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

Good afternoon, everyone. Hope everyone is keeping themselves safe and healthy during these unprecedented times. We welcome you all to the fourth quarter results conference call for Ahluwalia Contracts (India) Ltd. Today, we have with us the management of the company represented by Mr. Shobhit Uppal, Deputy Managing Director of the company; Mr. Vikas Ahluwalia, Director; and Mr. Rohit Patni, Senior Manager, Investor Relations. In terms of flow of the call, we'll have some opening remarks from Mr. Shobhit, post which we'll start with Q&A session. Shobhit, sir, over to you.

Thank you, Varun. Good afternoon, everybody. Hope everyone is doing well. As Varun said, unprecedented time. This kind of con call, we are holding for the first time, everybody sitting in different rooms. So I have with me Vikas Ahluwalia-ji. I have Satbeer Singh, Vijay Jain and Rohit Patni. So we declared our results yesterday, as you people must have gone through them. So during the Q4 FY '20, the company has achieved a turnover of INR 549.21 crores and a PAT of INR 6.10 crores in comparison to a turnover of INR 480.15 crores and a PAT of INR 31.02 crores in the corresponding quarter of the last year. The company achieved a growth of 14.38% in the revenue as compared to -- as a quarter-to-quarter comparison. EPS of the company for Q4 FY '20 is INR 0.91 as compared to INR 4.63 in Q4 FY '19. During Q4 FY '20, the company's EBITDA margin is 4.18% as compared to 11.82% and a PAT margin of 1.11% as compared to 6.42% in the corresponding period last year. During FY '20, the company has achieved a turnover of INR 1,884.93 crores and a PAT of INR 64.44 crores in comparison to a turnover of INR 1,754.71 crores and a PAT of INR 117.38 crores in FY '19. EPS of the company for FY '20 is INR 9.62 as compared to INR 17.52 in FY '19. During FY '20, the company's EBITDA margin is 8.12% as compared to 12.34%, and PAT margin is 3.4% as compared to 6.65% in the corresponding period of the last year. Net orders -- new orders won by the company in '19/'20, aggregate INR 3,238 crores. Net order book of the company as on 31 March, 2020, stood at INR 7,462 crores to be executed in the next 2 to 2.5 years. Thank you. Those were my introductory remarks. I'm open -- we are open for questions now.

Arvi, now you can open the line for Q&A.

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

Right, sir. Sir, first question is on the provisions for the outside debtors that we have made for the quarter seems to be around INR 25 crores based on the full year numbers we see. So the point is that could you highlight on which accounts were these? And what is the outlook on further provisions, if any, that might come on these accounts or other accounts?

So Satbeer, answer this question, please.

Yes. This year, we have like written off around INR 42 crores, and this is due to major parties like HDIL and Krrish and Monde, such parties has been embarked NCLTs by the bank, like Krrish and Monde, under JL you are very well aware about that. So that's -- we are -- we have -- I think we have made the provisions. And in next year, we are not looking for any major, but still we are not looking for major any written off for the next 2 years.

Okay. So...

Let me clarify. Again, there will be provisions, but not to this extent. As Satbeer said, it would be minor in nature.

Yes.

Sure. So sir, once we adjust the provision number for the quarter, we are looking at margin, which is still a little lower than what we generally look at. I mean we're looking at a 9% odd margin, 9.2% once -- even if you adjust this. So just wanted to ask what would have impacted the margin, especially in a quarter where revenue was good? And how should one look at margins going forward?

Look, you answered your question yourself. Traditionally, the last quarter is always the best quarter. But virtually half of March got ruined. And the pandemic has had an effect on our billing and other things also, while the overhead remained constant, right? And there were some lingering effects of the NGT also in this quarter as far as our projects in Delhi are concerned. So that has affected the margin. Going forward, it would not be prudent for me to say anything. You know the situation is evolving. And as I was talking to Varun, while preparing for all of you to join in, lockdown opens, lockdown reinstated, we can't blame the government also. As we stand the situation on the ground has not really improved. So it would -- as I said, it's not prudent for me to comment on the margins going forward.

