KEC International Limited Q3 FY16 Results Conference Call

KEC International Limited Q3 FY16 Results Conference Call MANAGEMENT: MR. VIMAL KEJRIWAL, MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER, KEC INTERNATIONAL LIMITED MR. RAJEEV AGGRAWAL - CHIEF FINANCIAL OFFICER, KEC INTERNATIONAL LIMITED Page 1 of 21

Ladies and Gentlemen, Good Day and Welcome to the KEC International Limited Q3 FY16 Results Conference Call. We have with us today from the management, Mr. Vimal Kejriwal -- Managing Director and CEO; and Mr. Rajeev Aggrawal -- CFO. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing * then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Vimal Kejriwal. Thank you and over to you, sir. Thank you. Good afternoon to you all and thank you for your continued interest in KEC. I am pleased to inform you that we have delivered the fourth consecutive quarter of good results. The numbers reflect our focus and improving profitability of our business. During the quarter under review the business continue to face commodity price headwinds, significant depreciation of foreign currencies and global economic uncertainty. These factors impacted the revenue growth both for the quarter and for the nine months. In spite of this we continue to deliver improved margins in the last few quarters our production volumes have also seen good growth across all our business. The EBITDA for the quarter is at Rs.161 crores which is an increase of 54% as compared to the corresponding quarter last year. EBITDA margins at 7.8% are the highest in the last 15 quarters and we are at 5.1% in the corresponding quarter that is an increase of almost 2.7%. EBITDA in the first nine months of the year stood at Rs.456 crores at 7.7% against 5.5% in the same period last year and an improvement of 220 basis points. Substantial increase in PBT from almost like close to Rs.1 crore in Q3 FY15 to Rs.74 crores this quarter. PAT for the quarter stood at Rs.37.2 crores against a negative Rs.25 crores in the last corresponding quarter. On a nine month basis PAT is Rs.106 crores against Rs.7 crores in the corresponding period. The numbers above are before considering the impact of Thane land sale which were last year and the Telecom Tower sale this year. The new order in the first three quarters have been at Rs.6,147 crores, in addition we have yesterday announced new orders of Rs.690 crores taking a Y-T-D order inflow to Rs.6,837 crores which is an increase of 26% Y-on-Y. Additionally our L1 position as on today after yesterday s order continues to be very strong at around 3,000 crores plus. The order book as on 31st December, 2015 is at Rs. 9,370 crores. We have been able to successfully expand our substation business internationally building on to our success in the domestic substation business. Our substation order book now constitutes almost 15% of our total order. Our solar EPC business saw significant momentum with an order intake of almost 130 crores. The SAE business has turn profitable in the year with a positive PBT for the quarter and a positive EBITDA for the entire nine months. Page 2 of 21

During the quarter we have been able to reduce our interest cost by 17% Y-on-Y and 13% Y-T- D basis. As a percentage of sale interest have come down to 3.3% against 3.9% for the quarter and at 3.5% for nine months against 4% in the previous nine months. We are also seeing some improved traction on the domestic front with roughly Rs.4,000 crores of tenders in the pipeline from PGCIL during this quarter and another Rs.3,000 crores of orders in some of the key SEBs where we operate. We have also seen the railways suddenly coming up with tender and we are now having Rs. 2,500 crores of tender to be quoted on the railway side. We expect substation railway and solar business to be in the potential growth areas in the mid to long-term. I am now happy to take your questions. Thank you very much. Thank you very much, sir. Ladies and gentlemen, we will now begin with the question and answer session. The first question is from the line of Manish Ostwal from Nirmal Bang Securities. Please proceed. Manish Ostwal: First question on these three factors the commodity price headwinds and the FX translation impact. So you could quantify the number on the top-line side how much it has affected? If you look at the quarter the commodity between the T&D and the cable business put together roughly around 140 crores and Brazilian Reals because that is only a translation another 43 crores so, roughly we have close to 185 crores of impact on the top-line because of these two factors. Manish Ostwal: Okay. And secondly sir, I heard on TV you were guiding 5% top-line growth in FY16 and I think you will sustain current nine-month margin for the next quarter also. So in situation the numbers looks significantly higher for quarter four so I mean 5% translate to 14% sequential growth in the top-line. Manish, you will notice that in Q4 we always again almost 40% of our revenues generally in any case. So we are hopeful that we should be able to manage that and what I had said that it will maximum on 5%. Manish Ostwal: Okay. And lastly sir, on solar side we recorded a revenue of 41 crores so what kind of medium term opportunity in this segment and especially solar and railway both in terms of business opportunity and what we are targeting for? See to me solar and railway both together next year should probably more than Rs.750 crores - Rs.800 crores that is the number which we are targeting at. Thank you. The next question is from the line of Utsav Mehta from Ambit Capital. Please proceed. Page 3 of 21

