The world is dynamic, we have to change all the time: Ramesh Chandak

When did KEC decide to go international?
We realised 10 years before that growth in India was not happening to the extent that it has to happen. We increased the scope in geographies like the Middle East, Africa and Central Asia. Later, the company decided to extend to the developed world, after emerging markets and the developing world. We started scouting for opportunities and acquired SAE Towers in the US. The company is supplying not just to America, but also Latin America and North America, from Canada to Argentina. That’s like half the world.

They have manufacturing locations in Mexico and Brazil. At the time of the acquisition (2010), the turnover was $128 million and this year, it is expected to move to $175 mn. The company also contributed much more to the profits than expected.

Are you focused only on geographic expansion?
My belief is that only geographic expansion does not work. You also should have a portfolio or product expansion. About five-six years before, we were purely a transmission company. We had power systems, we added cable, telecom, the railways and now we are adding water. Today, if you look at my order book, only 68 per cent comes from transmission, 32 per cent comes from businesses not with me five years ago. Today, if you look at the progress of KEC and ask me how I am doing this when the power sector is doomed, it is a combination of things, geographic expansion and portfolio expansion. Other than SAE, we acquired companies like Jain Signalling, merged the RPG transmission and the cable company.

Which of your product areas have grown fast?
Water and railways have just started, so the order book is dominated by power. In power, I have geographic presence and have added products. So, power is the growth area. Railways and telecom have not been doing well. I hope they will do better from next year.

Are you expanding your product lines internationally?
My strategy is to take these product lines to more countries. In transmission, we are present in 30-35 countries, our cable business is in 30 countries. In telecom, we are present in three countries. In water, we are present only in India and Malaysia. We want to take these product lines to 14-15 countries. The world is so dynamic that we have to change all the time.

Does international business have the same margins as those in India? Which country has better margins?
We get a margin of around nine per cent, no matter which country we are in. When you are working in a limited number of countries, margins in one country can be better than the other. We are working in 30 countries; our average margin is the same.

How is competition for international orders?
Competition is fierce everywhere. Korean companies like Hyundai are very strong. Then, there are others from Spain and Turkey. There is NCC from Saudi Arabia and ETA in America. Added to that, there are always one or two local companies in each country, along with Chinese companies.

Do you see any order windfall from Brazil? The country would be hosting the Olympics, as well as the Football World Cup, and would be sprucing its infrastructure.
Brazil is really growing through the roof. Added to the two big events, the country would generate all the power in the Amazon and bring it to Sao Paulo. So, we are talking about 2,000-3,000 km of transmission lines. This is the ultimate dream come true for a transmission company. This is the best customer we can have. Today, our plant in Brazil is 85 per cent booked, and we expect to get only the value addition. We can grow 15-20 per cent annually.

Which other international markets will see growth in the transmission sector?
In Mexico, we do not see much opportunity. In the US, we expect a lot of modification of existing transmission lines or setting up new ones, in the next couple of years. Our addressable market in the US is a little less than a $1 billion, yearly. This year, it was around $400-500 mn. Canada, too, has a lot of orders from the transmission sector. In addition to SAE, KEC has orders in the Americas. The parent company also gets orders there because of the acquisition, as we are present locally. The North American order book of KEC is just as big as that of SAE.

How is the India order book growing?
Right now, a lot of tenders are being floated by Power Grid. Tenders have started coming in India. Today, we have an order book of Rs 9,200 crore. Last year, our turnover was Rs 4,500 crore. By our turnover rate, we are already booked for two years.

Many capital goods companies talk about under-utilisation of capacity. Do you face any such issues?
KEC consciously has not upped capacity, except what we have acquired. Our model is not to set up large capacities. We have expertise in cross-country infrastructure project management, our core competence. When we require capacities, we outsource; today, about 20 per cent of production is outsourced. So, I am never under any pressure to take an order for my factory.