KEC International sees minimal impact from GST changes, expects strong FY26 order inflow

KEC International expects the recent GST changes to have little effect on its operations, while reductions in duties on cement and solar equipment could improve cash flows and project economics, according to MD & CEO Vimal Kejriwal.

“All our contracts were at 18%. The GST change from 12% to 18% does not apply to any of them,” Kejriwal said, highlighting that the increase affects only small, labour-intensive contracts that the company does not hold.

The major benefit for KEC comes from the reduction in duties on cement, which could release around ₹500 crore in GST input credits and reduce procurement costs. “This will help on the balance sheet side and also on cash flow,” he added, noting that the savings will not materially affect EBITDA margins, which the company expects to remain between 8% and 8.5% for FY26.

Reductions in duties on solar equipment could also improve project economics for developers, which in turn benefits EPC contractors like KEC.

Below is the slightly edited transcript of the interview.

Q: Let's start with your first interpretation on EPC contracts being at 18% and overall it is a passthrough; I guess you get input tax credit for everything, but is there any change positive or negative from your lens.

A: Every contract of ours was at 18%. What has happened from 12% to 18% is small contracts which were labour intensive, with lot of sand supplies, other items, which were at a much lower taxation. There were very few contracts; at least, I don't think we had any contract at 12%. So, it effectively does not apply to us or to any of the large contractors that the GST change from 12 to 18% applies. I don't think it applies to, at least, I looked at all my contracts, it doesn’t apply to any one of them. We didn't have anything at 12% - number one.

Second, the major benefit for us in the GST change would be on the duty reduction on cement, which would help us on the inverted duty structure. Today, if you look at my balance sheet, we have got close to around ₹500 crore lying on GST input credit. And most of it has been happening because we have been paying a higher duty on the input, and we've not been able to set it off. Now that the duty on cement has come down, and which is where our major input credit reversal was pending, that would definitely help. One is on the balance sheet side and second is also on the cash flow side; now that you will end up paying 10% less on the cement procurement, that's one major item, which I am seeing.

Third piece, which we can see, is that with the reduction on duty on the solar side, there could be better economics on the solar side for the developer, and resulting into a better economics for the EPC. I think very broadly, those are the impacts of GST for us.

Q: On cement, just to follow up, since it's a big saving; it is 10% saving. So, what does that mean? Should we expect some of that to flow through the margins? Anyway, this year, you have been guiding for margins to improve to 8%. How are you going to digest the savings on cement?

A: The 8% is on earnings before interest, taxes, depreciation and amortisation (EBITDA) level, so whatever savings we'll have would be on the interest side because cost will not make any difference to us because the GST was, in any case, billable to the customer. So, it is only a cash flow impact for us. Where there could be slight changes on cost structure, would be items which were not billing to the customer, let's say whatever we were spending on the stores, and everything else which is there on the consumable side, there may be a marginal impact, but I still don't see that as a major driver for margin correction, but interest can get impacted positively and also now, with what's happening with whatever RBI has done, and with the US Fed cut on September 17, there could be some improvement below the EBITDA lines.

Q: The other concern, and this is a wider debate, though, I mean, the finance minister, in her response to that question, when we had that conversation with her, she was very committed to capex. She said, whatever I've committed in the budget on capex, we are not pushing back or pulling back from that at all because of the GST cuts. But still, there is this chatter that the government's focus is now consumption, so maybe it starts having some impact on order flows different segments, water, power, etc. Your thoughts?

A: Irrespective of the GST cut, we have seen an impact, at least on the water side, there is hardly any funding happening on the water projects, and that is a big setback. One, cash is not coming for the existing contracts, and the number of orders which are coming on water side have also slowed down. So that's one impact.

As I said, with or without GST, we have already seen a significant slowdown on water cash flows, especially from the central side. Centre is nudging states that you need to do better work on the execution, and you need to take a better control and payment and all that. But somehow, with the state finances, that's not happening. So, water is definitely one subject which I think is getting impacted on this.