Utsav Mehta: Just a quick follow-up on one of the comments that you made, you have seen sudden increase in railway tenders could you elaborate on that in terms of some quantification and if you comment on whether anything is different about these tenders whether they are larger in size or do they pertain to any particular segment or anything of those sort? When I am talking about the railway tenders for us we are basically in two areas: one is we do the overheads with coal which is a railway body by itself and then we do composite contracts with RVNL. So when I am talking about these contracts these are individual I will say anything from Rs.150 crores to Rs.300 crores - Rs.350 crores and the scope would involve overhead transmission traction what you call it and also doubling of lines and building off stations bridges, railway workshop et cetera et cetera. So if you look at earlier maybe a year back all these tenders would be of the value of Rs.50 crores - Rs.60 crores - Rs.70 crores now with a 5-year CAPEX plan of Rs.8.5 lakh crores the railways have clearly decided that they need to up the size of each contract and they also need to have bigger players coming in. So that is the basic thing which has happened and that is why the size is probably coming in. Thank you. The next question is from the line of Jigar Bhagat from Deutsche Bank. Please proceed. Jigar Bhagat: Can you please provide the debt numbers as on December 2015? May be I will ask Rajeev to just talk all the debt numbers. So the debt number for the quarter ending 31st December is close to about Rs. 2,700 crores. Jigar Bhagat: Okay. And how much it is current portion can you please provide that? This is total borrowing of the company and out of that the term loan portion is only about Rs.800 crores so, roughly about Rs. 1,800 crores is a working capital limit and out of Rs.800 crores the current portion which is repayable in the next one year is about Rs.85 crores. Jigar Bhagat: 85? Yeah. And just to mention that during the quarter our borrowing has gone up by about Rs.500 crores and but with a similar reduction on the acceptances side. So our total outside liability which is including the acceptance and the borrowing remains at a constant level of Rs. 3,600 crores. And I think the reason why we have done is we found that our borrowing cost are lower than the acceptance cost and that is one of the reason why you are seeing that interest cost reduction. Jigar Bhagat: Okay. And could you please throw some light on how the working capital perform for the first nine months if you have the numbers? Page 4 of 21

So working capital as such we have been able to manage the working capital very efficiently and there is no increase in the working capital cycle as such so we are operating within the working capital sectors, we have been operating in the last one year and this just ease of growing at just mentioned that is only due to the reduction of acceptances because of the taking the advantage of the lower interest cost because we have been able to place commercial in the market at much attractive rate because our rating has improved to A1 plus and therefore by design actually we have reduced the acceptances and replaced that in the borrowing and that is where we are getting the interest cost reduction of almost close to 17% during the quarter. Jigar Bhagat: Okay. Something to quantify it in the terms of numbers of days or the percentage of sales? Okay, the receivables are at 191 days as against corresponding 188 days. Thank you. The next question is from the line of Ranjit Shivaram from Antique Stock Broking. Please proceed. Mr. Ranjit Shivaram, your line is unmuted you may please proceed with your question. Ranjit Shivaram: Just wanted to know the outlook regarding the overseas business like currently we are facing a lot of headwind so how do you see that and what are our plans to tackle the same. See if you look at our order intake, generally order book also we are 50-50 between international and India piece as far as geographies are concerned Middle East is around 14% to 15% of our order book and we have still not seen any slackening of the order intake or the what you call the tender pipeline from Middle East or the SAARC region or in Africa. In fact, surprisingly what we are also seeing is that the East Asia pacific portion that is Malaysia, Indonesia, Thailand also are coming out with significantly large tenders. So to me the international outlook continues to be fairly good for us. Ranjit Shivaram: Yeah, regarding the overall what we get to hear from others in terms of Middle East we will be largely unaffected that is what we meant to say? Yes, we are unaffected by the Middle East at least as of today we are not seeing any impact of the Middle East. Ranjit Shivaram: Yeah, there is a fall in commodity prices. So we have to pass on some What is your question, sorry. Ranjit Shivaram: Commodity prices have fallen down because of that is that impacting our growth to an extent they have to pass on some of these prices I am not sure, what you are saying but if it was talk on the commodity prices and I think in opening statement what we said is that there has been an impact on the turnover because of the commodity prices because most of the India business has a pass through. As far the international Page 5 of 21

