Adani Infra (India) Limited (PSPPROJECT.BO) Earnings Call Transcript & Summary

I think it is still in the same range. So probably those bids are also in process. So let us see how the [indiscernible] goes.

Okay. Okay. And then lastly, how do we -- how are you working on increasing the bandwidth? So what kind of, say, order book or, say, annual revenue, can we reach at peak with the current bandwidth?

Presently, what happening, the whole idea about joining the Adani Group was majorly because of technology, the way we have grown in the last 3 years. So we are trying to adopt more and more technology, I mean to say [indiscernible] technology. So there, the bandwidth is not required from the management point of view, it is required at the plant side. So probably we will be win-win situation that we can add on INR 1,000 crores, particularly for the [indiscernible] plant separately and that gives INR 3,000 crores to INR 4,000 crores wherein we have to execute the project because of the type of the project. So we are presently exploring 2 to 3 buildings in [indiscernible], which were already designed for casting. So that I can get assured once I get through with 1 or 2 projects going on fast track on [indiscernible] , then I would be able to answer your questions properly after 3 to 4 months once we are through in execution of [indiscernible] also.

The next question is from the line of Ashi Shah from HDFC Asset Managers.

A couple of questions again on the structure. -- just for the clarity, when you say there is a lock-in for 5 years, in this 5-year period, there is no option also that the remaining stake can be acquired by Adani? I mean, you -- this shareholding in that sense will remain frozen.

And only after 5 years, the question of right of first refusal, et cetera, arises if anybody wants to sell. Is that understanding correct, sir?

Yes.

Okay. Second, sir, I mean in a case where, let's say, there is an infusion of capital required from the promoters let's say, if Adani want to infuse x amount of capital, does it mean that you will also have to match the remaining stake -- match the similar amount to maintain equal stake or in that case, you may get diluted?

There also, we have explored that first it will be debt part and then it will be equity part. And when it comes to the equity part that at that stage, it can be decided how it should be worked out. But the priority will be debt first because company [indiscernible] balance sheet strength to have more debt. So first it's debt and then it's equity. But that is something which can be mutually decided at that time.

Okay. So this current understanding is more from selling of the existing shares for any primary infusion from the promoters, that's something that will work out as and when the situation arises?

I think I can't [indiscernible] your question. What was it?

No, no, sir. What I'm trying to say is that the current understanding on having equal shareholding is for the current shareholding that we have, but for any primary infusion of capital, let's say, If Adani wanted to infuse INR 1,000 crores in -- I'm just hypothetically giving the numbers. If they want to infuse x amount of capital into the company for whatever reason, then at that time, you will have to probably come to a decision on how to manage your stakes, right? Because debt always cannot be maintaining equal proportion because you may not be able to maybe get the same amount of capital that they may want to infuse?

But where I said that the first priority as per agreement is debt and if the debt is high for the company's balance sheet, then we will have to decide what to do.

Fair enough. I got your point. Just lastly, I couldn't hear clearly on that 10-year part. The 5-year part is clear. You said something about that 10-year shareholder agreement. Can you just repeat that, sir?

I think some of the conditions [indiscernible] got a little bit confused. But I'll come back to you, I think the major stalk of shareholding to be considered is 5 years. But me and my affiliate [indiscernible] I'm responsible for 5 years and my affiliates are responsible for 10 years in terms of doing such type of business later on or at that time. So I will come back to exactly what is the condition that the business is basically is 5 and 10 to [indiscernible] and say may you exactly what we said in the share agreement.

The next question is from the line of Sarvesh Gupta from Maximal Capital.

Congratulations on the transaction. Sir, first question is, I could not understand this equal stake because now the open offer is for 26%. So now we stand at 30-30. Suppose they get the entire 26% stake in the open offer, then will you be selling only 4% to them? Or what will happen, sir?

Yes. Yes. It will be 4% from my side and the 26% we are getting from open offer.

So basically, the total stake of Adani plus you will not cross 60% in the company? 40% will remain with the public shareholders at all time?

No, no, no. It is not like that. It's supposing today -- they are getting 20% and total is getting more than 75%. Then keeping 75% as the threshold, it will be distributed between 2.

