Indian EPC Firms with Middle East Exposure Navigate Ongoing Crisis

Indian Engineering Firms on Wait-and-Watch Mode Amid Middle East Tensions

Key Figures:

• 20-25%: Percentage of overall order book attributed to the Middle East market
• 5%: Decline in shares of Larsen & Toubro and Kalpataru Projects International Ltd on Monday
• 2.7%: Decline in shares of Afcons Infrastructure on Monday

Background

Read also: SpaceX Seeks Record $75 Billion IPO, Potentially Positioning Elon Musk as the World's First Trillionaire

Major Indian engineering firms, including Larsen & Toubro (L&T), KEC International, and Kalpataru Projects International Ltd (KPIL), have significant order book and revenue exposure to Middle East countries. These firms have actively sought business development in the Gulf region, particularly in Saudi Arabia and the UAE.

Impact of Conflict

The spillover of the Iran-Israel conflict into the Gulf Cooperation Council (GCC) countries has led to a decline in shares of Indian engineering firms with major exposure to the Middle East market. L&T and KPIL saw their shares tank by 5% on Monday, while Afcons Infrastructure declined by 2.7%. The conflict has resulted in retaliatory airstrikes by Iran on oil infrastructure and construction sites in Saudi Arabia and the UAE.

Regional Significance

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The Middle East accounts for approximately 20-25% of the overall order book of Indian engineering firms. Saudi Arabia has large-scale ongoing infrastructure and energy projects, including onshore and offshore drilling projects awarded to Indian engineering firms. The region also has significant investments in energy transition and transmission projects, which Indian EPC majors have developed capabilities in.

Assessment

Industry analysts, including Krishan Binani, Director at India Ratings & Research, believe that while some firms may face execution issues amid the ongoing crisis, the Middle East will remain an attractive market for the sector due to large capital expenditures by countries in the region. The impact of the conflict is likely to be temporary, and the Middle East demand trajectory and attractiveness to Indian EPC players are unlikely to be structurally altered.

Company Statements

L&T and KEC International have stated that they are closely monitoring the situation and prioritizing the safety of their employees and regulatory compliance. KPIL has confirmed that its employees have not been directly affected by the ongoing crisis and are in safe zones.