business is concerned we have fixed price contracts so that does not impact either your top-line or your bottom-line so for the old order which we are executing in international market the commodity is beneficial but for the India market since it is pass through it impacts your top-line. Normally the bottom-lines remains un-impacted in India. Ranjit Shivaram: Okay. So to the extent possible for the fix contract we might see a improvements in margins because we have fix the prices and the commodity prices have fallen, is that right assumption the margins will continue to remain the same? Ranjit what happens is that as far as commodities like copper and aluminum are concern which are clearly hedge-able on the LME the moment we get that contract we go and hedge them. So you will not see any upside from that if the contracts have already been awarded when the prices were high or low whatever it was. You will see the contracts which are not been opened which have quoted the high price and they get open and you get awarded that is why you basically as far as aluminum and copper is concerned. As far as steel is concerned even till today there is no proper mechanism for hedging available. Normally steel prices are open so whenever there is a moment in the steel price you will have a benefit a loss both ways. Ranjit Shivaram: Okay. And sir, quickly if you can throw some light regard DFC are you see any meaningful ordering happening and because of that will that add on to our growth for the next year? We are still not an active player on the DFC if you are asking about DFC, this will like to go more with our normal OHA and the core composite contracts et cetera. Thank you. The next question is from the line of Rajiv Mehra from JM Financial. Please proceed. Rajiv Mehra: Just wanted to get a sense of your order book guidance for FY17 because I believe that since you guys are L1 in 3000 crores worth orders expecting to come in the fourth quarter so you would close the order book around 10,000 crores is that correct? I do not want to get into arithmetic side but what will also happen is going to depend on what sort of revenues we finally get into this quarter just talking about the overall 5% sort of revenue growth in Q4. My guess is that the order book should remain around that level of what we have today somewhere may be 9,300 points I do not know exactly but probably 500 or something. Rajiv Mehra: Okay. But in sense for FY17 any guidance or growth in the order book are throwing a number on that? See Rajiv, we are looking at growing 10% revenue this year so, if we are planning a 10% revenue growth we will have to have at least the 10% order book growth if not more. Rajiv Mehra: Fair enough. Could you throw some light on your taxation which is I think currently your normal income is around 50% at the moment so why is it such a high tax rate? Page 6 of 21

I think the basic reason why we have been having this higher tax rate is like India there are many other countries where you have taxation problems with foreign companies so, with our 31 countries operations every alternate quarter we end up some issue with somethings so that is where we have some problems with a couple of countries in the last quarter so, as matter of prudence we provided for that so, I think nine months is we generally look around 36%, right. If you look at nine months results then I think the tax rate is much more moderate which is at around 42% or so. Rajiv Mehra: I am sorry; I could not hear that nine months is? I am saying for nine months period if you look at the tax rate then that tax rate is much more moderate and it is about 42% for the value period. Rajiv Mehra: Correct. So is it fair to assume for the coming years ahead also the tax rate would be in the range of 40% plus in and around 40%? I think the efforts are to maintain the tax rate at about 35% but as Vimal rightly pointed out that you keep on getting surprises in some of the foreign territory that is where the taxes actually go up but our endeavor is to make the tax rate at 35% or so. Rajiv Mehra: Fair enough. Just one last question if I can just put in, what is your sense on your water business and how is that growing and what is the order book like on that front? See water business has not been growing. Water has been a slight disappointment in the way the tenders have been flowing in we have not seen much tenders coming in and our basic hope was on the Clean Ganga Mission there is a so much of talk happening we did expect that there would be large order flowing in from that. Unfortunately, we are just seeing some small orders coming in that through some of the municipalities and all that so that is where we are basically on the water. It is not growing right now, we do expect that with so much of things being talked about this maybe in the next few months government specializes how and what we will do in this mission, let us issuing orders. Rajiv Mehra: Okay. What is your order book standing on this segment? It is roughly around Rs.300 crores. Thank you. The next question is from the line of Vaibhav Sawant from Deutsche Bank. Please proceed. Vaibhav Sawant: Sir, just wanted your view on how do you see the solar sector moving? When I mean solar sector what is the kind of orders and what are the kind of clientele and let your targeting the size of orders and the period of execution? Page 7 of 21

See solar if you look at simple orders which we have been right now doing the execution period has been around three months to four months, we have basically coming in once the developer has won the order, the bid or he wants to go and develop an independent let us say merchant solar plant these normally take three months to four months to complete. If we start getting into larger plants which is where you get involved with a developer from the bidding stage itself and then doing it, it can last from eight months to nine months that is when results came from three months to nine months is what the execution cycle would be. If you look at this year we will do probably we will grow 100% of revenue in solar and the order book was roughly zero at the start of the year so, we would have booked and build the revenue. As far as group is concerned I think we result talking about 100 gigawatts maybe 20 gigawatts next year so even if you put a figure of Rs.5 I think it will reach 1 lakh crore something around. So until last it will dependent upon what we see or willing to address there are many pieces where you have to be equity holder also which we do not want to be, we are a pure EPC company so, we will be targeting orders which there is a pure EPC involved. Thank you. The next question is from the line of Aditya Mongia from Kotak Securities. Please proceed. The first is more on the acceptances getting converted into debt. Are we going to see a further decline in acceptances going forward? It actually depends there is a benefit in terms of the lower interest rate then definitely yes, but my sense is that the majority of the acceptance where we were paying let us say high rate of interest we have already converted that into the rupee borrowing which we have issued the CPs and all. So I do not think that we can see a substantial decline from here. So the way I see this is that if your acceptances go down and debt become higher essentially your EBITDA margin improves and obviously debt or the interest cost as a percentage of sales also goes up. So in light of this development acceptances are close to about 1,500 crores would have come down to 1,000 crores a reasonable kind of decline do you then would want to revise the EBITDA margin guidance incrementally? No, that does not exact for EBITDA in the absolute terms because basically the interest cost is going down that is already getting reflected in the lower interest cost. I think Aditya the issue order what you are talking about is something different from the way we are handling it. These acceptances it is basically it is more like a buyer s credit which you are taking so any case whatever we are paying was debited to interest cost only. Okay. So interest rate the raw material cost changes because you would Aditya, if you take a supplier s credit then it gets billed into your price impacts or EBITDA. We were doing the financing of these procurement hitting our interest account. Page 8 of 21