No, no, sir. So what I want to understand that post this open offer, suppose they get 10% in open offer, then you will be selling 20% only to them?

And 10% is something that 60% is mine and 10% they are getting from the market. So it will be distributed 35, 35. So, I'll be selling that then 25.

Understood. So the total stake will remain equal after the open offer also?

Right.

Okay. Understood. And sir, on the margins. Now see, we saw a situation in UP wherein our actual versus budgeted sort of the was different, right? So these margins -- fixed margins, which will be there for your projects with Adani, will that be based on actual expense? Or will that be based on budgeted expense?

Yes. Yes, you must be aware, whenever we are working with a private group, the basic materials are always on a base rate. So those risks, which were there in the UP where all the materials we have to be at the cost of the rising material cost. Yes, the base prices of cement or steel or whatever it is, we are agreed to that, that will be paid off [indiscernible] whatever, whether it is minus or plus. What is going to be fixed is our overhead and what is going to be fixed [indiscernible] and what is going to be fixed is net cost. Supposing in the spending [indiscernible] 1 for 1, then there can be a difference in the total margin that can impact their margins. A major material costs, which are on a base rate that is not going to be impact anywhere [indiscernible].

So we don't face the risks which manifested in our UP execution in these contracts?

[indiscernible] the government project is different. This is not only about the [barrel] that we are working in Coca-Cola, or we are working in some other projects, which are private. Even with cement, steel, sometimes the flooring material sometimes larger [indiscernible] electrical equipment, these are all at [indiscernible]. So whatever plus or minus the cost of payment is, it is always being [indiscernible] reimbursed. So there the risk of inflation of [indiscernible] too much reveal corporate ones.

Understood. Now sir, coming on the -- you mentioned that we would want to maintain the company level margins. But since we have seen some volatility around that in the last few years, would you want to restate what is that number that we are looking at? Is it like 11%, 12%? Or now that if their book becomes a big part of our execution book, will it go down to 9%, 10%? Or what is that number, sir, that on an EBITDA level that we will be looking at?

See, again, I would say that previously also, we have changed our projection for between 10 and 11 and from 11 to 12. So today also, what we have agreed and what we are seeking for future when we are working with Adani or whether we are working for the other group or that we are making at normal levels, given it's timek to maintain our EBITDA at 10% plus, near-term.

10% plus, okay. Okay. And sir, will you see a significant reduction in your interest cost post this transaction because of the change in the profile of the joint venture?

Increase the debt data because of whatever we are rolling the debt that is not going to change much. So this was already, whatever impact has to come, it will come from our QIP. that will bring a little bit in that when we little bit [indiscernible] on the working capital side of the projects which were we are working to get the payments on time. We were working with Adani with best cash flow to improve. And then how we expect that the money which we are borrowing from the banks, I'm not hold too much because of the receivables.

Understood. And sir, finally, now there can be a lot of order inflows because of the work that Adani Group is doing. But how will we be able to sort of execute at that larger scale? Because the organization itself also needs to be able to execute or take in those large orders. So how are we thinking about it? What are the organizational level changes or things that we need to do in the next 6 months to be able to do that?

The range we also know our weak point, they also know our weak point. As I said, if we want to expand at both the level, we may require to strengthen our organization also so that we are going to see with them and all. We can expand our [indiscernible] that is not something, which we are going to go through in the next 1 or 2 months. So now until today, we have been discussing the value on our project to this transaction. So once those projects are through and how to go ahead on a larger scale project at Mumbai or Ahmedabad or some other place where they are having the [indiscernible] in the course of discussion, we will get in 1 or 2 months. project that is where we have to our management and management or organizational side.

The next question is from the line of Amit Khetan from Laburnum Capital.

Congratulations on the transaction. So my first question was, what were the constraints earlier either in terms of capital or prequalification, which now sort of goes away with the partnership with Adani. And does it allow us to compete in other segments or areas where we were not present earlier?

Yes. As far as the PSP is concerned, we were having almost the highest standard of [reverification]. Except some of the large projects like airports, where we have started over work that airport since last 2 years [indiscernible] Ahmedabad airports. From the size of those projects that the expansion outside the airport on the land side. So probably joining in with such a group who are earning large projects on the airport side also. So probably [indiscernible] add on to our [indiscernible] as well as [indiscernible] or whether the industrial building, we were having a strong profile. So that's nothing to head [indiscernible] education by taking lines would improve but it is liberally to have an threshold property within assured business on such a group.

