax rate, sir, for the first half. Also, if you like, do an average, it comes out to 20%, which is below the 25% rate and the impact of the deferred tax reversal that you've seen of almost INR 27 crores. The second was on an increase of INR 175 crores in our noncurrent investments in the stand-alone books. Where has this been invested?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [12]

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[And your third?]

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Jonas Hemant Bhutta, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [13]

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Then third one is more on the numbers in terms of other expenses, both in stand-alone and consol, versus as we have seen a very sharp chunk, which are about the sales growth also. So its net is a one-off or any provisioning debt.

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [14]

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So the question's first part of the evaluation. I think on the (inaudible) notice is also our international revenues have shot up significantly. And a consequence of this, freight and other costs have gone up very large. So we have what -- large shipments happening to Bangladesh and some of the landlocked countries of Africa. So that has resulted in huge logistic costs, okay?

Second piece is we also said last time also, there was some electoral bonds, et cetera. So that is also lying there. So that's why it is there. Even the other expenses look larger in proportion. Rajeev, will you answer the question on taxes?

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Rajeev Aggarwal, KEC International Limited - CFO [15]

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Yes. So basically, on the tax rate for this quarter, approximate tax rate of 22.9%, essentially because we have -- in the first quarter, we had made the provision at [a rate of 35%]. So that number is because for the quarter, that benefit in tax is missing. No reduction has been taken in this quarter. So that is where, for the quarter, you are seeing the number of close to 22.5%, 23%. But for the year as a whole, we are expecting the tax rate of 28.5% for the year as a whole, and that this where, for the half year number is 28.5% if you look at the half yearly number.

As far as your other query on the investment is concerned. So far, this has been an increase of about INR 170 crores. Essentially, this amount has been -- let's say, invested in our (inaudible) business, basically to retire our EBITDA outstanding debt -- acquisition debt of close about INR 200 crores, which are outstanding in the books. So that has been prepayable that were costing us a lot of money. That was a high interest cost of borrowing that we have repaid with this money.

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Operator [16]

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

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Saket Kapoor, [17]

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Sir, firstly, the one for transmission project was pending, I think in the last quarter with the payment and all. Is that done and the funds have been received?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [18]

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No, not yet.

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Saket Kapoor, [19]

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There was a cut off signs, that I can say. But -- so what is the update on the same, sir?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [20]

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There's no cut off time, okay? But the project -- it's really being restructured by the owners and the lenders. I think a lot of developments, which are happening. We were hopeful that something would have happened last quarter, but it has not happened. So we do hope -- and I think that this quarter, it should be done.

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Saket Kapoor, [21]

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What is the value, sir, if you could confirm?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [22]

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Outstanding, they are INR 145 crores or something. That number remains the same as last year -- last quarter.

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Saket Kapoor, [23]

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Great. So in the T&D order bookings, how much is set towards our power grid? And how much is the private sectors there?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [24]

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So power grid, we don't have too many order right now. But in L1, we have close to INR 500 crores of L1 in power grid, okay? The rest would be largely from states. Not private sector -- may normally don't have L1. So either you get the order or not. So I think there's some -- I don't have the exact number, but (foreign language)

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Saket Kapoor, [25]

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(foreign language)

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [26]

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(foreign language)

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Saket Kapoor, [27]

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Sir, I was telling that out of the INR 18,000 crores order book as on 30 September, this 56% is attributed towards the ending. So out of that 56%, I want to find generally how much we attributed to which segment, which state and from where it would be for that -- because of that INR 9,000 crores.

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [28]

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(foreign language)

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Saket Kapoor, [29]

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(foreign language) out of that INR 15,000 crores.

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [30]

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(foreign language) we are doing projects for Essel as well as for Rami as well as Sterlite, okay? So there will be private also in that, okay?