Understood. So the second question was more on let us say what we are hearing from companies such as Thermax who also let you operate in these Asia market wherein a lot of emphasis being given to basically a similar campaign to Make in India let us say Made in Indonesia. Do you see any of the territories that you are focusing on the overseas side where you do not have a local presence getting impacted on this sir? See if you look at today s business we hardly have any order in that and we just accepted I think large order Indonesia which is funded by JICA so it is on international currencies and we are supplying most of the product from India et cetera. What happens Aditya, it depends on project to project and who is the financial agency. If it is a local financing agency, then the it on everything we bought locally and in the local currency. We normally prefer to operate with multinationals where the funding and as well as the purchases can be from outside the home country. But it still depends on case to case. In some cases, the country like Thailand sometimes they insist on bringing some portion to be bought from locally, that you have to go and buy locally there is nothing much to talk about it. Okay. So the next question let us say more on if I hear the you correctly you are talking about for FY17 revenue growth guidance sir, of 10% am I right? Yes. So just wanted to understand this number in the context of let us say the back log being much healthier at the end of the year versus last year whether then 10% what is basically behind that number so, the back log would have grown much more than as far as at least if we kind of see in the tendering that you are talking which is for the 10,000 crores in the fourth quarter even if let us say 20% come our way we should be closer to the 9,500 crores mark or so in terms of backlog so from that perspective next year whether not you can do better than 10%? See it actually depend on two things: one is where the commodity prices continue to head. If the commodity prices increase, I think we should be better off. The second piece is that today we are looking at some order large order now coming in from Power Grid whether that quantity will increase whether the TBC orders get decided faster or not. I think those are a lot of I will say variances which are there. So I do not think today I would like to stick out my neck and say that we can go beyond 10% if the commodity prices go up let you say the number will definitely go up. The second piece is that even for doing a 10% what we have assumed is an almost 15% to 20% of volume growths in the quantities. Sorry, 15% to 20% volume growths in the quantities. Power, steel and basically copper et cetera cable business so to me it is today with the commodity prices it is a little bit difficult for me to go beyond 10% in the numbers. Page 9 of 21

Would the commodity prices in this say to a different level of backlog versus what is reported or have we factored in the impact of commodity decline in the backlog number that we have shared? what happens is that we generally factor all the significant declines so this combine is based on the changes of the commodities. And the margin guidance for FY17 sir? Margins have been coming about growing from 8% to say around 8.5% is what we have been talking about. Sure. Sir, just last question from my side on the solar piece of it, if you could just kind of suggest to us a typical order size and the threshold bidding criteria for that we are biding and business risk if any which you want to highlight which is a solar EPC that we are doing? See Aditya, just started doing solar so right now we have taken a few jobs which are broadly around 10 megawatts each but that is not what we are going to look for finally I think that is the stepping stone. Typically, now the orders are going up to 500 megawatt some of them are 50-70 so, I think to us may be the next step would be orders which would be 50 megawatt - 70 megawatts and all and then you get into the bigger way of getting into 100 megawatt and 200 megawatts. So typically right now the orders would be Rs.20 crores - Rs.20 crores of order and the cycle would be three months to be five months. And the margins would be as we bidding for? Margins would be typical around 7% to 10%. The advantage here is that they will virtually no working capital of employee so when you say the margin will almost be the same at the PBT level. Thank you. The next question is from the line of Ankur Sharma from Motilal Oswal Securities. Please proceed. Ankur Sharma: When I look at our subsidiary revenues and if I take out SAE from there we again seem to have seen a reasonable order actually quite a good growth there in our top-line so I assume that is again primarily coming from Saudi Arabia, I know this question has been addressed but we keep on hearing a lot of negative noises from region so, in terms of execution are you seeing or do you foresee going forward that there could be some risk in terms of execution or do you think that things should continue to way they have been and also what is the current order book for the Saudi JV with us? I do not have the exact number for Saudi but our Middle East is around 14%. So it is largely in Saudi there are small order in Oman and Abu Dhabi so, entire is 14% and as far as the question Page 10 of 21