Got it. Got it. And would it be a fair assumption that given how you have outlined that this is going to be a partnership between PSP and Adani, that both you and your family members who are currently involved in the business, it will continue to be the case going forward? Or would your kids end up doing something else?

Yes. So as I said, [indiscernible] fixed shareholder agreement, 100%. And agreement is based on 5% management and everything. So later after 5 years, we might still want to continue or they want to add on some people that can be discussed later on and how much we are able to strengthen ourselves in terms of this next 5 years after getting such a larger opportunity then we will discuss later on. But today, it is not clear that how [indiscernile] generally going to continue after 5 years. We might both [indiscernible] in a direction to send to what I'm doing till now [indiscernible] therefore further 5 years more, then we will be discussed later on after 5 years.

The next question is from the line of Devang Patel from Samita Capital.

I wanted to understand what we are looking to strengthen in terms of technology, which you mentioned a few times earlier. So are we looking to scale up our precast capabilities? Or are we looking to add some more capabilities? Would this be outside of building, say, tunneling, for example, if you can please clarify on this?

Presently, Adani is working at Ahmedabad, if I talk about Andara, Gujarat and [indiscernible], and also they are working [indiscernible] on Dharavi, Mumbai Airport and -- So all these 3 6, currently, we are owning a plant in Gujarat and in Ahmedabad to doing work for airport and is doing work for [indiscernible], whatever project we converted to [indiscernible] have a facility. There is 1 more plant we keep coming to. Whenever there is a requirement of a new plant that will be an asset owned by Adani. We are entering into operational task. So doesn't there is the installation of planting going on at Mundra and there is 1 more plant which is coming at Mumbai. So we will be responding because we have been exporting of making this element. We have 2 years experience of operating these plants [indiscernible] a year. So we will increase our operational spend to work on all these 3 plants so that the project elements are being faster and later on those types of projects where we are passing and we can go for insulation also. But if there is a large budget in 2 or 3 [indiscernible] alone, we may be involved in production only. So it's something depends on later on how the projects are converted from casting to precast and where this type of technology can be visibly feasible and cost effective.

Okay. And the -- the plan that we are currently of precast, would we be looking to expand that also because of this partnership?

As of now, we don't see that. Certainly, at least we will say in 1 or 2 months or 3 months, next 3 months, we don't have any idea of any conclusion of the expanding debt because there are 2 or 3 projects which we are working on and we need a design for a Adani Group. They have been won by sufficient to provide elements on that side or in future also, we add on more and more projects in reality at [indiscernible], then there can be an expansion. But we already expanded ourselves to double the facility without moles because we were doing [indiscernible] balance orders, state facilities almost double. So after that I [indiscernible] over in June, we have that space just we have to buy for the mold. But as of now, we don't have any requirement there the projects which are in line, which we are going to add on this order book in the next few months, will be recurring the expansion in [repair].

Right, sir. Sir, in terms of pipeline, which we have mentioned in earlier quarters of INR 7,000 crores. Does that immediately excise? You've mentioned a few INR 1,000 crore projects. Should we assume these are already part of our pipeline? Our pipeline remains the same because this partnership or does it expand immediately because of this?

The pipeline, there were 2 projects from Adani Group version. There were 2 projects from government side also. So there were 1 or 2 vendors from NBCC and there were 1 or 2 vendors from different developing groups in Ahmedabad also. So overall, that order book speed remains to between the 1,000 to 10,000 crores. But as far as Adani concerned, about INR 700 crores to INR 800 crores of projects we are discussing at [indiscernible] about INR 800 crores project we are addressing at Adani airport in Ahmedabad, about INR 1,000-plus crores projects we are dispersing at Mumbai Airport, and above I think 300 plus several projects we are dispersing at [indiscernible] the first project of viability, yes.

Sir, apart from residential building orders, which can be on negotiated and cost plus, can you also clarify these airport orders you can get on a negotiated basis or these have to be on a tender basis?