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Saket Kapoor, [31]

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Okay. One more point on the cable part, sir. You told us that cable segment was muted due to the decline in the prices. So what is the outlook going forward? And if the raw material price are benign, how is this segment going to continue towards the H2? When H2 generally is bigger -- always bigger than H1 for our industry as a whole, total for KEC. So this year also likely the same trend should be there?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [32]

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(foreign language)

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Saket Kapoor, [33]

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(foreign language)

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [34]

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(foreign language) I don't that. (foreign language) So I don't see any reason why this year will be different from earlier years.

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Saket Kapoor, [35]

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Okay. (foreign language)

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [36]

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(foreign language) but I think we have got lot of orders now on the pipeline (foreign language) (foreign language) So I think, hopefully in the H2, we will be able to catch up and do much better.

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Saket Kapoor, [37]

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In the cable, sir, which segment are we getting to? Is it the higher voltage part? If you could give the profile?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [38]

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Okay. (foreign language) and exports, sorry. Utilities and exports, Okay?

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Saket Kapoor, [39]

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Higher is going to be (foreign language)?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [40]

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Yes, yes, yes.

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Operator [41]

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The next question is from the line of Inderjeet B from Macquarie.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [42]

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My first question is on the T&D opportunity. What do you think is the problem on the green corridor? And what kind of progress do you expect over the next 12 months or so from that site?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [43]

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So green corridor is in the process of being awarded. Some of the projects has been awarded, some are being awarded now. So we have got a couple of L1s in our order book out of the green corridor, okay? Unfortunately, we're still not received a single amount, but (foreign language)

As far as further opportunity's concerned, there is about -- I don't remember the exact price. INR 34,000 crores is the figure, which has come out from the ministry, saying this is a project which they want to do in the next 1 year. In fact, it would lead the Prime Minister's statement on the project [fee], where they are monitoring all the large projects, specifically the one with the statement saying that our 8 states, that they want to do more transmission in -- based on the renewables (inaudible). I think the [Prime Minister's] carrying a large statement on that.

So I think on the central side, we're talking about INR 34,000 crores, INR 35,000 crores of projects. How much are there, how many of them come to follow, and how many come to TBCB is a discussion, which is right now happening on ministry. And once that discussion gets concluded, I think in the next couple of -- I think, 3, 4 months, we should start seeing tenders flowing out of that log.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [44]

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Okay. My second part of the question is the 3 years, you are in a very strong growth in this quarter. Is this kind of a -- what is a sustainable number to work within SAE? Is because of some one-time shipment or something like that, and you have got a big jump here? And if you could also give us similar color on the railways, as we are hearing that, I think now INR 20,000 odd crores of projects have been brought back augmented to tendered out? So that's it on my side.

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [45]

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So it's a, if you remember, we have always been talking about 3 large EPC projects, which we had. So unfortunately or fortunately, the all 3 of them started together. So clearly, there is a bunching of revenues in that way, which will continue at least, I'll say Q3 and maybe even larger to Q4 also. These projects should get awarded by Q1 next year. So I think next couple of quarters, we will see elevated revenues from SAE. We are right now negotiating some more contracts. We have some L1s in our [year], which include the SAE. So hopefully, once they get converted, I think I can say they should continue to do good. Clearly, I don't see them increasing in the same manner, okay? This quarter, we have got probably some 80%, 90% increase in revenues. So I don't think we can have that sort of revenue. We have been talking about 20%, 25% annual growth. So we are keeping off investors that all those L1s get converted into orders or there's a December auction, which is happening roughly $1.5 billion. And depending upon that result, we'll decide FY '21. But FY '20, we are pretty confident and even maybe 1 or 2 quarters of FY '21 look good right now, depending upon the auction and what else we are able to secure. We'll decide how much more they can grow, okay?