on the risk and all if you ask me today I am not seeing risk we have been executing orders we have got new orders last month, everything seems to be fine we have a tender pipeline of almost 10,000 crores with Saudi we will bid in the next one month there will be some tenders in Oman and Abu Dhabi to be bid so if you look at the ground situation specially on the T&D I am not seeing any significant problems, okay. What we are hearing about it mainly when you look at hydrocarbons there are huge projects to be coming up now, that crude coming down from 100 to 30 some of these projects cannot be viable they are building football stadiums, they are building some large railway lines, so there are a lot of, they were building so new cities so many of them what you call good to have, our which are on the slow track but whatever projects we need for the let us say for the well-being of the society they are still going ahead, in the last I think six months or nine months we have awarded three or four large power plants each more than 1 gigawatt so they have been going ahead and doing what they need and, as far as whatever I read in the News Paper Saudi has got a breakeven of $10 per barrels or so.. They still make a lot of money may be not what they were making earlier so I do not think today we are not seeing any issues, tomorrow god knows. Today we are executing our projects we are bidding for tenders we are getting awards that is what the question. Ankur Sharma: And no delays in terms of payment either sir side right on you existing projects? I am not seeing anything significant happening on that. Ankur Sharma: Okay, that is very helpful. Sir, secondly, you did mention about L1 orders of close to 3,000 crores are these again primarily from this region or are they mix of both India and the Middle East and other geographies? No, they are mix from everywhere they are Middle East, they are from Africa, they are from India so I think it is a mix of various place. Ankur Sharma: So broadly it is again like a 50-50 mix is that how we should be looking at it from India and overseas is that? 50-50 our international is slightly higher than India. Ankur Sharma: And thirdly, on SAE we have seen you talk about EBITDA positive numbers this quarter and also at the PBT level. This is despite the top-line actually having de-grown by close to about 17% this quarter so, if you correct me if I am wrong so part of the de-growth would also be because of the Real depreciation but could you talk a little more in terms of how the business is doing there and how do you see this in 2017? One thing Ankur is that the major de-growth is on account of the currency devaluation that is one thing. The second part is if you look at Brazil, Brazil is an economy which is in shambles but which is sort of self-funding economy. If you look at our company we buy in local currency, we sell in local currency, our costs are in local currency and we have an order book for next two Page 11 of 21

years. So if you look at the Brazil operation by themselves they are very profitable, the problem is happening towards is then we are translating when consolidating it. If you look at Mexico, Mexico last year was a basically a bad mess for us, this year we have been able to clean it up and that is where the large turnaround we are seeing is basically happening more from Mexico. Brazil has been let us say constant in their numbers. Ankur Sharma: Okay. And sir, how are 2017 do you expect a similar Rs.180 odd crores - Rs.190 odd crores of top-line coming from SAE every quarter is that something we can sustain. Yeah, we are talking about roughly around 800 crores per annum, yeah it should be around that range. Ankur Sharma: It should continue in that range. Thank you. The next question is from the line of Sandeep Baid from Quest Investments. Please proceed. Sandeep Baid: Sir, in response to one of the earlier questions, did you indicate that adjusting your order book in line with fall in commodity prices? Yes. Sandeep Baid: Okay. So the order book that you mentioned 9,300 odd crores reflects the change in the commodity prices? Yeah, we keep on updating the order book and so on because then you are not going to execute the original order book. Sandeep Baid: Okay, right. Sir the second question is on the Saudi in the last call you mentioned that there is a tender pipeline of about Rs.12,000 odd crores which you would bidding for in the next couple of months and in this call you mentioned that there is a pipeline of another Rs.10,000 crores. So just wanted to know how much did you bid in the last quarter and how many new projects have got added? I do not have the number of what we bid but if you look at our December announcement I think roughly 660 crores something order has been announced from Saudi and that is not our full share we have a JV partner I think the total value would have been probably around Rs.1,000 crores or so which we got in Saudi in December I do not have the October November numbers but would have some projects there. Sandeep Baid: Okay. So you are not seeing any delay in the tendering process in Saudi? I do not know whether to say yes or no, because what we are seeing that they keep on postponing some project because they do not have right-of-ways, that is the reason we think it was but there Page 12 of 21

are continuous inflows of new projects also happening and they have been opening bids like some of the projects which we got in December had been bid in December and they awarded in December. Thank you. The next question is from the line of Nikhil Kothari from KR Choksey Shares. Please proceed. Nikhil Kothari: I just wanted to ask what is the working capital we have in Brazil and SAE? I do not think we have the number right now may be you can speak to Nitin later on and take the numbers. Thank you. The next question is from the line of Ambar Singhania from Asian Markets Securities. Please proceed. Just a couple of questions from my side, if you can share the like-to-like growth in SAE Brazil and Mexico without taking the currency thing on a constant currency basis you can share what kind of top-line growth and EBITDA growth we have seen there? Yes, I think if you look at the numbers if you add both will be 3% to 4% growth. 3% to 4% growth? Yeah. And how is the EBITDA margin sir on that? EBITDA margins have significantly improved because last year we were significantly negative in Mexico so the EBITDA margins would probably be around 8% to 10%. 8% to 10% now? Yeah. Okay. And the situation has improved in Mexico completely now? Yeah, Mexico has improved significantly that is the reason SAE is positive this year this quarter. Okay. Secondly sir, if I see the kind of commodity prices decline which has happened over last four quarters whereas our EBITDA margin in last four quarters has been remain in the range of 7.3% to 7.8%. So are we not getting the entire benefit of the commodity prices where we have the fixed price contract to almost to the tune of revenue in the international aspect? Page 13 of 21