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

Sir, if you can just quantify pre-COVID levels of labor force and the labor force now in April, May and June?

To put things in context, we are at about 25%.

How much, sir, excuse me?

25% of what we used to be.

Okay. Hello?

I guess that's what you're wanting, right?

Yes. You're at 25% right now?

25%, 2-5, 25%, yes.

So has it improved in last 2 months, like since April and May?

So April was a wash out. Even the people who were there, they were not working. May to about 10% to 15% and has been better. But our projects in Maharashtra and Delhi continue to report low numbers because of obvious reasons.

Okay. So if you can, in terms of sites quantify, like how many sites were there pre-COVID and work has started on how many sites?

So work has started on all sites. Started on all sites.

And what would be the level of activity now, sir, in June, like what could be the pre-COVID level of activity in terms of like daily billing, 30%, 40%? Because I think labor force is still at 25%. So what could be the...

Please try and understand, lacking is labor. But we're expecting that mid-July onwards, this number should go up to about 35%, 40%; and August, the numbers should cross 50%.

August. Sir, in force majeure, so since there has been lockdown and then labor issues persisting for us. So what kind of extensions of force majeure or compensation we have been able to get from the clients? Or what kind of talks we are having with the clients to compensate us on this fixed cost, the hit which we are taking right now. So there's contractual provisions that compensate us.

It's an evolving situation. As Varun mentioned in remarks, it's an unprecedented. So the situation is evolving. Nobody has faced such a situation before. Force majeure, I don't think is an answer. Force majeure, as per present laws, does not give us anything other than time extension. So time extension on all our contracts, I think, is a given. We are not really bothered about that. And while we continue to inform our clients on a weekly basis on how the situation is unfolding and how the labor force is affected. So as -- and we have to submit our EOT periodically, which we will do once the situation is a little clearer. But as far as the compensation for these delays is concerned, we have intimated the client that all effects of COVID will have to be compensated, and we will inform them once the situation is a little clearer. But as things stand today, there is no definitive reply from our clients, other than the fact that some of them are actively working at reducing or returning our performance guarantees partially.

Just last question, sir, on this labor availability of 25% right now, so how does it translate in terms of execution? So is it like execution will be a little lower than this or is it higher than that because of mechanization. So how do -- do things correlate?

Speaking, it is the same. Mechanization for 2 months, we haven't got a magic wand in 2 months. Certainly, we will ramp up our mechanization. Mechanization is what it was pre-COVID, right? And so it is broadly commensurate. The output is commensurate. It is about 25%. I've rationalized it and I've given you the figure of 25%.

In the fixed cost above EBITDA and comprising of other expenses, labor expenses and employee costs. So what could be the run rate currently, which you have monthly run rate, sir? Just to get to a breakeven level of revenues, which you should be able to basically cover up the cost, just trying to gauge that. So what would be the monthly cost run rate now versus pre-COVID?

No. It's basically -- the pre-COVID to post COVID, [Technical Difficulty] costs are more or less the same, while we've done a bit of [Technical Difficulty] We've done some spring cleaning, but that's not much. Our fixed costs remain the same, and we are not really into hiring and firing people. Our order book is healthy, and we are striving to get to where we've reached in FY '20. So we are not -- our fixed costs are at the pre-COVID level.

But labor costs should have reduced, right? That was because of the...

Sorry?

The variable labor cost should have reduced above EBITDA significantly because of the labor availability being at 25%?

Yes, Parikshit, you asked me about my fixed cost. So labor costs are variable, right?

Yes, something in other expenses, you would be recording the labor cost in other expenses. So I was just getting that number, other cost -- other expenses plus fixed cost, the salaries, what will be the average run rate right now? That is what I wanted to know, sir.