So basically, everything depends on their government, whatever identities, they are when different types of projects coming in different verticals. So [indiscernible] you always the competition between the [indiscernible] people. But to work on the minimum cost, how this project can be [indiscernible] is between most of the options are based, that can be worked on later on based on [indiscernible].

Okay. So for example, when you said INR 1,000 crores of Mumbai Airport order we are in discussion, this could be on a negotiated basis, I mean, not on a tender basis. Is that what you are saying?

It is already been quoted by so many other companies also. So it not looks like that we are the only person [indiscernible]. But yes, we idea will be that how we can come closer to the right cost and the right over and the right offer.

The next question is from the line of Vaibhav Shah from JM Financial.

Sir, out of our order backlog of INR 6,500 crores, what will be the share of Adani Group projects right now?

Exactly, I don't know that I think it should not be more than INR 500 crores.

INR 500 crores broadly?

Less than INR 500 crores, I am not [indiscernible], but it cannot be more than INR 500 crores.

Okay. Okay. And sir, secondly, if I heard it correctly, you're guiding for EBITDA margins of 10% plus going forward in the medium term, right?

Yes.

The next question is from the line of Neil Takkar from Aero Capital.

So my question is that how committed or how passionate the current promoter group would be to continue in this partnership or a fairly foreseeable future?

Adani group was seen in lease so they're [indiscernible]. So basically, as I was questioned about running this company right on the [indiscernible]. Today also, by joining hands with them, we are assuring so many things for the future. So it is not at all about that our [question] will go a little bit down because there at a 50% partner. Basic idea to generate these partnerships to assure our business a good growth from there, and it is beneficial to both the parties.

The next question is from the line of Nitesh Kochar from Riverland Capital.

Sir, my question is, I mean, the previous discussion participants were asking and spoke solely on PSP Projects getting projects from Adani Group and a number from that. But I think this is much bigger than that, much bigger than in getting projects from Adani Group and order book going up and this and that. Now the thing is, it is obvious that the entire opportunity landscape changes for your company. My question, the first question here is how ready are you to cater to those opportunities, how you are going to change the organization, see the project coming project size or maybe the geographies would be different from what you've been doing the last 15, 20 years. Technical expertise would also be different. If you go into high value-added project. So how are you ready and how confident you are, the way that you have been running this company with a very, very clean, pristine parameter sound receivable days, sound balance sheet, debt profile and not taking loss-making project. Are you ready to do that to continue with the same profile of PSP projects even if the size of the company changes dramatically? This is question #1.

See, there are 2 to 3 parameters, which we have to understand [indiscernible] performance inside of our experience of last 10, 11 years after getting [indiscernible] after 8 years. We have learned a lot and experienced a lot from [indiscernible] and we have learned alot from Uttar Pradesh also. So now going forward, what is the reason to have this partnership with Adani, it is more on technology side. So because they are also having that pressure that most of the contracts are not able to perform well throughout the season because of not directly there. It is more because of the effect of the weather, it is more impact of the consistency -- of availability of labor. So this is a thing which overall, all the contractors are facing and all the owners are facing. So we are trying to convert this joint venture into a different mode than I myself in terms of management to what I'm doing till now? And also, I'm trying to put in more and more technology and putting more and more things, which are happening in the world, which we can [indiscernible]. Because we have a larger order book or the larger overview of projects which we can get the CapEx out. So the whole idea is to reduce the management cost, reduce the labor cost and increase the productivity. And as [indiscernible] or as a contractor, you must have seen DRP diner in Hyderabad to make people learn more and more about how the things can be done in a better way and the quality. And that's the reason we have been adopting more and more [indiscernible] throughout our period. And that's what Adani is also seeing for future. So there we have [indiscernible] whenever there is an investment of INR 100 crore, INR 100 crores, which can 4-year problem about INR 1,000 crores will be [indiscernible]. So this is a better way to understand order how I'm going to [indiscernible] terms of managing the people with processes and culture. But going from here, it would be more organic rather than learning something from the technology part and adding people on the technology part. At the same time, there will be a few projects where we cannot convert projects into a technology there'll be help to carry on with the same technology. But residential reality projects can be converted into technology, large projects of [indiscernible] can be converted into technology. Projects which are at the industry level that can be somewhat converted to technology because we have been doing [indiscernible] being popular to an recuse have done about [indiscernible] last 1 day 1 year. Probably going from here, we have to increase our bandwidth book to make more and more people aware about the sector technology. At the same time, we have to [indiscernible] our management top line very more and more receivable asset in more and more projects from [indiscernible].

