Vimal Kejriwal, managing director and chief executive officer, KEC International Limited (KEC), sees equipment ordering levels in the power sector improving, driven by government reforms. Excerpts from a recent interview…
What were KEC’s key performance highlights for the power business during the past year?
KEC delivered a good performance last year despite the subdued and challenging global economic environment. We successively delivered significant improvements in margins, thereby reflecting a strong performance in the face of challenging global headwinds. Our earnings before interest, taxes, depreciation and amortisation margin for the fourth quarter of 2015-16 stood at 8.7 per cent – the highest in the past 19 quarters. We reduced our interest cost by 10 per cent year on year. Our SAE towers business in the US witnessed a successful turnaround with positive profits before tax. The revenue growth for 2015-16 was flat on account of factors such as the softening of commodity prices, a significant depreciation of the Brazilian real and a delay in the conversion of some large L1 positions into orders.
We strongly focused on augmenting operational and execution excellence, which, in turn, powered our performance to escalated growth levels. We accelerated the delivery of seven projects ahead of the scheduled completion time and even earned accelerated bonus for some projects globally. We strengthened our presence in the international substation arena, specifically in countries like Afghanistan, Bhutan and Saudi Arabia. We successfully entered the Saudi Arabian underground cabling market and are already executing cabling projects there. Our solar business ramped up close to Rs 1 billion and our railways business is poised for accelerated growth, backed by an enhanced thrust from the Indian government and our strengthened pre-qualifications and credentials.
How does KEC’s power sector order intake in 2015-16 compare with that in 2014-15? What is your outlook for equipment orders for this fiscal and the next few years?
We had an order intake of Rs 87.14 billion for 2015-16 as against Rs 82.23 billion during 2014-15, an increase of 6 per cent. Our current order book is in excess of Rs 100 billion and we are L1 in more than Rs 32 billion worth of tenders. In addition, we have announced new orders of over Rs 21 billion in 2016-17.
The outlook on the order front is very positive. Investments in the sector are scaling up on account of the enhanced thrust by the government on the development of evacuation infrastructure, which is unfolding a plethora of opportunities for players like us. Power Grid Corporation of India Limited (Powergrid) alone issued tenders of more than Rs 500 billion of the Rs 1,000 billion announced by the government and capitalised projects of around Rs 317 billion in 2015-16. In addition, we are witnessing a significant pick-up in orders from the state utilities and private players. Further, initiatives like the Ujwal Discom Assurance Yojana are expected to enable discoms to increase their capex, thus generating good business opportunities.
The implementation of the Green Energy Corridors project has already commenced and tenders pertaining to both interstate and intra-state have been floated. We have won over Rs 7 billion worth of projects in this space and are confident of winning some more.
On the international front, the East Asia Pacific region, including Malaysia, Thailand and Indonesia, looks very promising, apart from the South Asian Association for Regional Cooperation (SAARC) countries, Africa, the Commonwealth of Independent States, the Middle East and North Africa (MENA), and the US.
What are some of the new technologies that KEC is planning to introduce in the sector?
KEC has always been a front-runner on the technology and innovation front. In our endeavour to achieve process excellence, we have embarked on a number of digital interventions in our manufacturing and supply chain processes. Our construction forte encompasses the use of advanced mechanisation techniques including barges and cranes, gin poles and sag bridges, best suited for executing complex engineering projects.
We pioneered the use of covered conductor technology in India by executing a 66 kV covered conductor project in Bengaluru for Karnataka Power Transmission Corporation Limited. This technology is ideal for areas where power shutdown is difficult. Its usage results in reduced phase spacing as well as enables greater compactness, which facilitates the deployment of shorter and less bulky towers best suited for urban areas as compared to the conventional bare conductors. Incidentally, KEC also pioneered the use of drones in India for stringing at a railway crossing near Hyderabad.
What are the key challenges being faced by the company?