See what happens Ambar is that you are partly right in the sense that for 50% of our contract which are in price variation you obviously do not get an advantage of that and in the fixed price as I was explaining earlier for aluminum and copper all that we book it on the we book it on the day we have the contract so, we need to stay hedged. So the advantage which we are basically getting is on the steel prices. So whatever international orders you have when you are still to supply it now et cetera that is the basic place where you actually have advantage. Okay. So sir, in our current order book what could be the kind of tonnage we would have having in terms of supply? So if add SAE it would be around 200,000 tonnes. 200,000 tonnes in the order book? Yeah. And how much we would have supply in nine months sir including SAE? It would probably be around 170,000-180,000 including SAE. Including SAE? Yeah. I think the reason why you are seeing a slight decline is around substation order book is increasing that will extend to decline in the numbers for next year as compare to the fact we have this year. Okay. And substation also we are getting the similar kind of margin which we enjoy in T&D side now sir? Yeah. Okay. Just one more thing sir on the order book as you mentioned that we are looking at 10% top-line growth whereas we are looking at around 20%-22% of quantity growth in that sense so, are we assuming another 10% decline in the realization or 8% to 10% decline in the realization? So even this year there has been 20% decline in commodities so, that is where when we are talking about that some growth will come from other places and the balances the commodity will remain we have to grow at 50% more to achieve 10%. See last year what has also happened is that in the initial quarters we had a higher commodity prices. The last two quarters I think it has been pretty low. So we had at least one quarter of slightly better commodity prices now our assumption is that in the next full years it will remain at this then we will have to work at least that 20% or so to maintain our 10% growth. Page 14 of 21

Okay. And sir given the order book size of Rs.9,300 crores plus the L1 which may come entirely on Q4 or may come in by Q1 as such are you confident enough to achieve the 10% in that part? L1 is for the full year because right now we are not looking at 10% of this quarter overall, we should be going around 5% for this year. Next year obviously we should have a long time ago and the way Power Grid is now opening up and all the SEBs with the UDAY Scheme, etc., we do expect that there will be more order coming in now from SEBs and from either Power Grid or from people like Sterlite or Adani and all. So we should have enough growth. Thank you. The next question is from the line of Bharat Sheth from Quest Investments. Please proceed. Bharat Sheth: Sir, just now as you mentioned I mean see earlier we were talking a lot of traction from certain SEB now with UDAY coming in and how do you see I mean the things are happening on the ground level and so which are the another SEB are coming I mean forward for upgradation? Neither the SEBs nor the government had any choice but to implement UDAY otherwise you know what is going to happen to the banking sector. So that was on piece, the second thing is that I am not saying that UDAY will do anything of you immediately let the government take up let the debts be clear and all that and then the Discom will start improving. The impact of the Discom on the Transco which is our client will probably take some more time to come from the UDAY scheme but what is also happening is that the overall power tariffs have gone down, the Discom losses are going down, the states are feeling that it is better for them now to supply more power and make money. Till now what you are seeing as a general sentiment is that SEBs was at let us supply as less power as we can so that we can minimize our losses. Now with power cost going down they are also finding that it maybe actually beneficial for them to start supplying more power. You look at Bombay I do not think your tariff has come down but the tariff for Reliance and Tata has come down. So slowly we are also seeing that there is a need there is a demand from the SEBs from the power plants and also to have more transmission line that is my second thing. The third thing is what is happening is that with Power Grid having done a lot of good work in the last two years there is a lot of pressure on the SEBs now to build the last mile from the Power Grid power lines to have their own transmission lines in place. Today if you look at my order book, my orders for SEB are 60% of my Power Grid order book it has become that large and that is with only four or five SEBs we do not work with many of them so if we start working with many or all of them then probably order will be more than that of Power Grid. Bharat Sheth: Okay. And sir, then how is the working capital side all the SEB and EBITDA margin wise? SEB is obviously the working the capital slightly longer but it again depends upon let us say SEB to SEB. There are some SEBs where you give (invoice) before a particular cut-off they will make payment within seven days. There are others who take three months and which say its payment cycle is 90 days so depending upon that you will factor in that interest cost in your EBITDA so, generally you will find that EBITDA for SEBs would be slightly higher because Page 15 of 21