Power, if you look at it, it was independent of the government financing; Power Grid Corporation of India or NTPC and all that, they have been raising their own money, and then they have been funding their projects. So, I do not see any major negative on the power projects because of the impact of the cut or the government finances tightening.

On the other hand, with interest rates going down, that could have a positive impact on the government finances.

Q: What about collections? The last time around, you had mentioned that collections in various sectors; water as well was one of them that you said collections were little bit slower. Has the situation improved?

A: Water, it has not improved. Let's be very honest. I don't think we have seen any major improvement happening on the water side. There is still a little bit of a tug of war between the centre and the states as to who will fund what and that is where we are having a problem. But on all other sectors, I don't think we have seen any payment issue.

Q: What is the order inflow as of the July-September quarter of 2025 (Q2FY26). What is that number at and for the year what are you gunning for?

A: As of now our order intake has been roughly close to ₹9,000; ₹ 8,900 or something like that has been the inflow. We have a large L1 position. We do expect significant conversion to happen by September 30.

Our target for the year is around ₹30,000 crore. Last year we did roughly ₹25,000 crore. So, we are hopeful that we should be able to improve it by 20% and reach ₹30,000 crore.

Q: Give us some idea about the size of it. Close to ₹9,000 crore of order inflow so far and for the year you are expecting it at around ₹30,000 crore. But this L1 - that's the joker in the pack, it seems. How large is it?

A: Right now, roughly around ₹6,500-7,000 crore is the L1 today; largely in transmission and a bit in civil and railways also. But we expect that some part of it, would get converted before September 30. So, we should have an order intake coming into ₹3,000-4,000 crore by September 30 further.

Q: For 2025-26 (FY26) how are things looking? Earlier when we were talking about it, for the outlook for the year, revenue growth was in mid-teens, around 15% is what you are talking about, margins in that vicinity of around 8-8.5%, and some debt reduction as well. So, revise all those three numbers for us.

A: The first two remain where they are, at 15% sort of growth and margins between 8-8.5%. Debt, water is still worrying me. I am not sure how much debt will go down, but the interest rate scenario is becoming benign, both in India and international, and we are on 30-35% of debt in foreign currency and now with US Fed rate cut happening, on that part of the numbers, we should see some improvement happening below the bottomline.

Q: Going back to the point on water, my question to you was more in terms of awards, this whole debate between government focusing on consumption versus capex. So, when you say that financing from the centre side is going down for water, and that's an ongoing issue, you have been explaining that to us, that the centre wants the onus to be shifted to the states so they can start financing and clearing the dues as well. But in terms of awards, whether it is the water segment; power you have already mentioned, or even the railway segment, for that matter. Do you sense that the awarding activity could slow down at all over the next couple of quarters?

A: I do not think a slowdown will happen in the power side. Railway has been a bit of an issue for all the larger contractors, except for the bullet train. If you see most of the larger contractors are not getting any railway contracts. Execution is a serious challenge on the railway side.

As far as water is concerned, I will say that tendering has slowed down because of the funding issues. Today, the state does not know whether centre will fund them or not. I think they are very apprehensive of floating new tenders. Second, whatever tenders come like, if you ask me, I have not won or maybe probably I have not even bid for a single water tender in the last two years. It is not a market where we are there till today, unless and until the cash flows improve and the backlogs get clear.

Q: You are expecting more slowdown in railway awards as well?

A: I do not think the railway awards will slow down. I think the issue on railway side has still been on the execution front, where because of blockages; blocks and all that is required, execution on railway projects has always been a pretty slow affair and because of which we have seen many large players getting out of the typical railway EPC contracts. However, in the last two years, the focus has been more on the customer side, new trains and stations and all that. Now we are seeing a change happening, and a lot more tenders are coming out for new railway lines, etc. So, railway, the tendering has definitely increased from before.