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [46]

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Okay. And any comment on the railway side?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [47]

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Sorry. Railways, I think we are doing very well. We have a number of close to INR 6,000 crores right now. And I think we have a lot of projects in the pipeline as far as tenders in the pipeline. So I think we're pretty comfortable. We had earlier thought about doing 2,400, 2,500. We'll probably do closer to 2,700, 2,800 this year and probably at least 20%, 25% growth next year based on our order book. I think we are pretty happy with what's happening in the railways. We are seeing railway tender coming back with a bang, unlike T&D. T&D is still slower, but railways has come back, and we're seeing at all the levels, on [DNL], core and the zonal railways. I think we are pretty happy. Metro is also doing well. So with lot of civil work happening in metros and entire electrification and (inaudible) in sector of metro is coming up, which we are not doing earlier, which just started bidding. So that's a new area, which has opened up for us.

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Operator [48]

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The next question is from the line of [Kayoshi Mehta] from [CDE Research].

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Unidentified Analyst, [49]

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I just wanted to understand, why has your railway order book surged so much recently?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [50]

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I just [watched] so much.

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Unidentified Analyst, [51]

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What is driving the growth in this railway order book?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [52]

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Part of my speech, what we've said about that as we have -- we have actually expanded our portfolio to include a few more verticals of railways. One of them was a railway rapid transport. So we got a large order from an entity for called [NSE ITC], which is a joint venture of the railways and a few state governments for (inaudible) et cetera. So there, we've got a large order. Also been getting a few orders on railway. One is over railway and one is ROB. So if you have been reading the railway articles, they have been talking about 2 things. One is safety first. So they want to basically ensure that all the level (inaudible) are shut. So they are building a railway over the years and all that and all that. And one is that for a high-speed train and bullet train, et cetera. All the roads which are there in the path of these railways aren't being enough and new ones are being built.

So large part of -- I think third part is that what we announced recently 1,800 bit of that. So roughly 800 and odd orders. If you hit [railway distribution], it's any one of very first order they were given by railway, okay? That's the basics. I think the next point I'd like to say is that we are clearly saying that with the liquidity crunch and the banking tightness. The competition is a bit lower than normal because many of our competitors are not in a position to get banking facilities able to put in this.

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Unidentified Analyst, [53]

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And sir what is the completion period of these projects?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [54]

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Typically, it varies within 18 months to 30 months

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Unidentified Analyst, [55]

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18 to 30?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [56]

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Yes.

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Unidentified Analyst, [57]

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Sir, and for electrification, that would be how much?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [58]

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Electrification, normally it's 24 months, for contractually. But we end up doing it 12 months also. That's the way the railway wanted to be done. The contract period is much longer. Electrification, normally -- what happens in electrification is that you don't have to complete the entire line. What they do is you electrify 20 kilometers of tracks and all that. So you normally complete the electrification projects segment-wise.

Okay. And by 18 months, we complete the entire thing. But largely, in 12 months should have finished most of the contract.

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Unidentified Analyst, [59]

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Okay. And sir what about these overages?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [60]

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Overages is normally 12 months.

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Operator [61]

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

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Swarnim Maheshwari, Edelweiss Securities Ltd., Research Division - Research Analyst [62]

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So couple of questions. So first one, in your opening remarks, you mentioned about working in the new space in several vertical. If you can elaborate more over there?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [63]

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So civil, what has happened on it is that this last quarter, we announced 2 orders. One is in the defense sector. So we got a [force] order in the defense, we have been working on it for some time. So it's a start. That's one space. The second was on the metro, we got an order for expands for extending the Kochi Metro. So -- so those are the 2 new spaces we've got. And I think as I mentioned just now, we are also L1 in a large (inaudible) order.

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Swarnim Maheshwari, Edelweiss Securities Ltd., Research Division - Research Analyst [64]

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Sir, metro, I understand -- I mean, I'm sorry, but what is exactly in the defense space that we are looking at? Is it construction of some building or what is it exactly?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [65]

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Right now, more on the civil side than anything else, it would be like a construction of some buildings. There are construction of hangars, there are other related civil pieces of defense, okay? There could be [switching] houses, where you build houses for your army officers and all that. But right now, the project which we have is a sort of a commercial-cum-residential project in one of the naval ports.

