Knowledge Marine & Engineering Works LtdQ3 FY23Engineering Services

Knowledge Marine & Engineering Works Ltd

Q3 FY23 Earnings Call Analysis

Management growth scorecard

Revenue

Category 2

Margin

Category 3

Fundraise

Yes

Order

Yes

Capex

Yes

3 of 5 growth signals are positive.

Full analysis

Revenue guidance

Category 2

→Current order book stands at INR 650+ crores with a pipeline exceeding INR 1,300 crores, indicating robust future opportunities.
→Revenue for FY24 expected to grow higher than the previous year; exact figures to be disclosed later.
→EBITDA margins projected between 30% to 40% consistently going forward.
→Aim to capture about 10% market share in the dredging business within 3-4 years.
→Growth driven by expanding projects in India and international markets like Bahrain and Myanmar.
→Recurring business constitutes 100% of current revenue, emphasizing stability.
→Planned capex of about INR 60 crores focused on vessel acquisitions and construction, supporting capacity expansion.
→Vessel utilization expected around 290-300 days annually, maximizing operational efficiency.
→Increasing order wins from government projects and strategic bids expected to drive steady revenue scaling through FY25 and FY26.

Margin guidance

Category 3

→The company projects EBITDA margins between 30% to 40% going forward, maintaining strong profitability.
→H1 FY24 showed a 4% year-on-year increase in EBITDA margin and 3% growth in PAT, reflecting stable earnings growth.
→Revenue for FY24 is expected to grow higher than FY23, indicating positive future sales momentum.
→Strong order book of INR 650 crores with a robust bid pipeline of INR 1,300+ crores supports growth prospects.
→Expansion into international markets like Bahrain and Myanmar is expected to drive increased revenues and margin enhancement.
→The company expects steady order inflows, but timelines depend on government approvals.
→Capital dredging has higher margins than maintenance dredging, signaling potential margin improvement as project mix changes.
→Focus on recurring contracts underpins stable cash flows and earnings visibility.
→The company aims to capture at least 10% market share in dredging within 3-4 years, supporting revenue growth and earnings expansion.

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Fundraise plans

Yes

→For FY24, KMEW plans a capex of about INR 60 crores.
→This capex will be financed through a mix of internal accruals and debt raising.
→No current plans to raise equity for capex or other purposes; management prefers raising debt as it is cheaper than equity.
→The company aims to remain net debt-free by aligning existing debt facilities with specific contracts for timely repayment before contract completion.
→For future vessel acquisition in Bahrain, if needed, the company intends to raise debt to fund additional vessels.
→No mention of imminent equity fundraising; focus remains on using debt and internal funds for expansion.

Order book

Yes

→Current order book stands at INR 670 crores with average tenure of 3-4 years.
→Recent order wins include INR 573 crores, with a pipeline exceeding INR 1,300 crores as of late November 2023.
→In the last week before the call, an additional bid of INR 210 crores was added to the pipeline, taking it beyond INR 1,300 crores.
→Out of INR 1,100 crores bid pipeline mentioned earlier, approx. INR 450 crores have translated into business.
→Remaining orders, including Inland Waterway and sand mining projects with government, are under consideration and yet to be finalized.
→The company targets to convert a significant portion of this pipeline into confirmed orders but timelines depend on government approvals.
→Order execution and revenue growth expected in FY24 and beyond, with steady EBITDA margins of 30-40%.

Capex plans

Yes

→Completed capex of approximately USD 5 million in H1 FY24, primarily for a vessel destined for Bahrain operations.
→Planned additional capex of around INR 60 crores (~USD 7.3 million) for the next year.
→This upcoming capex will be a mix of constructing three vessels for two orders and acquiring additional vessels for upcoming contracts.
→Funding sources for capex will be internal accruals and potential debt raising.
→For the Bahrain contract, initial vessel cost was about USD 5 million; additional vessels (second and third) would be similarly priced.
→Capex strategy involves aligning debt facilities with specific contracts for timely repayment.
→No current plans require raising equity for capex; preference is to raise debt if funding is necessary.

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