the interest cost there is higher for me so at the PBT level the margins should probably be similar but the mix can be different with a slightly higher EBITDA and lower interest in our cost. Bharat Sheth: So sir, earlier I mean were we targeting like I mean that existing kind of borrowing we can continue to grow for next two years and now with commodity prices following so overall I mean outstanding also in absolute terms may go down so do we see improvement or we still hold on and that with existing borrowing we can manage for two years growths? See the problem happening now is that with commodity prices falling even to maintain the same turnover you have to do 20% more business that is becoming a problem in terms of working capital management that although we think that it is going on but we are doing more work. Bharat Sheth: So going ahead I mean with growth rate improving I mean do we expect I mean the borrowing to go up? No, there I will go back to my earlier statement that we really want to keep the working capital constant with the increase business and reduce our interest cost. Thank you. The next question is from the line of Balchandra Shinde from Centrum Broking. Please proceed. Balchandra Shinde: Sir, I would like to know is there any delays from Power Grid you are experiencing on off-takes, what is the current trend on execution front right now? See Power Grid what is happening with Power Grid is let me put in this way they are prioritizing some projects which they want ahead of others. So in a way I can say there is delay in some projects but I will also say that they are expediting from other projects so, to be overall for a company like us which would have 30-40 projects of Power Grid for execution it will not mean anything significant to some projects they really want to push like we did one project in Tripura for them which was a 12 month projects they wanted us to do it in seven months and we did it for them now in the December. There are other projects where they will say okay do this a little slow because the contractors doing the project ahead of you or behind you he is not able to complete so I will not be able to charge the line so sometimes they may ask you to slow down one particular project and increase the pace of other project which they can complete and capitalize and start earnings revenue. Overall I do not think I am seeing any significant impact for a company like us. If it is a smaller and if you are having only four projects in Power Grid decides to slow down all the four projects, then we may get into trouble. Balchandra Shinde: Okay. And sir, regarding competitive pressure what I have seen over the years in Power Grid there has been a scenario where they have also increased the knock down version ordering like only giving transmission tower order so two - three new players have emerged like Karamtara Engineering, Skipper so what kind of competitive scenario you see means like are we bidding Page 16 of 21

for it standalone transmission tower related orders or we are looking only for EPC related full packaged transmission line related orders? See we are bidding for all the orders whether there is only supply, only EPC, or full EPC, let me also explain some more things is that if you look that tomorrow there is a tender for Vemagiri project which Power Grid on 100% TBCB, they are going with the full complete turnkey project where they are saying even supply conductor, insulator everything. So it depends on Power Grid also has become a very dynamic organization and they keep on changing their methods of their, the techniques of tendering or whatever you want to call it depending upon their needs so sometimes it is pure tower supply, sometimes it is pure EPC supply, sometime it is a combination, sometimes it is a full lump sum it also depends upon the financing, if it is finance project from ADB then ADB does not make them split project, then they have to bid out the complete lump sum project. Balchandra Shinde: Okay. So it will be largely depending on the financing or any other feasibility factor where they break down the order? Yeah, it depends upon what is the reading of the market. If they think that they can buy conductor better than me they will break it down, if there is thing that no, this project is so complex and you require larger player who can supply 30,000 tonnes design and towers from them then they may not like to break it down. Thank you. The next question is from the line of Khadija Mantri from Dalal and Broacha. Please proceed. Khadija Mantri: Sir, I wanted to know PGCILs share in the total order inflow total annual order inflow. You want to share the L1? Khadija Mantri: No, PGCIL share in the order inflow for FY16 so far. It is roughly around 25%, I will say it is around Rs.1,400. Khadija Mantri: Okay. So has it got down Y-o-Y? I do not have the Y-o-Y numbers but yes, I think has gone down slightly because Power Grid went slow in their ordering. We have got a few L1 positions with Power Grid, yeah. Khadija Mantri: Okay, sir. Sir, Power Grid in the recent Analyst Meet they have said that their execution pace has increased as in they have completed some of the projects on time or in fact some of them before time. So how do you see that working for KEC as well and the question is coming from because two years to three years back there were execution issues for transmission EPC contractors as in clearance and then land acquisition was a problem. So do you feel that the ease of execution has improved? Page 17 of 21

This is good to say, when Power Grid is referring to early exemption they are referring two of my projects which we have done for them ahead of schedule one of them was in Tripura were we finished as I said 12 months project in seven months. So what is happening is that wherever Power Grid really needs the line very fast they have been going out of the way and trying to solve the issues either by paying more money or by using police force or whatever else is being done. So I do not think the out of the issues have gone down but with the new government legislation or order what they have passed where they are saying that you should pay 85% of the land value for the towers and some particular 15% or 20% percentage of value for the land below the conductors clearly the compensation levels are going up for the farmers and at least I think for some years if Power Grid is transferring these compensation levels then we will clearly have a less ROWs because these amounts are significantly more then what was being paid earlier. Thank you. The next question is from the line of Utsav Mehta from Ambit Capital. Please proceed. Utsav Mehta: So just one quick follow-up on what you said, you said that PGCIL sometimes ask you to slow down execution, how have you compensated for this? Because I am guess you would be still be mobilized over there completely right? It depends upon what happens in the execution slow down normally what they will do is once they ask you to slow down they will revise your what they call L2 network and accordingly all your compensation get build into the L2 network. But is also a fact that you may not get exact rupee to rupee compensation but that is the way it works with the large guy. Thank you. The next question is from the line of Saket Kapoor from Kapoor & Company. Please proceed. Saket Kapoor: Sir, firstly about this electrification of all villages by 1000 days how is the initiative taking up and how has KEC put itself into it? What sort of order have we got on account of this event all together? Again we are not in the last mile of the rural electrification path piece of it so if you ask me directly, have I got anything? We have got directly nothing but what is happening is that once the government is going that they obviously need more power to come to their distribution centers or substations and which is why SEBs are building more lines to draw down from the Power Grid lines. So in a way if you look at my SEBs order book probably in the last one year it has more than doubled. So I do not know whether the impact of this electrification for all or the power cost falling down but clearly we are seeing that the SEBs are doing much more on building infrastructure for transmission. Saket Kapoor: Sir, could you quantify what is the order book then what it has grown? Our order book for SEBs is around 13%. Page 18 of 21