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Swarnim Maheshwari, Edelweiss Securities Ltd., Research Division - Research Analyst [66]

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Okay. Okay. So sir, I mean, if you can just outline the opportunity size over here that you were looking at in the defense space specifically?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [67]

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Defense space is almost endless but I haven't looked at it. For our presence because we are hardly there, amount of -- if you take residential, we are normally about INR 4,000 crores to INR 5,000 crores of residential spend, okay? So there are similar spend like that which keeps on happening on various naval dockyard and ports, et cetera. Then we are now talking about, let's say, at the border where, right now, the -- let's say, the army people don't stay alone. Now we have been talking about moving the family's closure that we are talking about a huge network of residential houses coming up in the entire Northeast. So there's a lot of spending, which has been budgeted. Honestly, I do not know what will happen because we are still at the fringes of it. But we have been seeing for some time, and we are lucky that we are happy that we got our first breakthrough.

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Swarnim Maheshwari, Edelweiss Securities Ltd., Research Division - Research Analyst [68]

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Sure. And I would presume, sir, that this will be margin neutral for us.

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [69]

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We are always very careful on our margins.

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Swarnim Maheshwari, Edelweiss Securities Ltd., Research Division - Research Analyst [70]

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Sure, sir. Sir, my second question is actually, if you look at on the debt side, specifically, despite kind of retiring the debt of about 170 -- $1.7 billion you mentioned at the SAE towers are kind of -- debt is kind of flat. So I mean, if you could just look from the working capital perspective, we have retired the long-term debt. But I think the short-term debt is kind of shorter than this quarter sequentially. Is that a correct understanding?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [71]

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If you look at the numbers but debt has shot up when you look at March, okay? And that is September or September to June that debt has come down. And number two, when we talked about SAE that was, in a way, a tax inefficient debt which was -- it was lying in one of our overseas subsidiaries. And there were no tax breaks, et cetera. So it was because we're becoming very ineffective. So what we did is we replaced it by a local debt, okay? So it's not a retirement of debt in that sense.

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Swarnim Maheshwari, Edelweiss Securities Ltd., Research Division - Research Analyst [72]

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Okay, okay, okay. So it's like -- I mean, we are just kind of [refinancing] a bit debt?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [73]

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Exactly...

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Swarnim Maheshwari, Edelweiss Securities Ltd., Research Division - Research Analyst [74]

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Refinance it. To refinance it.

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [75]

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(inaudible), okay? It's become a little (inaudible) that's all I would say.

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Swarnim Maheshwari, Edelweiss Securities Ltd., Research Division - Research Analyst [76]

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Sure. And sir, any ForEx gain or losses during the quarter?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [77]

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I think there's a gain of roughly around INR 20 crores or so in this quarter.

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Swarnim Maheshwari, Edelweiss Securities Ltd., Research Division - Research Analyst [78]

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So this is in other expenses, is it?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [79]

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It would be created in other expenses.

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Operator [80]

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The next question is from the line of Renjith S from ICICI Securities. (Operator Instructions)

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [81]

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Yes, we can pass on the question please.

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Operator [82]

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The next question is from the line of Inderjeet Bhatia from Macquarie.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [83]

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My question is mainly about the EBITDA margin that you have reported. Now the way I understand is the T&D business typically has margins of about 11% to 12%, right? And you have been building up your railways business for the last few years, investing in capabilities, investing in people, even before you could achieve that kind of revenues to justify the cost. Now over the last few quarters, we have seen railways revenues growing significantly. They have ramped up fairly well. But EBITDA margins seem to be at the same level of about 10.5%. They have not really reached your benchmark margins of 11%, 12%, as you see in T&D. So could you just highlight the reason behind it? Or have the margins in T&D actually gone down? What could be the reason?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [84]

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Inderjeet, we have always been maintaining that railways is ramping up slowly. And we said that exit of FY '20, we should be touching double digit. That has been our consistent stand, and I think we are maintaining that stand that at exit levels, maybe we will reach 10%. That's what we have said always, okay? So I think we are on our track, the railways -- if you understand one thing, with the revenue increase of railways, railways having cross INR 500 crores for the first time in this quarter, we're still able to maintain our 10.5% margins. So obviously, the margins in railways have been increasing, and that we don't have been able to maintain, okay? And transmission has always been 11%, 12% plus and all that. And it continues to be that way.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [85]

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Okay. So do you -- so in the railways, do you have any road map on -- specifically in railways when you might be able to reach double digit margin? Or is that not possible in the railway business?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [86]

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I think I just said that the exit of '20, which we should be reaching double digits.

