KEC International edges lower after credit rating downgrade

The agency has, however, reaffirmed the company's short term rating at 'CARE A1+'.

CARE Ratings stated that the revision in the ratings assigned to bank facilities and instruments of KEC International (KEC) considers lower-than envisaged recovery in its gross current assets in FY24 (refers to April 01 to March 31) and Q1FY25 (refers to April 01 to June 30) leading to prolonged elongation of gross current asset days (GCA), continued reliance on working capital borrowings including short term debt and leveraged capital structure.

Furthermore, higher debt levels and moderate profitability led to steady deterioration in debt coverage indicators.

KEC plans to raise equity in the near term, of which, nearly Rs 1000 crore shall be utilised towards growth capital for reduction of debt thereby improving its leveraged capital structure and liquidity position.

Long-term fund-raising plan including issuance of Non-convertible debentures (NCDs) of approximately Rs 500 crore is expected to improve the capital structure and also mitigate the roll over risk associated with short term debt.

Going forward, improvement in the profitability and rationalising elongated current asset days are critical for improving debt coverage indicators.

Nevertheless, the ratings continue to derive strength from the company's dominant market position of the engineering, procurement and construction (EPC) business in the power transmission and distribution (T&D) segment, extensive experience of promoters, financial flexibility available being a part of the RPG group, strong project execution capabilities and robust order book position, which is diversified across multiple sectors and geographies.

Ratings factor in the significant addition of orders in Q1FY25 post slender moderation in FY24 leading to strong order book position providing revenue visibility in the near-to-medium term.

KEC International is part of the RPG group. The company is a global EPC major in power T&D systems. It has also diversified in railway infrastructure, manufacturing cables (for power, telecom, solar and railways), civil construction with a focus on construction of industrial plants, warehouses, residential and commercial complexes, smart infrastructure, and renewable sector (solar) projects.

The company's consolidated net profit surged to Rs 87.58 crore in the quarter ended June 2024 as against Rs 42.33 crore during the previous quarter ended June 2023. Sales rose 6.32% to Rs 4511.89 crore in Q1 FY25 as compared to Q1 FY24.