Detailed Rationale

Crisil Ratings has reaffirmed its ‘Crisil A1+’ rating on the commercial paper programme of KEC International Limited (KEC).

 

The rating continues to reflect the company’s leading market position in the transmission line tower (TLT) business, diversified orders in terms of geography and business segment, and healthy financial flexibility, being part of the RPG group. These strengths are partially offset by large working capital requirement and modest, albeit improving, debt protection metrics.

 

In the first nine months of fiscal 2025, consolidated operating income grew 9% year-on-year, led by strong order inflow and execution, primarily in the transmission and distribution (T&D) and civil sectors. During this period, earnings before interest, tax, depreciation, and amortization (EBIDTA) margin stood at 7.3% (Crisil Ratings-adjusted), improving from 6.7% EBITDA margin in fiscal 2024. Profitability improved on-year on the back of completion of most of the legacy orders that were incurring EBITDA losses, along with rising share of higher margin T&D orders in the execution mix. However, the railways segment continued to underperform, which is expected to continue over the medium term, with the company planning to restrict any substantial order intake in this segment. Going forward, a steady rise in contribution from orders in the T&D segment that offers early double-digit operating margin and prudent risk management measures in the form of, hedging of foreign currency exposure and base metals (such as aluminum and zinc), should drive profitability. The trajectory of margin improvement will continue to be a rating sensitivity factor.

 

Furthermore, healthy revenue growth during fiscal 2025 and slower collection cycle seen in water projects executed by the company led to an increase in the working capital requirement during the fiscal, resulting in higher reliance on short-term borrowings. Nevertheless, equity funds of Rs 870 crore raised by KEC through a Qualified Institutional Placement (QIP) in September 2024, along with income tax refund of more than Rs 400 crore and realisation of collections from past receivables from Afghanistan and from counterparties in India, kept overall indebtedness in check. As a result, net debt (including acceptances) remained at Rs 5,574 crore as on December 31, 2024, as against Rs 5,090 crore as on March 31, 2024.

 

Gradual recovery in operating profitability amid steady debt levels led to improvement in the Crisil Ratings-adjusted interest coverage ratio to 1.8 times for the first nine months of fiscal 2025, versus 1.5 times for fiscal 2024, which is expected to improve further to 2.0-2.5 times over fiscals 2025 and 2026. Improvement in profitability and ability to reduce the working capital requirement, leading to better debt protection metrics, will be a key rating sensitivity factor.

 

Nevertheless, the business risk profile of KEC should remain strong, supported by the established market position of KEC in the T&D segment, the growing scale of its non-T&D business, particularly the civil segment, and robust order book. The company had outstanding orders of Rs 37,440 crore as on December 31, 2024. Moreover, the financial flexibility of KEC remains healthy, supported by cash and equivalents of around Rs 318 crore, undrawn fund-based bank lines of around Rs 400 crore and its ability to raise funds at competitive rates.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of KEC and all its subsidiaries, as the companies are engaged in a similar line of business.

 

Acceptances have been considered as debt as these are interest-bearing obligation to banks.

 

Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers & Detailed Description

Strengths:

Leading market position in the TLT business: KEC has been in the TLT business for over five decades and is among the largest manufacturers in the world, with capacity of 422,200 tonne per annum (tpa). In India, KEC is a leading player with reputed customers such as Power Grid Corporation of India Ltd (‘Crisil AAA/Stable/Crisil A1+’) and various state transmission utilities. Leadership in the T&D segment, as well as healthy growth in the non-T&D space, should continue to support the business.

 

Diversified revenue across businesses and geographies: While around 59% of the unexecuted orders were in the T&D business as on December 31, 2024, KEC also has a healthy presence in the engineering, procurement and construction (EPC) services segment for civil infrastructure (accounting for 25% of orders as on December 31, 2024), transportation (11%), and other segments (5%). Furthermore, the orders are from diverse geographies. About 33% of the total unexecuted orders as on December 31, 2024, were from overseas markets. Exports are primarily to countries in the Middle East, South Asian Association for Regional Cooperation (SAARC), Africa, East Asia Pacific, and the Commonwealth of Independent States. The wholly owned subsidiary, SAE Towers, USA, has a combined production capacity of around 1 lakh tpa in Brazil and Mexico, and mainly caters to the Americas.

 

Order intake was strong at around Rs 22,090 crore in the first nine months of fiscal 2025 (against Rs 18,100 crore in fiscal 2024), driven mainly by the T&D segment that contributed 72% of the orders. The confirmed order book of Rs 37,440 crore as on December 31, 2024, with average execution period of 1.5-2 years, provides strong revenue visibility over the medium term. Moreover, diversified revenue streams will help reduce susceptibility to downturn in any one segment.

 

Healthy financial flexibility: As the flagship entity of the RPG group, KEC benefits from the group’s financial flexibility, strong reputation and longstanding relationships with key stakeholders. The group has presence in diverse businesses such as tyres, pharmaceuticals, information technology, construction, healthcare and plantations. KEC’s financial flexibility is also supported by cash and cash equivalent of around Rs 318 crore and undrawn fund-based bank limit of around Rs 400 crore as on December 31, 2024.

 

Weaknesses:

Large working capital requirement: Operations are working capital intensive on account of the inherent nature of the EPC business and long project execution cycle of 2-3 years, which has resulted in high reliance on short-term debt. Receivables are typically high in this business due to sizeable retention money blocked in projects till the end of the performance guarantee period as well as milestone-based billing in EPC projects in the transportation and civil segments.