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Inderjeet Singh Bhatia, Macquarie Research - Head of Research [87]

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Okay, in railways that...

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [88]

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Yes.

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Operator [89]

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

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Jonas Hemant Bhutta, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [90]

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Just a follow-up on the debt numbers. How much of debt is there in the other current in the form of current maturities, sir? And if I can get the comparable number for September last year as well?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [91]

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(inaudible) investor presentation has been circulated. The full number of debt has been -- wherever it is, has been given in the numbers. If you want more details, Mita can give it to you. But basically, as I said earlier, the debt has gone down from September as well as from June, okay?

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Jonas Hemant Bhutta, PhillipCapital (India) Pvt. Ltd., Research Division - Research Analyst [92]

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Sure. Sure. And my second question, if I could, of INR 20 crores ForEx loss in Q2. In addition to the INR 6 crores, INR 7 crores that you incurred in Q1.

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [93]

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And the current maturity is around INR 400 crores. INR 400 crores, yes.

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Operator [94]

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The next question is from the line of Ankit Soni from KARVY Stock.

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Ankit Soni, KARVY Stock Broking Limited, Research Division - Research Analyst [95]

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Just one question from my side. I just need the numbers on the L1 orders. So how much it would go to the different subsegments like railways or out of GEC, how much it is?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [96]

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I don't have that exact record, roughly, I think around 20% is from railways and 20% is from civil. Rest would be all from T&D.

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Ankit Soni, KARVY Stock Broking Limited, Research Division - Research Analyst [97]

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And T&D particularly will be out of GEC orders, right?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [98]

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GEC as well as (inaudible). And there is also some international orders also.

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Ankit Soni, KARVY Stock Broking Limited, Research Division - Research Analyst [99]

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Okay. So can we just break it, like how much it will be, international and all, in percentage terms?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [100]

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I don't have those numbers right. And we don't give out that numbers.

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Operator [101]

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The next question is from the line of Abhineet Anand from SBICAP Securities.

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Abhineet Anand, SBICAP Securities Ltd., Research Division - Analyst [102]

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I think you did mention that INR 16,000 crores, INR 17,000 crores inflow looks difficult task. And a few months into Q3, we will probably be able to be better in perspective. But still, any color as to whether this mix could be more or less like last year, we did around INR 14,000 crores, or whether we'll have some growth or -- I mean, based on the pipeline and the L1 that you have. If you can give some more color on that?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [103]

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Yes, I think as we have announced, order of roughly around INR 4,000 crores, give or take INR 100 crore a year. We are around 5,000-plus something. So we are already at INR 9,000 crores plus, okay? I don't know the exact number, but we would have quoted tenders of at least INR 20,000 crores, INR 25,000 crores already tender, which are quoted, okay? And we are putting some very large tenders in the international market as well as a SAARC apart from civil. So last year's numbers, I think it looks easy. To me, easily achievable. Now whether we'll be able to exceed them or not is something, which is going to -- but difficult for me because if -- I'll give you an example, but you get one more the amount to tender that's another INR 1,000 crores. So it's a little bit difficult in this business right now to predict as to know exactly we'll be able to do. But based on the, I think, order pipe -- tender pipeline, I accept that. We'll have to wait for maybe December, January, if I can wait on many of our tenders would have been open. Then you'll know exactly where you stand. But as I said earlier, 70,000 is difficult right now because we have lost a few months and the entire central government tendering has just not happened. Even the new energy, GEC is now they have announced 34,000 and all that, that looks like 4, 5 months. It will not happen. So I don't think those orders, which we have factored some of them coming this year, may not happen in this financial year.

