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Corporate Report

Published on: Nov. 28, 2021, 8:30 p.m.
Transformation of KEC
  • Goenka: strong growth prospects; Photo: Sanjay Borade

By Arbind Gupta. Assistant Editor, Business India

KEC International Ltd (KEC), the flagship company of the $4 billion RPG Group, is a transformed entity today. The Rs13,500-crore EPC (Engineering, Procurement, and Construction) player which till only a decade ago was primarily known for its Power Transmission & Distribution (T&D) business, has in recent years built up a well-diversified portfolio of infrastructure solutions across industry segments. The Mumbai-headquartered entity, which is currently undertaking over 250 projects across over 30 countries, has diversified into six new infrastructure businesses in the last seven years.  

In the last five years or so, while the share of the company’s T&D business in the total revenue has come down to 55 per cent from over 80 per cent, the non-T&D EPC project business has surged to 45 per cent. This strategic diversification into adjacencies has significantly helped this infrastructure EPC company in putting up a robust business model that has ensured it not only achieves an impressive growth on the revenue front but also makes this journey a more profitable one.

The business diversification, along with its geographical footprint in over 105 countries, has today placed KEC in a strong position in the market as compared to its traditional competitors like Kalpataru Power Transmission, L&T, Tata Projects and others.  KEC’s share price has grown by around four times over the past five years: from around Rs125 in March 2016 to Rs500 in October 2021. During November 2021, the KEC share price hovered at Rs457 with a market capitalisation of around Rs12,200 crore.

KEC (originally known as Kamani Engineering Corporation) made a humble beginning in the 1940s as a small entity engaged in the fabrication of power lines. In the 1980s, the RPG Group acquired the Mumbai-based company from the Kamani family after it ran into acute financial problems. Having passed through some anxious moments during its initial years (post acquisition), the company not only turned itself around but also subsequently evolved as one of the largest T&D EPC players in the world, with a vast manufacturing footprint (six manufacturing facilities for transmission towers and two facilities for cables) extending across India, Dubai, Brazil and Mexico.   

In order to achieve its goal of becoming a complete infrastructure EPC player, the company has built up capabilities across key infrastructure sectors (with a total of eight lines of business at present) such as power T&D, railways, civil, urban infrastructure, solar, smart infrastructure, cables, and more recently the oil & gas pipelines business. In September this year it announced it had acquired Spur Infrastructure Pvt Ltd, a Rs100-crore Indian EPC company engaged in the setting up of cross-country oil & gas pipelines and city gas distribution networks. Having secured its first order for the laying of an oil and gas pipeline from Indian Oil Corporation Ltd, the company currently already sits on an order book of around Rs600 crore with clients like IOCL, GAIL, IHB Ltd and Indraprastha Gas. KEC is looking to take its oil & gas pipeline business to around Rs1,000 crore in the next couple of years.  

The government has made significant budgetary allocations to substantially increase the share of natural gas in the energy basket, from 6 per cent to 15 per cent, to promote green energy, which will require augmentation of the existing oil & gas pipelines network across the country. Additionally, as the demand for crude, petroleum products and gas increase steadily to cater to the country’s energy requirements, there is a continuous need to enhance oil & gas pipelines to transport these products from ports to refineries and from refineries to consumption centres.

  • Kejriwal: 'we have done remarkably well'

    Kejriwal: 'we have done remarkably well'

“The infrastructure sector plays a crucial role in driving economic growth. Targeted GDP growth and large multi-sectoral investments planned through Government initiatives such as the National Infrastructure Pipeline, PLI, are expected to boost the growth in the sector. In line with the government’s focus areas, KEC is strategically diversifying into emerging areas of growth and at the same time, strengthening its existing businesses through adoption of the latest digital and automation technologies. Large stimulus plans announced by various countries also offer strong growth prospects for the company’s businesses to expand and flourish internationally. We are certain this will pave the way for dynamic growth for the company and create value for stakeholders in the years to come,” states Harsh Goenka, 63, chairman, RPG Enterprises.