 

Crisil Ratings-adjusted receivables (including net unbilled revenue) are expected to have remained sizeable in the range of 255-260 days as on March 31, 2025, compared to 252 days as on March 31, 2024, owing to slower collection cycle seen in KEC’s civil projects in the water segment. On the other hand, recovery of receivables stuck in Afghanistan of around Rs 150 crore and healthy collections from other Indian clients could offset the impact to an extent. Furthermore, lower-than-expected collections and higher working capital requirement in the railways business have exacerbated the working capital position, and the company is in the process of significantly paring down the exposure to this segment. Improvement in the working capital cycle remains a key monitorable as the business grows.

 

Modest, albeit improving, debt protection metrics: Gradual improvement in profitability and steady working capital requirement resulted in improvement in debt protection metrics during fiscal 2025, as against the previous 2-3 fiscals. As on December 31, 2024, net debt, including acceptances, was higher at around Rs 5,574 crore (compared to Rs 5,090 crore as on March 31, 2024), mainly to support the expanding order book and execution. The debt level is expected to have moderated by March 31, 2025, on the back of surplus collections from KEC’s past receivables, including the built-up receivables in the water segment.

 

While interest coverage ratio improved to 1.8 times in the first nine months of fiscal 2025, against 1.5 times in fiscal 2023, it remains lower than 2.5 times reported over fiscals 2017-2022. With improvement in profitability and expectation of rationalisation of working capital in the remaining part of fiscal 2025 and further in fiscal 2026, the interest coverage ratio should improve to over 2 times for fiscal 2025 and further to 3 times over the medium term.

 

Rise in net worth during fiscal 2025, supported by equity funds of Rs 870 crore raised through QIP route in September 2024, is expected to have improved the TOL/TNW ratio from around 3.8 times as on March 31, 2024 to around 3 times as on March 31, 2025. Nevertheless, sustained growth in revenue and profitability, resulting in higher networth and better debt protection metrics remain a key monitorable.

Liquidity: Strong

Cash accrual of Rs 600-800 crore annually, over the medium term, with minimal term loans and moderate capital expenditure (capex) should keep the liquidity position comfortable. Working capital requirement will remain high, constraining liquidity. Cash and cash equivalents stood at around Rs 318 crore, along with undrawn fund-based bank lines of around Rs 400 crore as on December 31, 2024.

Rating sensitivity factors

Downward factors

• Lower-than expected improvement in profitability, leading to operating margin below 7%
• Stretched working capital cycle, leading to weak interest coverage ratio on sustained basis
• Significant debt-funded capex or acquisition weakening the financial risk profile

 

Environment, social and governance (ESG) profile

The ESG profile of KEC supports its already strong credit risk profile.

 

The EPC and power transmission sectors have significant impact on the environment because of risks linked to operations such as energy loss during transmission and waste generation. Also, due to the nature of operations, the sector affects the local community and has various occupational health hazards associated with it. In line with this, KEC is focused on mitigating its environmental and social risks to ensure minimal impact.

 

Key ESG highlights

• KEC has installed solar plants in Jaipur, Nagpur and Dubai. It aims to reduce greenhouse gas emissions by 20% till fiscal 2026.
• KEC’s manufacturing plants have achieved the status of ‘zero wastewater discharge’ and fully recycle both trade effluents and domestic wastewater. It has also taken rainwater harvesting initiatives and a total of 14 rainwater harvesting points are installed in all three of its transmission line plants in India.
• The company is committed to increasing the happiness quotient of its workforce to 85% by fiscal 2026.
• Gender diversity is an area for improvement, with only ~4% employee representation of females. The company aims to increase gender diversity to 25% by fiscal 2026.
• The governance structure is characterised by over 70% of the board comprising independent directors. The management has been effective in creating wealth for its shareholders.

About the Company

Incorporated in 1945, KEC is now the flagship company of the Harsh Goenka faction of RPG group and is a global infrastructure EPC player. It has presence in the verticals of power T&D, cables, railways, civil infrastructure, and solar. The company has eight manufacturing facilities across India, Brazil, Mexico, and Dubai, and is among the largest tower manufacturers globally with capacity of 372,200 metric tonne per annum (mtpa), railways structures manufacturing capacity of 38,000 mtpa, telecom tower manufacturing capacity of 12,000 mtpa and solar structures manufacturing capacity of 10,000 mtpa.

 

In September 2010, KEC acquired a 100% stake in US-based SAE Towers, the leading manufacturer of lattice transmission towers in the Americas with production capacity of around 1 lakh tpa across Mexico and Brazil.

 

For the nine months ended December 31, 2024, KEC reported profit after tax (PAT) of Rs 303 crore on total income of Rs 15,025 crore against Rs 195 crore and Rs 13,794 crore, respectively, for the corresponding period of the previous fiscal.

Any other information: Not Applicable

Name of entity	Extent of consolidation	Rationale of consolidation
KEC Asian Cables Ltd	Full	Subsidiary
RPG Transmission Nigeria Ltd	Full	Subsidiary
KEC Towers LLC	Full	Subsidiary
KEC Investment Holdings	Full	Subsidiary
KEC International (Malaysia) SDN BHD	Full	Subsidiary
KEC Power India Pvt Ltd	Full	Subsidiary
SAE Towers Holdings LLC	Full	Subsidiary
SAE Towers Brazil Subsidiary Company LLC	Full	Subsidiary
SAE Towers Mexico Subsidiary Holding Company LLC	Full	Subsidiary
SAE Towers Mexico S de RL de CV	Full	Subsidiary
SAE Towers Brasil Torres de Transmissao Ltda	Full	Subsidiary
SAE Prestadora de Servicios Mexico, S de RL de CV	Full	Subsidiary
SAE Towers Ltd	Full	Subsidiary
KEC Engineering & Construction Services, S de RL de CV	Full	Subsidiary
KEC EPC LLC	Full	Subsidiary
KEC Spur Infrastructure Pvt Ltd	Full	Subsidiary
SAE Towers Construcao Ltda	Full	Subsidiary