Key Rating Drivers & Detailed Description

Strengths:

Established market position: The promoters have more than four decades of experience in the power transmission industry. On the back of their experience, the company has evolved into an EPC (engineering, procurement, and construction) transmission entity from a pure power products manufacturer. It has also started undertaking projects for transmission lines and has produced a transformer of 500 MVA and Scott transformers in fiscal 2025. It has multiple orders in the pipeline for fiscal 2026. Furthermore, customer profile is diversified as the company has worked for various State Transmission utilities (STUs), public sector undertakings (PSUs) and private companies across India, and has recently added orders from the Indian Railways for supply of scott transformers.

Revenue growth was healthy at nearly 45% during fiscal 2025 and is further expected to improve by more than 25% in fiscal 2026. Order book of more than Rs 1,450 crore provide further revenue visibility for the medium term, with diversity in nature of work and counterparty. Timely execution of orders with stable operating profitability will further strengthen the market position over the medium term.

Healthy financial risk profile: KEL’s capital structure has been at healthy level due to lower reliance on external funds yielding gearing of 0.15-0.2 time and low total outside liabilities to adj tangible net worth (TOL/ANW) of 0.7-0.8 time for year ending on 31st March 2025. As a result of no major debt funded capex expected in the medium term and limited reliance on its fund-based working capital facilities, the company’s capital structure is expected to continue to remain comfortable over the medium term. Further, as a result of low reliance on debt, its debt protection measures are also expected to be at a healthy level over the medium term with interest cover to 13-14 times and net cash accruals to adjusted debt to 2.5-3 times in fiscal 2025 and further expected to improve over medium term.

Weaknesses:

Moderate, but improving, scale of operations: Though revenue increased at a compound annual growth rate of 18% over the four fiscals through 2025 and touched Rs 445 crore fiscal 2025, it continues to remain moderate. As the company manufactures power transformers, it faces intense competitive pressure in the domestic market, which constrains scalability. During fiscal 2025, the company got approval for manufacturing 500MVA (400KV class) and Scott transformers, which had aided the revenue growth in the said fiscal. With sizeable order book in hand, including orders pertaining to high MVA, Crisil believes that the revenue profile of KEL shall further improve by more than 25% during fiscal 2026. Going forward, sustained and significant increase in revenue while maintaining the operating profitability of over 20-22% will remain a key monitorable.

Working capital-intensive operations: Gross current assets are estimated at 200-220 days as on March 31, 2025, driven by inventory of 60-90 days and receivables of 90-110 days. Receivables tend to be high towards the end of the fiscal as the company has major EPC revenue booking in March. However, payments are realised within 40-60 days, on average, and are expected within the same range over the medium term as well. Furthermore, a portion of receivables also pertains to retention money. Nevertheless, the company has a price escalation clause in all its contracts, which mitigates the risk of any sharp fluctuation in input prices. The working capital cycle is supported by payables of 60-90 days, along with bank limit and cash accrual. Given the working capital intensive operation, Crisil believes that company’s working capital requirements are likely to increase, amidst expected scalability, and its efficient management leading to sustained improvement in return on capital employed will remain a key monitorable.

Annexure - Details of Instrument(s)

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