“In the last six to seven years, we have consciously tried to diversify into adjacent areas of infrastructure. While doing so, we want to leverage our already-existing capabilities in engineering, procurement, execution and project management. Aided by these capabilities, we have done remarkably well in exploring the opportunities emerging in the infrastructure space. Today, we have developed specific skillset and abilities, and are all set to position ourselves as a complete project management company which can deliver projects across a wide spectrum of infrastructure business,” says Vimal Kejriwal, 60, managing director & CEO, KEC.      

Though the T&D EPC business continues to be its major contributor with around 55 per cent of the revenue still coming from this segment, over the past couple of years, other verticals have shown a good deal of traction, with the government’s thrust on various infrastructure projects. In fact, the railways, along with civil and urban infra-EPC verticals, have together emerged as quite a large business for the company, generating almost 35 per cent of its overall revenue at present. In fact, the company’s non-T&D portfolio which would contribute a mere 13 per cent to the overall revenue in FY16, currently generates around 45 per cent.      

Turnkey solutions

In the railways, where the company now undertakes EPC projects beyond overhead electrification (OHE), its revenue grew at a CAGR of 57 per cent to Rs3,409 crore, from Rs210 crore in the last five years. It has emerged as a complete turnkey solutions provider in the railway infrastructure EPC space.  

Apart from OHE systems in railways, KEC undertakes turnkey EPC projects in signalling & telecom systems including electronic interlocking for new lines and capacity augmentation works; new railway lines, including earthwork and track-laying and civil infrastructure such as bridges, tunnels, platforms, stations, residential buildings and workshops.

The company continues to strengthen and diversify its presence across various segments of the Indian Railways and has strategically ventured into new, emerging areas of urban transportation. It has successfully transitioned into a technology player from a conventional EPC player and now executes complex and technology-intensive projects. It has forayed into electrification, track laying and other services in the technology-enabled and emerging growth areas of metros, dedicated freight corridors and high-speed trains.

KEC is today one of the largest contributors to the Indian Railways’ 100 per cent Electrification Mission, having electrified over 30 per cent of the Indian Railway network till date, spanning more than 18,800 km. In the fiscal year FY21, despite the Covid-related challenges, it executed around 22 per cent of India’s railway electrification and commissioned 171 RKM of track laying, which is 26 per cent of Rail Vikas Nigam Ltd’s (RVNL) overall achievement. In fact, the company delivered 11 railway projects, which were all commissioned ahead of the contractual schedule.

  • High-rise residential project at Bengaluru

“KEC has been one of our major partners in project execution. Apart from electrification projects, they have got excellent capability in conventional track doubling and other related works. This professionally-managed organisation has shown their holistic approach even during the recent Covid-afflicted period when they successfully executed projects, managing a large workforce pool in various sites exceptionally well,” says Pradeep Gaur, CMD, RVNL.

Launched five years ago, the civil business has become one of its key growth drivers in a short period of time and currently executes over 30 turnkey EPC projects. The business focuses on the construction of factories, residential and public spaces, data centres, warehouses, water pipelines and sewage and water treatment plants, especially in the mid-sized market segment dominated by small unorganised players and only a few large companies.  In fact, KEC also constructs high-rise residential towers for developers like Godrej, Prestige, and others. It is executing a design and build project for a Data Centre project for DRDO and has also received a new order from Nxtra.

Besides, KEC is building cross-country water transmission and distribution pipelines across Odisha with an order book of over Rs1,300 crore. Being a part of the government’s Jal Jeevan Mission, the company provides water to 2,00,000 households across various villages 

The company entered the urban infrastructure sector in FY20, in line with its strategy to expand into adjacencies and fulfil the sector’s requirement of well-established EPC contractors capable of executing large metro and RRTS (Regional Rapid Transit System) projects. Its focussed approach to cater to this promising market has yielded positive results. It is currently executing seven large urban transport projects across four states in India.

