Ahluwalia Contracts (India) Limited (532811) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Ahluwalia Contracts India Limited Q3 FY '20 Earnings Conference Call, hosted by PhillipCapital India Private Limited. [Operator Instructions] I now hand the conference over to Mr. Vibhor Singhal from PhillipCapital India Private Limited. Thank you, and over to you, sir.

Thanks, Aman. Hello, everyone. Welcome to the third quarter results conference call for Ahluwalia Contracts India Limited. Today, we have with us the management of the company represented by Mr. Shobhit Uppal, the Deputy Managing Director; Mr. Vikas Ahluwalia, Whole Time Director; and Mr. Rohit Patni, Senior Manager, Investor Relations. We'll just have some opening remarks from the management, after which we can start the Q&A. Over to you, sir.

Good evening. I'm Shobhit Uppal. So we have just finished a board meeting a while back and released our results for the Q3 FY '20. So during Q3 FY '20, the company has achieved a turnover of INR 438.32 crores and a PAT of INR 20.48 crores in comparison to a turnover of INR 418.54 crores and a PAT of INR 26.94 crores in Q3 of FY '19. The company achieved a growth year-on-year basis of 5% in revenue during the quarter of FY -- third quarter of FY '20. EPS of the company for Q3 FY '20 is INR 3.06 as compared to INR 4.02 in Q3 of FY '19. During Q3 FY '20, the company's EBITDA margin is 9.73% as compared to 11.85% and a PAT margin of 4.65% as compared to 6.38% in the corresponding period of the last financial year. During the 9 months of this financial year, the company has achieved a turnover of INR 1,172.41 crores and a PAT of INR 50.92 crores in comparison to a turnover of INR 1,264.77 crores and a PAT of INR 86.28 crores in the 9 months of the preceding financial year. EPS of the company for the 9 months of this financial year is INR 7.60 as compared to INR 12.88 in the 9 months of the preceding financial year. During the 9 months FY '20, the company's EBITDA margin is 10.25% as compared to 12.62% and a PAT margin of 4.34% as compared to 6.82% in the corresponding period. New orders won by the company in FY '19-'20 stand at INR 3,238 crores. The order book of the company as on date is at INR 8,100 crores and we are L1 in INR 700 crores. We are ready for questions now.

[Operator Instructions] The first question is from the line of Ashish Shah from Centrum Broking.

Sir, the first question is on the margin for the quarter. It seems, again, it's coming in at about 9.5%, 9.7-odd percent. So any -- we were, I think, expecting the margin to at least go back to maybe about 12% odd levels. So what has really gone wrong?

No, actually, nothing has gone wrong. We've made -- there have been -- some of our erstwhile clients like HDIL, we've -- there has been a write-off in the balance sheet of about INR 12.5 crores and a provisioning made of a further INR 2.5 crores for clients. This is primarily for HDIL. There were certain dues so which we have now written off in the balance. If you account for these, then our EBITDA margin is in excess of 13%. But this now, we've taken that call because we don't see any line of sight on the monies coming in as far as HDIL is concerned. The other factor is we lost about INR 60 crores conservatively speaking of turnover from -- on account of the pollution -- ban on construction on account of pollution in the NCR region. So that has also impacted our margins.

All right. So -- sorry, just to clarify, you said INR 12.5 crore was earlier provided, INR 2.5 crore incrementally you've provided this...

No, totally INR 12.5 crore, we've written off in this quarter and INR 2.5 crore provisioning has been made additionally.

Additional provisioning has been made.

Yes.

So totally, in this quarter, it's INR 15 crores.

Got it. Sure. Sir, also, if you can indicate the status of some of the slow-moving projects, which are earlier slow-moving, I would say, the Bihar project as well as the NCR Gardanibagh project and the Kolkata Auditorium project.

So let me answer the -- let me start backwards. Kolkata Auditorium project is moving now, and it's moving at full speed. We will complete that project by the end of the year. As far as the slow-moving project is concerned, one is the Gard -- this Charbagh, which is a non-starter, which I had mentioned last time, we have written to the client to foreclose it. So we are awaiting that foreclosure. And Gardanibagh is in Patna. The environmental -- the PIL which was filed against this project has been thrown out by the court, and we are expecting environmental clearance in the next 10 to 15 days. And as I had mentioned last time, we expect to -- construction -- actual construction in the ground will begin in the first quarter of next year.

Right. And sir, the Mohammadpur project?

Yes. Mohammadpur project, the environmental clearance has been obtained. The tree replantation permissions are in place. The project has started. It is underway. But there are issues about the funding of the project because as you would be available -- aware, sorry, of all these redevelopment projects, majority of the proceeds or fundings were to come from the proceeds of sale of Nauroji Nagar. That was how the redevelopment project was structured. So Nauroji Nagar project which NCC is doing -- NBCC through NCC is doing continues to be a nonstarter. So our project is actually a CPWD project. CPWD, why is infusing some funds? It has written to the ministry as to how the funding for -- majority of the funding which was to come from Nauroji Nagar how it will come now. They're trying to figure that out.