No, run rate as far as our execution or revenues are concerned? What -- I'm sorry, I'm not really clear on that.

So monthly costs variable -- above EBITDA, monthly cost, variable and fixed costs put together in terms of crores.

Cost, we have -- that I've already told, Shobhit, that we are not hiring and firing such kind of people that's implied cost will remain same. And the other expenses we can optimize, we are trying to do that best. Like you can say, in the COVID period for the lead payments, et cetera, and brand payments, what kind of especially can we do, we are optimizing that. And that would be -- but that puts very minimal impact, but it would -- the fixed cost definitely would be low for this period.

Sir, but labor cost we book in other expenses, sir, or in material expenses?

Labor cost is employee benefits expenses. That includes labor and employee.

Okay, both?

Yes, both.

The next question is from the line of Vibhor Singhal from PhillipCapital.

So 2 questions from my side, sir. One, given the order book that we have at this point of time, do you -- I know the order overall activities anyway it's going to be weak. But are we going to, let's say, slowdown in terms of taking up new orders? I know you've mentioned this before that of orders in Delhi [indiscernible]. We will definitely go to bid for them. But outside the NCR region, will we go a bit slow in terms of -- or less aggressive in terms of getting the projects?

So I think in my last conference call, I had already mentioned that we are well stocked as far as our order book is concerned. So yes, we -- it's not now that we'll be less aggressive. Since last quarter, we've been less aggressive.

Fair enough, sir.

But seeing the order pipeline, Vibhor, there is a bit of a slowdown. There is a bit of a slowdown in the order pipeline as far as [Technical Difficulty] again, for obvious reasons.

For obvious reasons.

Yes.

Right. Sure, sir. And secondly, sir, I just wanted to -- I know it's difficult to provide any color on the future outlook, especially FY '21. But I just want to ask you or the management, in terms of our performance over the last 2 years, sir, last 3 years -- last 3 quarters, our margins have been at around less than 9%. 9.2%, 9.4% in this quarter, of course, we lost a point. Even if we adjust, it's around 9.5%. Our revenue growth also in the last 2 years has been just 6.5% and 7.5%. The margin for this year, of course, has been well below our normal run rate also. So do you, as a management, also feel that in the last 2 years, FY '19 and FY '20, we have probably not achieved our potential that we should have been or is it just we the analysts and investors who feel having been let down by the performance? And if, yes, do you believe there are some inherent risks in the business, which has impacted us more than our competitors and are we doing something to address that?

I think historically, there is no -- in the past conference calls, the reasons for the results have been explained. There doesn't really seem to be any point in going there. I have a comparison of our results with our peers. And I think, if I may say so, we've done fairly well. Whatever hits that we have taken in terms of our margin, they have also been explained to you, there have been write-offs. It's a part of book cleaning. If companies like HDIL or Krrish or other such companies which have gone bust, we've got to provide for the monies that were due from them. Otherwise, I think we've evolved over the last 2 years, our order book has become very healthy. The pedigree of our order book in terms of -- the quality of our order book in terms of the kind of projects that we are doing now will stand us in good stead this year because 50% are hospitals. There is another 10%, which is education. This is all social infrastructure. And the -- our takeaway over the last 2 months is that these projects are going ahead. Very few of our projects have actually been hit by this pandemic, wherein our clients have said, no, we are shelving the project or we are going slow. In fact, 95% of our projects, our clients have said, please go, pick up speed, get labor. We have the revenue. To give you an example, we're doing AIIMS in Jammu, which is our largest project. The client is saying, please, ramp up labor. We have the funding. We are doing this project, which is a precursor to Central Vista. The client has already paid us in March. The client paid us in advance of INR 50 crores almost. So what I'm trying to say is, I -- if you were to ask me as the Deputy Managing Director of this company, I feel other than the effects of COVID, which are still uncertain, I think we are in a good position. Have I answered your question?

