KEC International?s management remains confident of achieving order intake targets despite intensifying domestic competition. Aided by international orders, 9MFY11 intake at R5,020 crore is up 31% YoY. More importantly, new players would find it difficult to continue bidding at low margins. The recent momentum in inflows would translate into revenue growth acceleration in FY12.
New businesses such as railways, water and BoP would add to growth but would eat into margin gains from SAE Towers. Increased interest cost coupled with stable margins means that FY12 profit growth would lag revenue growth. Order inflow and execution is expected to remain stable.
Large international wins coupled with a stable 13% market share in PGCIL tower orders has resulted in robust order inflow momentum. Though revenue growth has been subdued in 9MFY11, none of the orders are delayed. While current order book in the new businesses is not yet large enough to swing the needle, these initiatives increase visibility for medium-term growth sustainability, given large market sizes in each of the segments.
The company highlighted that about 14% is the sustainable Ebitda margin for SAE Towers, helped by higher proportion of tower supplies and less construction. However, consolidated Ebitda margin for KEC would be about 10%, as new businesses such as cables, railways, power BoP and water (irrigation and water treatment) are yielding lower margins as the company builds qualifications in these businesses.
Hardening of borrowings rates to hurt profitability. The company expects effective cost of debt to increase further from the current 8%, adversely affecting profitability. KEC?s consolidated net debt increased to R1,400 crore at end-Q3FY11 to fund the $95 million acquisition of SAE Towers and increase in working capital needs.