Okay. So that might just go slow.

The environmental clearances are in place now. The project is underway. It is going on.

Sure. You could expect any revenue from the -- in this quarter?

Yes. We will, in this -- in the next quarter from Mohammadpur we should get a revenue of about INR 8 crores to INR 10 crores.

Right. And Kolkata you said is moving at full speed. So Q4, you'll see some sizable revenue coming out of that, right?

Yes. In fact, Kolkata as such because now auditorium is moving, we are expecting a growth from that region to the tune of about 20%.

The next question is from the line of Shravan Shah from Dolat Capital.

Sir, last time, you said INR 94 crore of bills were not certified in -- because of the pollution ban. Despite that, this quarter also the top-line is kind of muted. So -- and we were guiding flat to 5% growth. So to achieve a 5% growth, we need a 36%, 37% growth in the fourth quarter. So just wanted to know in terms of the revision in the guidance for FY '20 and the next year also FY '21, we were targeting close to 20% growth. So what is the revised estimate?

So if memory serves me right, I had said that the Q3, we would attain a turnover about INR 400 crores and Q4 I had given a guidance of INR 600 crores. I'm sticking to that. And I said that we will have a 5%, top line growth. So we will touch INR 1,800 crores overall. So we will be there about as far as growth is concerned. It will either be flat or it would be about 4% to 5%. We should achieve that.

And for next year?

As far as next year is concerned, 15% to 20% is what I had said and I stick by that because we have the orders in hand. As you would know, we have won the largest AIIMS in the country which has been tendered out till now, which is INR 1,253 crores. This is a design-build EPC project, and it is a project which is to be completed in 30 months. So this will also contribute substantially to the turnover in the next financial year. We are also L1 in the first of the Central Vista project, which are also -- which is also a fast-track project, which is INR 540 crore project to be executed in 8 to 9 months. So these projects and our order book is robust, as I said, it stands at INR 8,100 crores today. So I see no reason why we should not achieve a 15% to 20% top-line growth.

Okay. Great, sir. And secondly, in terms of the margins now, how do we see for the full year margin? And even next year also, I think we said around 13.5%. So will the guidance remains intact?

For the next year, yes, 13% should be achievable. And this year, I think it should be between 10.5% to 11%.

Okay. And apart from -- as you said, this out of L1 540 is from the Central Vista. So we were -- there was a talk that there will be a sizable tendering would be happening from the Central Vista. So any idea what is the status on that?

My information is that the plan for the majority of the tenders -- subsequent tenders, they are trying to frame guidelines for qualification as well as trying to figure out how many packages they would divide the INR 10,000 crores to INR 12,000 crores worth of work which is likely to come up over the next 2 to 3 years. So that is happening. I think the first package should come out in the next 5 to 6 months. The next package should come out in the next 5 to 6 months.

Okay. And sir, I need a couple of balance sheet numbers and order book breakup. Inventory, debtors, payables?

Rohit or Satbeer will answer that question. Rohit, go ahead and take that.

Yes, order book in 31st December INR 6,896 crores. So they are a breakup in government and private wise: Government is 78%, private is 22%. Geographically wise: North is a 42%, East is a 42% and West is a 16%. Segment-wise: Commercial is 11%, Hospital is 37%, Infra is 15%, Institutional is 22%, and Residential Government is 14%.

Okay. And in terms of the inventory trade receivable and payables?

Inventory is INR 420 crores and receivables are INR 526 crores in current assets and INR 166 crores in noncurrent assets.

Sorry, INR 116 crores or INR 66 crores?

INR 166 crores.

INR 106 crores ?

INR 166 crores.

Sorry, sir...

INR 166 crores.

Okay, INR 166 crores, okay. And payable?

Receivables are -- payables of INR 455 crores.

INR 455 crores. And lastly, sir, how much CapEx we did and what is likely to be in the fourth quarter and the next year?

CapEx on this quarter is INR 14 crores. Total 9-month is a CapEx INR 26 crores. Total CapEx is a -- in full year is approximate INR 35 crores.

The next question is from the line of Mohit Kumar from IDFC Securities.

Sir, on this AIIMS largest project, is a one on the AIIMS. So what is the timeline? And what kind of execution is possible in FY '21 and FY '22 on this particular project?