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Abhineet Anand, SBICAP Securities Ltd., Research Division - Analyst [104]

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Okay. And even to this -- the other expense you said because one being that -- I know what this is called because a lot of international revenue. And secondly, you again mentioned the electoral bond. So even this quarter had a little bond, sir?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [105]

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No.

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Abhineet Anand, SBICAP Securities Ltd., Research Division - Analyst [106]

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That was largely 1Q, right?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [107]

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Yes, yes, yes.

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Operator [108]

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(Operator Instructions) The next question is from the line of Saket Kapoor from Kapoor & Company.

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Saket Kapoor, [109]

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Sir, in the SAE segment, the growth which we have witnessed for the first half, there is a very likelihood of the continuity in the second half also? Or they should perform much better because you were telling that the region is getting better there?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [110]

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Saket, as I said earlier that in this quarter, we had a bunching of 3 EPC execution orders. So that will continue for some more time. So at least, Q3, Q4, this growth should continue same level (foreign language) I think Q2 last year was very low. So the growth this year, but the absolute number, I think should continue.

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Saket Kapoor, [111]

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Sir, for the ForEx gain part of INR 20 crores, how much was [destined] and how much was in the provision?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [112]

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I don't know -- I don't have the breakup of that. Okay.

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Saket Kapoor, [113]

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And sir, lastly, then going forward also, the other expenses profile will be elevated only because -- or this was one of the quarter in which the land locking part and the transport played its part? Or going forward, would it remain elevated the way it was for this quarter?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [114]

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So when you look at elevation, what happens is that we always factor that in our margins. If I knew that it has to go to a landlocked country, then I would already get. So I don't think we should get worried about it. We should be looking more at the overall EBITDA margins I was saying and getting into a line-by-line item of the business because business is very different from other businesses. We cannot compare line-by-line every quarter-to-quarter. The line-by-line will differ. And so long as our international business is growing, the other expenses will always keep on going but there's a lot of expenditure in core logistics, in land transportation, some of the countries we are moving 1,000 kilometers after landing at the port. So this will continue to some extent. But again, at my request Saket is that don't look at line-by-line. (foreign language)

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Saket Kapoor, [115]

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Sir, lastly, the cable part, sir. The order book is totally towards the domestic segment?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [116]

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If we have roughly around 15% of our revenues in cable, it comes from international market or exports.

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Saket Kapoor, [117]

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And they are getting to which category? All in the HV? (foreign language)

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [118]

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(foreign language)

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Operator [119]

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The next question is from the line of [Ria Mehta] from (inaudible).

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Unidentified Analyst, [120]

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Yes. I'm asking actually, I'm reading on the outlook on the T&D space. So do we see like with the INR 30,000, INR 31,000 crores coming in for all [T&D] as well as (inaudible). Don't you see the sort of like November of last year, and how do you see that [aspect]?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [121]

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Sorry, what was your last question?

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Unidentified Analyst, [122]

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Do we see growth to come in this year? Or do you see it in the quarter -- I mean what would be the lag effect of how after (inaudible) and GEC orders are coming into play?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [123]

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So current Green Energy Corridor quarter's are getting announced now. So some of them will come now, but the next one of the INR 34,000 crores and all that, I don't see that happening right now this financial year because I think government has still not decided as it's lying between ministries and everyone as to how much that should be on nomination to call with, and how much of them should come in TBCB. So by the time the desire and allocate it to [RRTS or GEC] or power grid and the tendering happens, I don't think that order will happen this year.

But what is happening right now, and if you look at our well -- some large part in some states, state tendering is still going on there in a large manner, number one. Number two is SAARC was also very muted in the first half in terms of tendering. Those tenders are happening. So I think within the South Asia region, we will see a lot more of tendering coming up in H2. International, I think Saudi is coming back. So we have Saudi, Kuwait, these are the countries where we have seen good [on top] tendering happening. So I think we should be also happy with what happens in the Middle East. And lastly would be with Brazil, as I said earlier.

