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

Ladies and gentlemen, good day, and welcome to Ahluwalia Contracts (India) Limited Q2 FY '21 Post Results Analyst Conference Call hosted by Ambit Capital. [Operator Instructions] Please note, this conference is being recorded. I now hand the conference over to Mr. Varun Ginodia from AMBIT Capital. Thank you, and over to you, sir.

Thank you so much, Vikram, and good afternoon, everyone. On behalf of AMBIT Capital, I welcome you all to Quarter 2 FY '21 Earnings Conference Call of Ahluwalia Contracts Limited. Today, we have with us from the management, Mr. Shobhit Uppal, Deputy Managing Director; Mr. Vikas Ahluwalia, Whole-Time Director; Mr. Satbeer Singh, CFO; and Mr. Rohit Patni from Investor Relations. In terms of flow of the call, Mr. Uppal would give a brief summary of the results and the outlook, and then we'll open the floor to Q&A. Sir, over to you.

Thanks, Varun. Good afternoon, everybody. So we have announced the financial results for Q2 FY '21. During Q2 FY '21, Ahluwalia Contracts has achieved a turnover of INR 434.51 crores and a PAT of INR 17.96 crores in comparison to a turnover of INR 433.69 crores and a PAT of INR 13.08 crores in Q2 FY '20. EPS of the company for Q2 FY '21 is INR 2.68 as compared to INR 1.95 in the corresponding quarter last year. During Q2 FY '21, the company's EBITDA margin is 7.87% as compared to 8.97% and a PAT margin of 4.07% as compared to 3% in the corresponding period of the last year. During HY1 FY '21, the company has achieved a turnover of INR 684.36 crores and a PAT of INR 25.44 crores in comparison to a turnover of INR 837.71 crores and a PAT of INR 37.20 crores in the corresponding first half of the last year. EPS of the company for HY1 FY '21 is INR 3.80 as compared to INR 5.55 in HY1 FY '20. During HY1 FY '21, the company's EBITDA margin is 7.70% as compared to 10.32% and PAT margin of 3.64% as compared to 4.41% in the corresponding period of the last year. The net order book of the company as on date stands at INR 8,120 crores. We have got orders worth INR 1,243 crores in this financial year till date. Thank you. We are open for questions now.

[Operator Instructions] We have our first question from the line of Mohit Kumar from DAM Capital.

Congratulations on decent set of numbers.

Thanks.

Sir, my first question is, given the COVID and given the lockdown and everything, is it possible to now give some kind of run rate? If I'm not wrong, I don't think you've given any guidance for FY '20 -- FY '21. So are you in a position to guide for the H2? And do you think -- and any comment on the labor availability or readiness of project size, which you can comment on?

Uncertainty still persist, Mohit. So it would not be prudent for me to give any sort of a run rate. But having said that, I've mentioned in my last con call that things are improving, and we were at about 60%, now we are at about 80%. And H2, obviously, will be much better than H1. But I would not be in a position to give any run rate as things stand today.

Okay. Understood, sir. And secondly, on the AIIMS -- PWD, AIIMS, the largest order which you have.

Jammu, Jammu, yes.

Have you started the work? Have you started initial work? And is there any update which you can share?

Yes, yes, work started. No, no. We've actually begun construction on the ground.

Okay. And last one is on Mandale...

We've begun construction on the ground. Sorry?

On the Mandale Depot contract, which you received, I think, in this -- in last few days, when do you expect the -- you'll start the construction?

We should begin construction in the next 1 month.

And what is the tenure of that contract?

It's about 40 months.

This Mandale Depot is 40 months?

Yes.

Yes, nearly 40 months.

We have next question from the line of Himanshu Upadhyay from PGIM Mutual Fund.