Yes, sir. So basically, just to maybe drill a bit further on that. I completely agree, our order book is strong, as strong as it has ever been.

Currently, order book -- pedigree of the order book -- the profile of the order book is good.

Right, sir. Sir, but if you look at us 2 years back, our ROEs were 20%. This year, we'll end up at ROE of 8%. Even if I adjust for the write-offs, our ROEs will still in the range of 12% to 13%. These were the metrics on which we differentiated ourselves from our peers. So we have always been basically best of the class company in terms of execution, but a 6.5% CAGR revenue growth rate over the last 2 years. FY '19, almost everybody, I mean, in the sector reported a strong growth rate of upwards of 30%, 35%. So are there some -- I mean, as I said, I mean, is this just we who are feeling that we probably have not been able to achieve our potential, because always see what we believed in? Or it was just that we are missing it out or management also believes that there could have been things which could have been done, which would have resulted in better numbers. I know write-offs can't be avoided. But other than that, sir, margins have not been in the same range, even as you see for those write-offs.

I think you're being selective. I don't want to name companies. I think you are being selective when you are comparing my results to some of the other companies. I think there are companies which have done far worse when we compare. And these are companies which are older than, say, in age than us. So the way I look at it, I think our performance is all right.

[Operator Instructions] The next question is from the line of Nitin Arora from Axis Mutual Fund.

Sir, my first question is that you gave a direction on the execution. Is that -- when you said 25%, 30% eventually going to 40%, 50%, is it just primarily down because the weightage of NCR in Maharashtra is about 35%, 40%? Or like, for example, Jammu, Kashmir, Bihar, here the execution are still above closer to 40%, 50%?

No. Look, Nitin, as I said, situation is evolving everywhere. What happens is that if you said, Bihar, we were doing -- we are -- you're right, we are at about 50%. But now the cases have started rising in Bihar, right? So the impact of the migrant labor going back and the COVID spreading there is going to be felt now. Plus, like Jammu, for instance, you mentioned quarantining the policies are changing. There is flip-flop happening every day, right? And that is actually depending on how the cases are rising or not rising. So the situation is changing almost on a daily basis. So what that is doing is that even if the labor is ready to come 1 day, what we and other construction companies are doing actually, we are sending our own people, [Foreign Language] we are booking their tickets by train, by bus, by cars, in some cases by air also. But what's happening is when the labor gets the news that Mumbai may get into another lockdown or Delhi may get into another lockdown, the labor gets cold feet. So that's why I'm saying if that is what is preventing this number from going up. Actually, the first half of June, the number went up. But the second half of June, actually, it was not as was planned because labor started getting cold feet as I said. That's why maybe second half of July, we are hopeful that the situation will get better, and in August, it will get even better.

And sir, when we look at from an order book perspective, of about INR 7,500 crores, do you see a chance of any order coming out from this order book just because of the -- you feel that the payment could be a problem with this authority or with a particular client if you can just share that?

At the moment, I don't see that happening. I did mention that in my remarks before that the quality of our order book is good. And what we've heard from our clients because a lot of these projects are healthcare projects and education projects, very little exposure, almost negligible exposure to private real estate. So I don't see any major projects. Whatever had to come out, it did -- it had come out last quarter only like Charbagh and all [Foreign Language].

Sir, coming to the accounting part, when we changed this accounting, and if I -- and I understand because next quarter, it's purely an adjustment basis when you will book the unbilled amount and some billed gets converted. So the quantum of difference between the 2 will be very less. So the variations would not be there. But just to understand FY '20, if I look at on a normalized billings, which is the older accounting, then our EBITDA margin looks to about 11%. Is that the right way to look at around INR 70 crore of revenue and INR 194 crore of EBITDA. If you can help me with that? It's just my calculation. So I thought, will ask you.

Yes. Satbeer, you want to elaborate on that?