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Unidentified Analyst, [124]

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Okay. And sir, (inaudible) the one on tendering has already been done. So we haven't received any orders from the -- so in the L1 of the current -- what you have given. Would we have orders from Green Energy Corridor, or we don't have orders from...

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [125]

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Yes, we have L1 from Green Energy Corridor. And also, some of the orders are yet to be placed by the developer. So what has happened is that there are many developers who are not yet placed orders that negotiates are going on. So those will also come.

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Unidentified Analyst, [126]

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Sir, can you quantify the amount of (inaudible) of that?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [127]

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It is difficult to say because we don't know what orders we will get or what we will not get, okay? Maybe because [that sometimes] have a moment to say. Because that if I were to -- it's not a -- the other L1 basis saying that I know I'm L1, so I'll get it. Those are under negotiation. Apart from that, we have got some numbers in L1, which I don't think I want to disclose right now, but they are in L1 already.

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Unidentified Analyst, [128]

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Okay. Sir, going forward in civil and cable. If you could just give a broad outlook of where do you see FY '20?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [129]

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So cables should be around the same number if we look at it. But we will grow a little bit physically, but with the prices, the commodity prices being down, I don't see cable going up in terms of revenues, okay? Civil, we'll definitely grow in revenues. Now I don't know how much we'll be able to grow because the industrial sector was very muted. It's still muted but we are discussing some of the orders. So if you get a couple of them more immediately then some more revenues will happen. So probably, I think civil should grow around maybe 25% or something like that from last year. Cable in terms of revenue will have some marginal growth or maybe flat.

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Unidentified Analyst, [130]

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Okay. And then in civil (inaudible) is directly that coming from? [And how much is] that?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [131]

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They will -- I think, largely we have seen from the urban infra. We already have a large order, as I said, from Kochi Metro, where we are doing an extension. We have L1 [GMRC], in terms of a defense order.

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Unidentified Analyst, [132]

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Sorry...

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [133]

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In residential, we have 1 order. Hopefully, we'll get another order. So I think that should also pick up.

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Operator [134]

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The next question is from the line of Ankit Babel from Subhkam Ventures.

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Ankit Babel, [135]

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(inaudible) So currently, can you [confirm], if you're around INR 14,000 crores, INR 15,000 crores of inflow in this year, will you be in a position to grow at around 15% in FY '21?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [136]

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Even without a INR 14,000 crores inflow, we should be able to grow at 15%. That's what I was saying that there's an official order book of more than 18,000 L1 of [5,000]. I think we are pretty comfortable with our growth guidance.

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Ankit Babel, [137]

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Okay. And sir, this year, what is your growth guidance on FY '20?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [138]

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FY '20, we had said 15% to 20%, okay?

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Ankit Babel, [139]

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Okay. And sir, lastly, in spite of [the hedge] coming down, and then you are interested-bearing debt coming down on a sequential basis, your interest cost was high. What's your reason?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [140]

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When you see interest costs of high, or what number, are you referring -- because I thought of...

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Ankit Babel, [141]

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On a Y-o-Y basis, interest cost of like [INR 2 crores] or the INR 6 crores, in spite of an (inaudible)?

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [142]

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I think the basic reason is that your business has grown by 17%. So there would be a segment business where your [basis] are INR 200 crores plus so interest costs would -- absolute numbers will definitely go up, okay? I don't think it's going up. And also, I think what Rajeev is saying is there's the impact of lease accounting also which has happened where some of the amount which we are again as lease vendors, et cetera, are going into depreciation and interest now.

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Operator [143]

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(Operator Instructions) As there are no further questions from the participants, I would now like to hand the conference over to Mr. Vimal Kejriwal for closing comments.

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Vimal Kejriwal, KEC International Limited - CEO, MD & Director [144]

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We would like to thank you very much for your continued interest in KEC. Thank you so much.

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Operator [145]

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