During FY21, the company secured two new orders for the construction of elevated viaducts – one from Chennai Metro Rail Ltd and a second order from Kochi Metro Rail Corporation. It is now constructing seven metro and regional Rapid Transit System (RRTS) projects with a combined value of Rs4,500 crore, which include two projects each for the Delhi Metro Rail Corporation and the Kochi Metro Rail Corporation, one for the Chennai Metro Rail Limited, and one for the National Capital Region Transport Corporation (to construct a section of the Delhi-Meerut RRTS).

Backed by these diversifications, KEC has made big strides. In the last five years, the company has grown at a CAGR of 9 per cent to Rs13,114 crore in FY21. However, the most remarkable part of this journey has been a massive improvement in margins. PAT surged at a CAGR of 30 per cent during this period to Rs553 crore as the company (as part of its new strategy) has been focusing more on profitability than simply building up its order book and growing revenue.

However, this approach has not significantly dented its revenue growth over the years as the new strategy also focuses on the early execution of projects. With this new strategy, the company is today sitting on an all-time high order book (including L1) of around Rs30,000 crore, to be executed over a period of 18-24 months.

  • Villupuram-Thanjavur railway electrification project

Impressive performance

The business diversification along with the company’s geographical diversification (where it has expanded its international footprint to 20 new countries in the last five years, taking the global footprint to over 105 countries; 40 per cent of its revenue now comes from overseas operations), has also provided a strong hedging mechanism, helping it significantly in the last 18 months during the course of the pandemic.

Testimony to this has been the company’s exhibition of resilience and impressive performance during FY21, when despite Covid-related headwinds, it recovered strongly with revenues of Rs13,114 crore for the full year, and a robust growth of 10 per cent vis-à-vis the last year.

During Q2FY22 also, while the company clocked a revenue of around Rs3,587 crore, a 10 per cent YoY growth (above market expectations), it was the non-T&D business that helped it achieve this growth. During Q2FY22, even as the overall T&D business revenue declined by 2 per cent on a YoY basis to Rs1,943 crore, the non-T&D business (railways, civil, cables, and others) registered a robust growth of 34 per cent to Rs1,811 crore.

“We commenced the financial year amidst global upheavals due to Covid-19 and witnessed one of the biggest slowdowns during the year. The environment continued to be challenging throughout the year due to Covid headwinds, leading to sporadic lockdowns at project sites, delay in awards/L1s and a steep rise in commodity prices in the latter half. Even with these challenges, we recovered strongly,” says Kejriwal. 

“Our business and geographical diversification has gone a long way in providing some much-needed hedging against these market disruptions. Besides, our concerted efforts towards accelerated ramp-up in execution, increasing labour strength and deployment of mechanisation, automation, and digitalisation initiatives to improve productivity and quality of execution, played a key role in sailing through this difficult phase. The growth has largely been delivered by our non-T&D businesses, namely railways and civil,” adds the KEC CEO, who has played a key role in transforming the company in the last six years or so since he was elevated from being the president of the T&D vertical to the helm of affairs in April 2015.

Kejriwal, who has over 38 years of rich and diversified corporate experience in the areas of power infrastructure, oil & gas, pharmaceuticals, fertilisers and investment banking across the globe, has now been associated with the company for almost a couple of decades. He joined KEC in September 2002 as the chief financial officer, and held several top managerial positions within the company, before taking over as the managing Director & CEO, succeeding Ramesh Chandak, who retired post an illustrious career with the company. Under Kejriwal’s previous capacity as the president of the T&D business, the T&D vertical had achieved a remarkable 14 -fold increase in revenues.

Kejriwal is a distinguished alumnus of the Kellogg School of Management, USA and Narsee Monjee Institute of Management Studies, Mumbai. He is also a Chartered Accountant and a member of The Institute of Company Secretaries of India. Under his leadership, KEC re-visited its business strategy, focused primarily on improving overall margins and forayed into adjacent areas that could fetch better margins.