Saket Kapoor: 13%, one three? Yeah, one three. Saket Kapoor: Okay, sir coming to this erection charges cost the erection and the subcontracting expenses have gone up sir, even though the revenue have remained constant or may be the currency effect whatever but still then also the erection the subcontract expenses have exceeded what would you attribute this to sir? Saket there are two of the obviously reasons: one is obviously as I explained earlier that our quantitative work has gone up that is number one. Number two what happens is that see for us you need to look at erection cost, you have to look at the supply cost as well as our own employee cost together so, I will give you an example, today if I hire my own gangs and do a work it will go into my labor cost. If instead of hiring my own our own employee, if I hire a subcontractor it will go in subcontracting cost, if I hire a subcontractor along with material so all these three numbers in a way are interchangeable so it depends upon a way a particular contract is executed and the impact of that so, to me if you want to do a better analysis you should add the raw material piece, the subcontractor piece and the employee cost together and do it. Saket Kapoor: Sir, I was trying to ask you told that you add all three of them and then conclude what has been the cost so, has there been no material change in adding all three of them? I do not think at least the numbers we are having a same profitability and profitability is obviously improved quarter-on-quarter so there will be some change, but if you want to get into more details maybe you should speak with Nitin who can work out exact numbers with you, he will speak to you what has changed, what has not changed. Saket Kapoor: My last question sir. Sir you told in the opening remark only that the fourth quarter is the highest in terms of the revenue so even last year we booked 40% of the revenue in the fourth quarter so this time there will be no changes in that we will have the highest quarter as the fourth quarter? Yeah, that is what we are expecting, see if you look at our numbers we are right now close to Rs.6,000 crores, we are talking about a 5% increase which will take our numbers to around 8,800-9,000 roughly so, in conclusion it will be that only. Saket Kapoor: Sir, last part, if this nature of interest cost just you told that percentage of sales around 3.5% or 4% if our interest cost so our business model has been made in such a way that this is going to remain although even if our order book position is sound and we are going to having more revenue this constant will remain like this in 3.5% to 4%? We have been targeting around 3%. So we expect that with more efficiency and better times coming from Power Grid and other people hopefully, it should go down. Better efficiency also Page 19 of 21

on the working capital side. If you want to take it for your number analysis I think it should look at 3%. Saket Kapoor: 3% for which year sir? Next year. Saket Kapoor: Next year it will be 3% of the sales. Thank you. The next question is a follow-up question from the line of Ankur Sharma from Motilal Oswal Securities. Please proceed. Ankur Sharma: Yeah, sir just a few follow-ups. Sir if I look at the standalone margins I think that is very encouraging at about 7.7% which is more than double of what it was in Q2. So can we therefore assume that most of these legacy orders these are over and therefore margin should sustain or even get better from these levels? Ankur, if you look what we have been talking on the margins and all that for the last four quarters 7.3, 7.5, 7.7, 7.8, okay so I hope that this continue I think we are fairly confident that we should at least maintain 7.8 if not for this quarter. And coming back to your legacy orders yes, very clearly some impact on the improvement has been because of your losses going down into from your non-t&d business. Ankur Sharma: Okay. No, sir actually I was referring to standalone numbers where the numbers have seen a very sharp improvement Q-on-Q and also Y-o-Y but nevertheless I mean what you trying to indicate is that on a consol level as well margins will be at that 8% number which you have been talking about right? Ankur, I was repeating what I said on the non-t&d because the non-t&d business is only standalone once that losses have gone down obviously the standalone numbers are improving. Ankur Sharma: Understand, okay. And sir, I think in the beginning of the call you spoke about this impact of lower commodity prices at about 185 odd crores on the top-line of which I think 140 was on account of cable and T&D I think there is some another 45 odd crores which I missed what was that on account off? It was basically on the Brazilian Real conversion transmission of. 143 crores of commodity and 43 crores was on Brazilian Reals conversion, translation at the time of consolidation. Thank you. Next question is from Poonam from Axis Securities. Please proceed. Poonam D.: I wanted I just missed on the order book numbers sir transmission and distribution division. And also wanted to ask you about the domestic and international break-up of that order book? Page 20 of 21