Mohit, as I mentioned earlier, the timeline is 30 months. This is an EPC project. So the first 3 months will go towards the design, right? And then 27 months to execute the work of about INR 1,253 crores. So approximate average billing will be about INR 50 crores. So you can say that we will -- in FY '21, we should be logging a billing of about INR 600 crores and another INR 650 crores in the subsequent year, FY '22.

Secondly, sir, Supreme Court, I think, has allowed the -- removed the construction of -- work on construction in the night. Does it improve our run rate going forward?

Yes. Yes. Because generally, on large fast-track projects we work around the clock. And practically, pretty much on all the projects, we work extended shifts, if not around the clock. And those shifts last till about 12:00 in the night. So yes, it will improve the run rate.

Okay, okay. Lastly, sir, how does the bidding pipeline looks like now again the -- and are you comfortable with this kind of order you want to slow down for a couple of quarters or how do you see it?

Bidding. We are comfortable with our order book, more than comfortable. So yes, over the next 2 quarters, while we gear up to execute these challenging orders that we won. So we would be slightly conservative in our bidding.

Are there any large order on pipelines in the next 3 to 6 months?

As I mentioned, maybe in the first, in about 4 months' time or 5 months' time, we may see a couple of bids going out on the Central Vista project.

Anything on the AIIMS side?

And they would continue post -- there are state of elections around the corner. Bihar -- we are present in a big way in Bihar. Elections are slated to be held there in October, November. So yes, we foresee some orders coming from there also, at least bid pipeline should be healthy from there. We are -- we continue to see a lot happening as far as centrally-funded projects are concerned in states like Bihar also because the government is trying to consolidate their position there in such states.

Sir, any other AIIMS or IIM in pipeline?

Yes. There is another AIIMS in pipeline in -- we are bidding for an AIIMS in Rajkot, which that bid goes out next week. Then there is another AIIMS in Srinagar, which we may or may not bid. So as I said, the government's focus on health care and education continues, not only the central government but also the various state governments.

The next question is from the line of Nitin Arora from Axis Mutual Fund.

Sir, just 1 question -- 2 questions. One is if you can talk about a little on the working capital? How it has been moving with the government billing cycle because though I understand you said that you lost some revenue on the pollution control part that would have impacted your fixed cost as well which impacted your margins apart from the write-off which you mentioned. Can you talk a little bit about how the government machinery in terms of working capital is moving, number one? Number two, with respect to execution given -- now all projects are intact, approvals are being done barring the Charbagh, which even if you remove still the order book is healthy. So can we see the tune -- the execution next year to the tune of about INR 2,400 crores, INR 2,500 crores? Those are my 2 questions.

Okay. Answering your second question first. I had mentioned earlier, we are targeting a growth of 20%, which I had mentioned last time around also in FY '21, which I see no reason why we shouldn't achieve. So even if we close this year at INR 1,800 crores, what I'm -- my guidance for the next year is about INR 2,200 crores, INR 2,150 crores or INR 2,200 crores. As regards the fund flow -- I -- there is a definite constriction in the fund flow happening on the public sector side. All of us are aware. The economy is facing headwinds. So yes, we've seen evidence of that in the last 2 quarters. But I'm hoping with this budget coming in, and the government also awaking -- being more aware of the problems that businesses are facing, I feel that maybe the second half of next financial year, things should start getting better. But the first half of next financial year, we will continue to have to be on our toes.

Sir things can come in. And what's our gross debt number?

Mr. Arora, request you to please repeat your question.

Can you repeat your question.

Sorry, I was asking that any further provision you see that can hit your P&L going forward? And what's the gross debt?

I believe, successful in resolving a lot of our critical issues with some of our embattled clients, but the next 1 or 2 quarters may see a few write-offs. But nothing very substantial.

The next question is from the line of Bharanidhar Vijayakumar from Spark Capital.

First question is on state-wise order book. Is it possible to give us on the outstanding order book? Just to understand the exposure levels for different states.

Do you want a state-wise breakup, is it? Yes, okay.

Yes, state-wise.

Yes, yes.

The West is of a 16% all are in Maharashtra, East is a 42%, there 23% is in Patna, Bihar and 19% is in Kolkata, West Bengal. And North is at totally is a 42%, there is 10% in Lucknow, Charbagh, 5% is Uttarakhand; and rest is in Delhi NCR.

Sir, what kind of clients I mean like a -- can we get like top 4, 5 client names, like what authorities are we -- just to understand between central or state, what are the key clients because these are government, just want -- trying to understand.

So CPWD -- so central government clients are the likes of CPWD, NBCC, Hospital Services Consultancy Corporation. So state clients are State PWD, which is called the BCD in Bihar or PWD in Kolkata, West Bengal or institutional clients like IIMS and IITs.

Okay, understand. Yes, yes.