  • Kochi Metro viaduct and Panamkutty Road Over Bridge at Kochi

While diversifying its portfolio of offering, backed by its project management capabilities, the company also adopted a great deal of mechanisation and digitalisation across its processes, something that has gone a long way in not only infusing robustness into its execution, but also de-risking its manpower-heavy operations. Moreover, this also helps the company deliver the project, not only on time but also before schedule, thus ensuring savings on cost. With all these initiatives in place, the company has pulled off a remarkable performance over the last six years.

Cutting -edge solutions

KEC, which employs over 9,000 people with EPC footprints in over 70 countries, across multiple sites and eight manufacturing facilities across India, Dubai, Mexico, and Brazil currently executes over 250 projects in over 30 countries and has significantly enhanced its focus on mechanisation and digitalisation across project sites to increase productivity and to recoup time lost due to the lockdown and other challenges.   

Cutting-edge solutions in areas such as execution (use of drones for surveys and stringing, gin poles, high capacity boom cranes and sophisticated concreting machinery), safety (mobility-enabled safety platforms, training through mixed-reality platforms), workforce management (enhanced workforce visibility, compliance and safety) and quality (virtual inspections using technology) have substantially enhanced operational efficiency by improving productivity and reducing time and costs across projects.

KEC has expanded digital adoption with the use of technologies such as artificial intelligence, machine learning, advanced analytics, robotic process automation, IoT and BIM, which help it enhance its efficiencies and deliver cost, quality, time and safety advantages over its industry peers.

The company’s ‘Drone Go-to Work’ initiative continues to strengthen its capabilities to perform surveys rapidly across businesses and string power conductors in transmission line projects. It has also developed and implemented robust innovation processes to drive innovation in businesses, especially in transmission, substations, railways and civil projects, and functions such as engineering, manufacturing, supply chain, finance and human resources.

“These innovations help us enhance our construction productivity, accelerate project execution, reduce costs, ensure superior quality and safety standards, and reduce wastage. Besides continuously reimagining our digital and innovation roadmap, we are also fostering a culture of innovation within the company through the RPG Innovation Festival, a platform where breakthrough innovative ideas implemented by KEC and other RPG Group companies, are showcased to celebrate the spirit of innovation and excellence. Recently, we designed multiple digital solutions, some of which are amongst the first in the EPC sector, to drive benefits in areas of productivity improvement, cost reduction and improved compliances. We also continue to leverage our home-grown digital platform, named ‘Raksha’, to manage EHS compliance at our sites, factories, and other workplaces,” explains Kejriwal.

During the recent pandemic, KEC deployed digital tools and solutions for its large workforce pool at multiple sites to enable safer on-site operations and smoother remote working experiences. The company was one of the first to develop its own AI-powered digital platform – ‘Netra’– to ensure strict compliance with social distancing and Covid-19 guidelines. Besides, it provided mobility solutions to its employees for health declarations, medical assistance, vaccination status updates, etc. This enabled HR representatives to check on the wellbeing of employees across various geographies quickly and provide the required support to them.

  • Stringing works at a transmission line project in Saudi Arabia

“KEC has been one of our major partners in this T&D space. They have carried out multiple projects for us and what appeals to us the most is their zest and consistency in project execution. Their recent focus on mechanisation and digitalisation have further bolstered their execution capability as they are giving impetus on early delivery. All these initiatives have also helped them immensely during the recent pandemic period when they meticulously mobilised the resources at various sites as also managed their workforce following all safety protocols,” says K Sreekant, CMD, Power Grid Corporation India Ltd.