I have a question on our numbers per se and our path ahead. If we look in last 4 years, our order book has increased quite significantly, okay? So remaining order book what we show has grown from INR 3,600 crore to INR 7,400 crore at FY '20. And I think currently, it would be around INR 8,000 crores based on the numbers we have, okay? But if we see my income from operations, they have not moved in line with the way the order book has grown, okay? And even my margins have been slowly, steadily come off only from FY '16/'17. What is the path ahead for us? Means, how do you see -- or scaling up of our business? Do you think we can scale up better from here on? And what has been the challenges that we have not been able to scale up the way we have been able to win the orders? And again, on the margin trajectory side, what would be your thought process now? And once more projects start, do you think you will require a lot more capital infusion, so let's say, in terms of gross block and working capital cycle? Or how are you thinking on those terms? And again, can you lay some thoughts on these things? It would be quite helpful to understand the future trajectory of the business.

Okay. So our order book has swelled up in the last 2 years, not in the last 4 years. So we are very comfortable now. It's -- as you rightly said, it's at about INR 8,100 crores. So this is a result of the efforts of the last 2 years. As far as the margins are concerned, we feel that had COVID not hit, our margins would have been much better. In fact, we would have been on our way to achieve the margins that we had achieved in our glory days, that is around 2010 and prior to that. Having said that, we've -- over the last year, 1.5 years, we've been cleaning up our balance sheet. There have been a few write-offs also. In spite of that, I think we have been at par as far as the margins are concerned with most of our peers, if not better. Going forward, this financial year, as I said, there is really no guidance that I can give. But because we are well stocked up as far as our order book is concerned, I think FY '22 onwards we should be in a position to match our peak, as far as the margins are concerned. As far as our CapEx is concerned, we have been able to keep the CapEx in check. That is because of aggressively utilizing our existing assets. Going forward, as far as this year is concerned, we don't -- in spite of a very healthy order book, we don't see a major increase in our CapEx as far as this financial year is concerned. Have I answered your question? Have I left -- missed out on anything?

So follow-ups on these. So do you think that the margins which you were doing in FY '16/'17, nearly 13% -- 13.5%, are those achievable or -- so should we assume that the business, what we have taken to build the order book are as margin accretive as they were the business which you were having 4 years back? Or do you think the -- because even if we see FY '20, it was around 8%, which is pre-COVID type of numbers, okay? And FY '19 also was lower than FY '16 and FY '18. So have we compromised on margins? Or do you think the margins were there? And because the scale has obviously increased from FY '17, INR 1,400 crore to nearly INR 1,900 crore.

We haven't compromised on the margin. There were a lot of -- if I take you back to our earlier con calls, there were a lot of extraneous factors which led to the margin, not only for us, but the entire infra industry margins getting suppressed. So if you see the quality of order book, they comprise of a lot of hospital projects, some education projects where our exposure to the private sector is limited. So as I said, going forward, FY '22 onwards, I think we would be getting back to our glory days as far as margin is concerned.

And revenue growth should also start improving, means -- just a last question, then I'll join back the queue.

Yes, it will. Obviously, the order book -- the healthy order book shows that the revenue will increase. But this year, for obvious reasons, that increase is not going to be there.

We have next question from the line of Vibhor Singhal from PhillipCapital.

Happy Diwali to the management.

Thank you.

Sir, my question was -- there are actually 2 questions. One is on the margins front. Basically, sir, the last quarter, of course, we had April month of almost negligible revenue, and of course, because of lower executions, our margins were at around 7.5%. This quarter, we've almost doubled our revenues as compared to last quarter. And as you mentioned that as compared to last quarter's 60%, now we are probably running at around 80%. So any specific reason that even in this quarter we could not jump the margins significantly on a quarter-on-quarter basis? Any exceptional write-off or anything else which held up the margins in this quarter?