Then we also have, though you haven't asked that question, we have a lot of Blue Chip Private Clients. Brookfield is a client of ours. We are working for them in -- across the country in Gurgaon, in Noida, in Pune. Amity across the country is a client. All their educational institutions across states are constructed by us. Bennett Coleman is a client for their office buildings as well as their university.

Okay, okay. Got it, sir. Sir, second question is on the -- can we get some clarity on this pledge of shares of 41%. This is something we are getting -- trying to understand.

That's -- out of which total -- out of which 1/4 shares has been pledged with Punjab & Sind Bank. That's for the working capital, not kind of another lending. And INR 23 lakhs with Yes Bank and INR 7.5 lakhs and around INR 5 lakhs -- INR 12.5 lakhs with IDFC and RBI.

They are non-fund based limits.

But for all these non-fund based limits, working capital limits. Basically, that has been given -- like Punjab & Sind Bank, we have given down 15, 16 years back. And now we are trying to get released that shares from the Punjab & Sind Bank because we are replacing that limit with other banks.

So by next year, we can see a reduction in this or what is it like?

Yes, exactly.

Okay, okay. Sir, what is Central Vista the package that we have won. This is last question, sir. Central Vista package that we have already won. What is this work about, I mean, out of the full plan of Central Vista?

No, no, it's a good question. This is a work -- some buildings are to be demolished which house offices of certain central ministries, right, before new buildings come up there. So these offices will be housed on 2 large buildings, which will come across -- come -- one location is Kasturba Gandhi Marg and one location is near Chanakyapuri, near Sarojini Nagar Depot. So on these 2 locations, office buildings will come up where the offices of buildings to be demolished, the offices which are housed there will be -- they will be shifted to these locations.

Okay. Sir then in that case, the next packages, so what could be the likely package size or like how many packages can this come out of that INR 10,000 crores to INR 12,000 crores? Like will we be -- I mean, like -- I'm just trying to understand how competition is going to be between the players?

So just a guesswork on my part because, as I mentioned earlier, the tender packages are yet not ready. They are being framed. I -- but my guess is -- the informed guess is that there will be 8 to 10 packages.

Okay, okay, okay. It should be a mix of all kinds of works like buildings of -- development of this buildings Rail Bhavan, Udyog Bhavan and all these as a separate contracts and then...

Like to give you an example, presently buildings such as -- the working building which are there like Indira Gandhi National Center for Arts, that will be razed to the ground, a new building will come up. So many old buildings, which are a legacy of the British Raj, may be erased -- will be erased and new buildings will come up there.

The next question is from the line of Parvez Akhtar from Edelweiss.

Sir, first, a couple of bookkeeping questions. What was our gross debt in cash at the end of quarter?

Gross debt is a INR 33 crores.

Okay. And cash levels?

Cash and bank balance sheet is a INR 175 crores.

Okay. And sir, I just wanted to get a status of some of our other major projects like the Nagpur and the Kalyani Hospitals, there are 2 medical colleges in Bihar, IIM Nagpur, Parivahan Bhawan and so on.

Yes. So those projects are moving as per schedule. Kalyani and Nagpur, we should start handing over the buildings in June. And by October, those projects should be completed. As far as IIM is concerned, Nagpur, I think they begin their session. We are committed to make them move into Phase 1 again in June, and that project will be completed by November. As far as the hospitals in Bihar are concerned, one small hospital, we will hand over in April Muzaffarpur, which is a fast-track project, which we are going to complete in 7 months from the time that we broke ground, it's on track. As far as Chapra and Nalanda are concerned, those projects, we are in the first 25% of the life cycle of those projects. They are 2-year projects. So I expect them to be completed in the next 18 to 20 months.

Okay. So in a sense, except the Charbagh station project, I mean, all our projects are moving? I mean we're not really facing any issues on any of our other projects?

No.

Sure. And, I mean, just your -- obviously, there is an economic slowdown. I think you had mentioned earlier also that payment from the government side is becoming slightly tight. So how -- but still, we have managed to land a lot of orders in the current fiscal. So what has been the competitive intensity for these projects?

Look, the competitive intensity has been there because everybody does their due diligence in terms of the clients or departments or ministries, who to work with, who are -- I wouldn't say, cash-rich, but cash flow is not so much of a problem. So yes, competitive intensity is high.

The next question is from the line of Parikshit Kandpal from HDFC Securities.

My question was, sir, that if we remove -- adjust the anomalies this year, the NGT ban and extended monsoon, so we would have ended somewhere around close to INR 2,000 crores worth of revenue and then next year we're looking at again INR 2,200 crores. So kind of a 10% growth on a normalized basis. And if I see order book has almost doubled last couple of years. So has the order book cycle now getting extended like versus earlier 2.5, 3 years to like 4 or 5 years?

No, not really, actually. It's about 3 years, not 4 to 5 years.