Yes. That's whatever the -- we have taken unbilled revenue that we have taken basically cost plus 5%. But I think whatever if it's materialized, definitely there would be like whatever EBITDA rate at 12% to 13%, that would be effected into the books.

Got it. So we are still -- I mean, if accounting would have not been there, we're still in a double digit margin only?

Yes, yes, yes, yes, please.

Got it. Got it. And in terms of cash -- just last question. In terms of cash, when we look at -- we are almost now a INR 10 crore interest outgo company on a quarterly basis, what is the actual -- because in the cash flow, it's showing me INR 23 crores of interest cost outgo on a cash basis. So are we taking the bank guarantees in the expenditure and the quota would be how much a noncash expense in that in the whole year?

You will see that in final quarters that we have changed the quota, which this year April '19, you have -- we have to classify as a capital lease. So that's why whatever the lease RTC payments we are making, we were making last year, that were being classified on the equalization basis in expenses. But now this year, we have taken like you will see that out of around INR 1.09 crores in depreciation and INR 3.97 crores in finance cost. So that's why finance cost, you are -- we'll see that that has been increased. And also there is a mobilization advance interest also because various projects had been adding this year and we have taken mobilization advance. So that's why that's basically INR 10 crores to INR 11 crores because of mobilization advance interest and INR 4 crores due to this new classification change in quota. So such kind of change, that's why there is a increase.

And the cash outgo is lesser than what you're reporting on that.

Yes, yes, yes. Basically -- definitely, that's -- we are reporting like you will say that INR 1.09 crores plus INR 3.97 crores, this comes at INR 5.06 crores, but cash outflow is around coming out INR 1.65 crores against that.

Sir, just last question, Shobhit, sir, for you. In terms of payment cycle on the ground level with all the authorities, what's your sense? Because even in the last 1 year, the cash conversion for us has been very good. I understand the kind of write-off which has happened. So -- but if you can throw some light, what's the sense you are getting in terms of the payment part on your own order book? That's it.

So I'm talking for my clients. It's been better-than-expected in the last couple of months. Even through the lockdown, we continue to receive payments from our clients. Though there is a bit of an impact on the private sector side, but not totally, not the entire private sector line. Like, say, for instance, Brookfield, it's been good. All our dues have been clear. But a client like say, Amity, they've been hit. Payments from them has been hit. Again, for obvious reasons because they have been unable to get their fees from the parents. So -- but there also, the payment, no, has not totally dried up. We've been at about 50% of what should have been there. And they are telling us that over the next 2 months, it should normalize.

The next question is from the line of Amber Singhania from AMSEC.

Just 2 things, sir. One, what is the status of Central Vista project on the macro level? Is government moving forward with that? Or is that -- they got deferred? What is your sense when it will -- it can come up?

We don't have any information that it has been deferred. But I think behind the scene preparations are going on. And they have come out with 1 request for prequalification notice on the first project, which is the parliament -- construction of parliament.

Okay. How big that would be, sir?

About INR 1,000 crores -- INR 900 crores, I think, yes.

Okay, okay. Sir, secondly, just a couple of bookkeeping questions. If you can give me the breakup of order book and the amount of retention money in mobilization advance, sir?

Yes. Rohit is going to give you that.

Yes. Order book breakup is INR 7,462 crores. Government is 80% and private is 20%. Geographically wise, north is 52%, east is 35% and west is 12%. Segment wise, commercial is 7%, hospital is 48%, infra is 6%, institution is 27% and residential is 13%.

Residential is private?

Say almost all are government. [Foreign Language]

No, residential [Foreign Language] CPWD and DDA.

And Gardanibagh.

That's what Rohit said, almost all are government.

No, he asked private.

See, basically, it's government. All are government.

Almost all. There is a private residential project in Pune.

Pune is up and even Prateek is there that's private, yes.

Yes, and you were saying something.

Retention money and mobilization advances.

Retention money is that's including current and noncurrent assets is INR 174 crores. And hold on to a moment.

Mobilization advances?