Okay. And my second question [indiscernible] You have built this company with a lot of hard work and anyone who has tracked your company for us, you know that at INR 575, it is definitely undervalued. Now to sell a very large chunk of your private personal shareholding to Adani, 30% at 5 75. It's a very tough and hard decision, I can understand. Question here is, do you think that with the balance 30% and given the changes that it will bring into the business, you can make up for this past 30%? I mean the questionnaire is for your personal wealth. You took a call that instead of owning 60% and a normal steady-state growth, it is better to own half and to be on our super growth path. So how do you see that? This is my second question.

See here, it is not only about my money, it is not only about Adani's investment. It is more about how the company can grow from here. If 5.75 or 60% actually like in maybe can compete. So this company to create money out of the shareholder, what I have done until now even if you see either holding 22%, but sometimes shares from the market also. So difference on the situation and the present situation, after going through the 3 years of journey, wherein we are seeing some of the projects in UP, we have learned so many things from Uttar Pradesh. So now going further we have an assured business assured owners the fee type of technology, which he can access also. So I'm the person to decide upon how we should go on different types of projects, how we should manage expansion projects from their side also. So I personally don't see that way that we see is something which I am losing or [indiscernible] I'm taking over the company, what is company going to gain out of the -- at the end of the day, I need my journey to continue with the same space with what I have created this company and I can send them this company by joining groups like this, then who has plenty of work to do the next 10 years. Hopefully, if I can do over 10% to 20% of that work also will be for [indiscernible] as a company and as a shareholder, I would say.

The next question is from the line of Anil from SMIFS Limited.

So congratulations, sir, on this deal execution. Good part is that you are still going to keep the management with yourself. My only question is if we had done the deal, maybe some time later, you have already shared with us that incrementally things are going to improve on margin front, et cetera. So probably, you could get -- you could have got a better deal. So just 1 simple question is how happy you are with the deal price if any Still you can share, sir. That's the only one.

My last answer was on the same line. It is not about my [indiscerniblre] it is not about the Adani group. We think more about both the groups where we can strengthen ourselves, they want to increase their CapEx in a proper way so that they get the delivery on time. We want to grow from there in a different scale matter utilizing and having an experience of [indiscernible] technology and how this company can come out different way where we are having the assured timing for each project and we have more and more clients to convert from [indiscernible] projects to be part. So this is whole question is about going from this pressure, I was having since last 3 years. We are not have consistent labor. We are not having good quality of people and manage the size. So putting more and more technology and decreasing on the management part decreasing on the later part labor environment will obviously be the different to be [indiscernible]. And then we are talking about such a large group like Adani, they don't have any problem in investing INR 100 crores or INR 200 crores. Even if it is to the investor business, we invest on this current company, when they are doing a project at supporting for airports, and it means they have to invest INR 100 crores. [indiscernible] we are investing. The rest of the management and everything, you can do from your side. So that the project of INR 1,000 crores or INR 2,000 crores were completed on time. So I personally don't think whether for me this solution was perfect or for me, it was a portion of our happiness also, we do more about specifically good today of going from there. And the key promises going in a better way and will not fall into the same issues of failure like what we [indiscernible] in between projects like [indiscernible] issue, UP where we had a loss because of the material growth and the time line going down. So first is we will be setting our [indiscernible] and it is more about rather than more about my side on the right side.

I appreciate your thoughts, sir. So shall I presume that, okay, you are happy with the deal price?

Hundred percent.

As there are no further questions from the participants, I would like to hand the conference over to the management for their closing comments. Yes, sir, please go ahead.

Thank you, one and all of you joining us on our conference call today. Thank you for your time, support and interest in us. We hope that we have been able to address most of your queries. In case of further queries, you may reach out to us off-line. Thank you again, and good day.

On behalf of PSP Projects Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.