KEC Intl to go slow on capex, eyes government orders to boost sales

KEC International has not seen any slowdown in orders yet, but the company plans to go slow on capacity expansion in 2009-10 (Apr-Mar) taking cues from the current economic crisis, Managing Director Ramesh Chandak today said.

“It is important that we don’t spend money on capex, and conserve cash and reduce costs. That will help us survive the economic turmoil.”

The RPG Group’s power transmission engineering, procurement, and construction company would scale down its capex for 2009-10 from the Rs 180-crore capex undertaken by it in the current year to March.

The ongoing capex would see the company adding 30,000 tonnes of tower making capacity to 200,000 tonnes a year by March.

“Governments across the world are committed to spend more on infrastructure, so order pipeline still looks good. There are a lot of opportunities abroad and we would be constantly expanding to new geographies,” Chandak said at a press meet here today.

The company announced it has won an order worth Rs 636 crore from Egyptian Electricity Transmission Co and another order worth Rs 42 crore from Australia.

In November, the company had emerged the lowest bidder for the double circuit overhead power transmission line project in Egypt. The project, KEC’s biggest international order so far, would be executed over the next 24 months.

The company is also bidding for three other transmission line projects in Egypt. International orders account for 65 per cent of company’s sales, while orders from South Asia account for the rest.

In India, orders flow from PowerGrid Corp of India is likely to pick up in the months to June, boosting KEC’s orderbook, Chandak said.

Of the company’s total orderbook of Rs 5,000 crore, orders worth about Rs 1,000 crore are from PowerGrid. The order book was worth Rs 4,700 crore as on September-end.

“We understand orders worth Rs 2,000 crore are to be awarded by PowerGrid by March. We would be bidding for all of them cautiously and aggressively,” the managing director said.

KEC’s current order book would be executed over the next 18 months.

“We hope to maintain the order book at these levels by March, factoring in the orders that would be executed in the next three months,” Chandak said.

The company also hopes to improve its operating margin to about 10 per cent in FYO9, after it fell to 7 per cent in the September quarter due to rising input cost and foreign exchange provisions.

“For an EPC company, we should have an operating margin of 10 per cent for the year. This is not a guidance, but we are definitely targeting it,” Chandak said.

Softening in commodity prices may support company’s operating margin, however, the company’s top line would see some pressure due to foreign exchange translation loss in the current quarter, Chief Financial Officer Vardhan Dharkar said.

Shares of KEC International today ended at Rs 150.15 on National Stock Exchange, down 1.38 per cent from Friday’s close.