Milestone projects

Demonstrating execution excellence, KEC commissioned several milestone projects during the pandemic period (FY2021). These include, among others, 400 kV Pugalur-Arasur Transmission Line in Tamil Nadu, a part of PGCIL’s prestigious 800 kV Raigarh-Pugalur HVDC project and also 400 kV Silchar and Misa substations in Assam, also for PGCIL, a part of the North-Eastern Region Strengthening Scheme-II. In overseas locations, which contribute around 70 per cent of the company’s T&D business, it has delivered the 500 kV Pluak Daeng Substation Project in Thailand, which involved the erection of the country’s largest substation gantries (the project was commissioned three months ahead of schedule) and also Tanzania’s first 400 kV substations at Dodoma and Singida.

Despite the ongoing challenges, the company, in FY21, secured new orders of over Rs3,700 crore, a growth of around 4x over the previous year, including several large orders in Oman and Mozambique. It has seen significant traction in the MENA region, with a current order book of over Rs4,000 crore. The company has reinforced its presence in the SAARC region with orders/L1 of Rs1,500 crore across countries, including its first substation order in Sri Lanka. KEC’s T&D vertical delivered 19 projects across India and the SAARC region last year.  In India, the company secured large orders of Rs1,500 crore from PGCIL, under the Tariff Based Competitive Bidding (TBCB) route, for the Green Energy Corridor in Rajasthan.

The company’s sixth tower manufacturing facility, which was acquired in Dubai in February 2020, was commissioned in FY21. This state-of-the-art 50,000 MTPA plant serves high-growth potential markets such as the Middle East and other regions and driving a deeper connect with customers. KEC is today one of the largest globally operating T&D players, with a total tower manufacturing capacity of 3,62,200 MTPA.  KEC’s wholly-owned subsidiary, SAE Towers, is one of the most comprehensive in-house resources for transmission structures and related services in the Americas. It provides complete end-to-end solutions for building transmission lines and substations. SAE is also one of the largest producers of steel lattice transmission towers in the region.

Having built up its capability, KEC’s T&D business provides integrated solutions on a turnkey basis for transmission lines up to 1,200 kV and large-sized substations – air insulated up to 1,150 kV; gas insulated up to 765 kV –and hybrid substations up to 220 kV, and is currently executing over 160 Transmission Line and Substation projects across geographies. Apart from PGCIL, which has been its major customer, the company enjoys a diverse clientele with names like Bihar State Power Transmission Co Ltd, Power Grid Company of Bangladesh, Saudi Electricity Transmission Co Ltd. In fact, the overseas markets continue to have a dominant share of around 70 per cent in the T&D business.

  • CEAT manufacturing plant, Chennai

The strong T&D business, along with the other adjacent businesses, particularly, railway, civil & urban infra and the new oil & gas pipeline business, has created a robust set-up for the company. According to ICICI Direct Research, KEC sees a strong pipeline of orders worth Rs60,000-65,000 crore for H2FY22. Significant traction is visible in international markets like SAARC, Middle East and the Far East. Also, it is focusing on high-speed trains, DFCC and metros, where it sees a large tendering pipeline in railways in the longer term. Besides, the company has reinforced its presence in the water and industrial segment with orders in metals and mining, data centres and the FMCG segment. Also, it is strengthening its presence in urban infra for construction of elevated viaduct and stations.

With all these developments in place, KEC is quite strongly placed in the infrastructure market with a well-diversified portfolio of projects. In the last few years, the company has strategically forayed into various infrastructure sectors, which has helped it immensely to not only grow its business but also do that in a more profitable manner. Importantly, business and geographical diversification has also provided the company the much need hedging mechanism against market uncertainties. It is this diversification that also helped the company sail through the recent Covid-afflicted period quite well.

In fact, while many of its peers in the overseas and domestic markets faced execution-related headwinds, the company managed to pull off an impressive performance. Here, its recent endeavour towards mechanisation and digitalisation has been a major success story since it has been able to mitigate labour and other related disruptions quite effectively without adversely impacting its execution schedule. With these capabilities and diversifications in place, the company is well poised to commence its next growth phase, going ahead.

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