The major challenges encountered by the company are right of way (RoW) and delayed environmental/forest clearances and approvals for railway, highway, power crossings, etc. (wherein traffic blockages/power shutdowns are involved). Delays in getting clearances on these fronts result in cost and time overruns, thereby leading to deferrals in the project completion schedule.
We also face a number of on-site challenges while constructing lines in extreme weather conditions and in difficult topographies including snow-clad regions, deserts, mountains, hills, rivers and oceans. We do construction work in hostile and sensitive areas, which entails many on-the-ground challenges. We continue to work in these areas in spite of the perceived threat as we feel that bringing development to underdeveloped regions by making power available may help improve the ground situation. This is also probably the reason that our teams are able to successfully overcome issues and execute projects in these regions.
We have already proved our credentials in executing complex projects and delivered excellent results in the most difficult and hostile conditions. Despite challenges such as continuous sand boiling, continuous pit collapsing and swampy soil causing hindrances at many locations during the foundation-laying work, we completed the 400 kV transmission line for the Indo-Bangladesh cross-border interconnection five months ahead of schedule. Barring logistics and severe monsoon challenges, we completed the project in a record time of seven months.
In another project, we constructed a 380 kV overhead transmission line in Rabigh, Saudi Arabia, including a gas-insulated line, despite challenges like hilly and rocky terrain.
Similarly, in Kenya, we successfully completed the construction of a 220 kV transmission line amidst challenges like highly undulated hilly terrain, superficial rocks requiring excavation, steep access, and frequent insurgency incidents in the tribal belt. We also successfully completed the 765 kV Sasan-Vindhyachal transmission line in India. The project had been on hold for the past three years due to RoW issues and court cases. Undulating terrain and hard rock surface made tower spotting a challenge and Powergrid had to develop a special design for the foundation of four towers. We had to deploy a special task force, jointly with the customer and the local administration, to tackle the RoW issues. We had to deploy 32 metre boom cranes for three DD+25 metre towers. The project was successfully completed in the time frame set by the customer.
We completed the 230 kV hybrid gas-insulated switchgear (GIS) substation in Thiruverkadu, Chennai. Among the core challenges were building the substation on the banks of the Cooum river and deploying multiple contractors for carrying out all the activities in parallel so that no time was lost. This was the first hybrid project for KEC and Tamil Nadu Transmission Corporation Limited.
We are currently executing projects at several locations in Jammu & Kashmir, while coping with severe weather conditions, and high altitude and logistical challenges. We are executing these projects as per the timelines.
What are the company’s major focus areas going forward?
While we continue to focus on the transmission business, which is our core, we have also significantly developed and strengthened our capabilities in the substation, cables and extra high voltage (EHV) cabling solutions, railways and solar businesses.
We have significantly scaled up our presence in the domestic and international substation arena and going forward, we intend to accomplish even greater heights in the air-insulated switchgear, GIS and hybrid spaces. We have built/are currently building over 22 substations in India and around 45 substations at various international locations, including MENA, SAARC, Africa and East Asia Pacific.
Our recent milestones in the substation arena include commissioning Asia’s largest 400 kV GIS substation at Kishanganj in Bihar and a 765 kV GIS substation at Thiruvalam in Chennai. We are also commissioning a 400 kV GIS substation project in Manali.
We expect to substantially ramp up our railways business. We have quoted large-value tenders and have already secured a big order of Rs 3.17 billion in this space and expect some more. During 2015-16, we ramped up our solar business by almost ten times and intend to significantly grow in this space. Our EHV cable business picked up, with substantial orders in 2015-16. A noteworthy project was the completion of a 380 kV underground cabling project located in Saudi Arabia. We also have a number of other projects in the pipeline.
What are KEC’s capex plans for the next few years?
We do not have any major capex plans as such. On an average, we spend around Rs 1 billion on maintenance, modernisation, etc. Incidentally, with minimal investment, we are now going to start manufacturing structures for railway and solar projects.