Vardhan Dharkar, Chief Financial Officer of KEC International Ltd., joined the company in June 2007. Mr. Dharkar is a Graduate in Science and a Chartered Accountant. He has rich experience in various areas of finance, having spent most of his career (1988-2006) with Wockhardt Ltd. in various capacities, progressively growing to become Vice President - Finance in 2002. Subsequently, he joined Dabur Pharma Ltd. as CFO from where he has joined KEC.
KEC International Ltd. is one of the largest Power Transmission EPC companies in the world. It is engaged in the areas of quality, technology, capacity and capability. KEC's strengths lie in the areas of Design, Manufacture, Supply and Construction of turnkey projects of Power Transmission lines of voltages up to 800 KV and in the execution of Railway Electrification projects, setting up sub-stations and power distribution networks, Optical Fibre Cable (OPGW) installations, Turnkey Telecom Infrastructure Services and maintenance of Power Transmission Lines. To ensure reliable service KEC is supported by multi-locational manufacturing facilities and a workforce spread out over 20 countries.
Speaking with Hemant Maradia and Yash Ved of India Infoline, Vardhan Dharkar says "Our order book stands at Rs58-60bn. These orders will be executed over a period of 18 months."
Was your business affected because of the global economic slowdown?
Fortunately for KEC, we have an order book which gets executed over 18 months; we did not see immediate impact from the downturn in terms of our revenues or business going down. All the orders which we had in hand at that point of time were under execution. Neither of our customers cancelled any orders nor did they ask us to postpone or delay any payments.
In that sense, our business was better placed and we were able to cope with the financial crisis and its fallout, better than many other segments of the economy.
What kind of improvement have you seen in your business over the past few months?
Ours is a tender based business which is primarily floated by various power utility companies. The investments which they are making in power generation will automatically benefit the transmission segment too.
For e.g. in the first half of the current fiscal year, we got major orders in India from various state electricity boards (SEBs).
Recently, we announced major order wins from Algeria. In that sense, the order flow continues to be good. With these orders and the Saudi Arabian order which we bagged a couple of months ago, our international order book has also picked up.
What is the total order book as of now? How do you see order inflows going forward? What is the timeline for executing these orders?
With the recent order wins our order book stands at Rs58-60bn. These orders will be executed over a period of 18 months.
We expect the trend in order inflow to improve in both India as well as overseas markets.
Can you share with us the order book break up in terms of Indian and overseas businesses?
Today, majority of our orders come from the Indian and South Asian markets, which account for ~55% of the total order book.
How big is the opportunity for KEC in India’s power sector? What kind of growth do you expect from the Indian market?
In India, there is a huge demand for power which needs to be met. If we compare India with any other country, whether developed or even a country like China, the per-capita consumption is extremely low. So clearly, we need to invest more in the power sector, because this sector is the back-bone of our economy.
If you look at the country’s five-year plan, it reflects an increasing spend in the power sector. It is a different story that our plans and our achievements have never matched. But our performance has been improving recently. If we see the 10th five year plan, we added 22,000MW of new capacity. In the 11th five year plan, at least, 45,000-50,000MW of additional power generation capacity will be added, which is a good achievement.
Going forward, our achievement rate will be slightly better as more power generation projects come from the private sector. Their commitment to commence generation on time will be much higher. As a result the overall generation capacity addition will be significantly better than what the country has experienced so far.
Are you looking at new regions to expand your global footprint?
KEC has grown by adding new geographies. If you see our track record, almost every year we have added at least two new countries to our portfolio. This year has been no exception. So, we will continue to expand our global footprint by adding newer markets.
Today, our main focus is South Asia, followed by Middle East, Africa and Central Asia.
How do you see raw material prices moving going forward?
In the last six months, raw material prices have gone up. From November ’08-‘09, prices of zinc, copper and aluminum have gone up. I don’t think no one anticipated the increase in raw material prices. I hope raw material prices will be stable going forward.
What is the outlook on the margins?
In any EPC business a sustainable EBIDTA margin is around 10%. Sometimes it will be slightly higher than that and sometimes it will a little lower. But, on an average, if you take our last five year’s history EBIDTA margins will remain the same.
What are your capex plans?
This year, we plan to invest around Rs750mn in tower testing, balancing equipment and project equipment.
What is the current debt and debt-equity ratio?
Our current debt on the books is Rs6.3bn, the same as March ‘09. Our debt-equity ratio is virtually 1:1. If we take net debt it will be much better because we had almost Rs1bn in cash.
Do you have manufacturing plants abroad?
Right now we do not have any manufacturing plants overseas. But we may look at that aspect as well in future.
Are you planning any inorganic growth?
We will look at inorganic growth, but we cannot comment on it right now. We will announce the same as and when anything fructifies. It takes its own time.
Is KEC considering any new initiatives?
KEC is a project management company and will grow in that area.
An area that we will see more action in future is cables, which has come to KEC’s fold by merging RPG Cables Ltd. with the company. We are working out strategies for growing that business, in India and beyond.
Railways is another area where we have made a small start and will grow that business in the coming years.
How is RPG Cables doing? What is the total debt and losses in that company?
In September 2009, RPG Cables exited BIFR. Subsequently, they also sold the surplus land that they had at Thane.
RPG Cables debt should be around Rs1.25bn. RPG Cables ended March 09 with revenues of Rs350-380 crores.
Your recruitment plans?
Our total employee strength is around 2,800. We keep recruiting as this is a business driven by people. We keep hiring engineers on an ongoing basis.