Look, first of all, the -- we -- there is a significant headwind which we continue to face, right? COVID has not gone anywhere. While we have -- labor now is at about 80%. But at the end of the day, the productivity still continues to suffer. There are a number of factors which are contributing to a lower productivity and which in turn is affecting the margin. One is, of course, the supply chain continues to be affected. B, due to the protocols which are in place on project site, the productivity of the labor is down, right? So that is why, while we've been able to overcome one challenge in terms of increasing our top line, but as far as the margins are concerned, they are continue -- they continue to be affected. And that will continue to remain, I think, for another 6 months.

In fact, that was going to be my next question. By protocols, I would assume you're meaning those social distancing norms and that -- the minimum amount of -- maximum amount of labor that we can have in our sites, right?

Exactly. That and then obviously, because of these social distancing norms, the labor, the productivity on ground suffers, right? Be it for casting of concrete or doing brick walls or laying stone and aluminum and facade and so on and so forth. And obviously, what people are forgetting is that the supply chain is yet not back to normal. Just to give you an example, COVID is one, but then if you see, say, somebody -- one of -- somebody asked me about Jammu. Now Jammu work is happening at a breakneck speed. But for the last 15 days, we haven't been able to get steel to Jammu. Why? Because Punjab -- no trains are going through Punjab. So Jammu, there is 0 -- in sale stockyards, there is 0 stock. And so the supply chain is constricted. These are factors which are contributing to -- or hitting the margins.

Right, sir. And you expect that this will probably be there for some more time, maybe 3 -- 5, 6 months?

Yes. As I said, this -- the rest of the financial year, yes, these factors are going to be there. We have to live with it.

Sure, sir. I know it's difficult times for everybody. In terms of the order book, sir, now that we have got a very strong order book of more than INR 8,000 crores, what is the pipeline that you see ahead in terms of some large projects that we are looking at? Are we looking at the Central Vista project, the other packages that might come out of it? Or some of the key projects that you would be looking at? And also, if you could just provide a quick update on probably what is the execution activity on some of the key projects, like Gardanibagh and your Nagpur project and the Sion hospital project.

Yes. So our AIIMs projects, I've already told you about Jammu, that project is happening at full speed, this notwithstanding the supply chain issue, which hopefully will be over in the next 10, 15 days. As far as our other AIIMS -- 2 AIIMS projects are concerned, we are on target to complete them in May next year, both Kalyani as well as Nagpur, both the AIIMs. In fact, 50% of both these projects have been handed over and have been made operational. The academic blocks are made operational at both these locations. As far as the hospital is concerned, that we will complete in May next year. As far as Gardanibagh is concerned, Gardanibagh project has begun, the piling has begun on the ground. And now with obviously continuity being there as far as the government is concerned, we feel that -- we foresee no problems as far as our projects on the ground in Bihar are concerned. As far as -- what was the other part of your question? Can you repeat it, please?

So how do you see the pipeline in terms of either Central Vista project or some of the key projects that we are targeting or looking at?

Yes. So yes, we will evaluate, we will participate in some of these projects. But on account of having a healthy order book, we will not bid indiscriminately. In fact, we are letting go of a few projects. There are 2 or 3. We've seen recently that there have been 4 or 5 IIMs which have been bid out. We participated in 2. We felt that the competitive intensity was very, very high. That's why we then let go off a couple. So we are doing our due diligence. And as I said, we are not bidding indiscriminately.

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

Sir, as you are saying -- first, a clarification. The labor availability that you said, 80%, is as on today or it is for average of second quarter?

No, no, as on today.

Okay. For the second quarter, what was our labor availability, a broader average?

Second quarter, the labor -- as I said, last con call, it was -- we were at about 60%. So it has gone up to about 80% now.

Okay. And in terms of the company operating efficiency, last time I think you said that it is kind of linked to the labor. So we were working at 60% or so. In the second quarter, at what efficiency, broader, are we at 60% -- 70% plus efficiency level and now at 80% efficiency level?

No, no, no. Very difficult. As I mentioned as an answer to the earlier question...

Got it. Got it. It is difficult. I got it. Now, sir, coming back to the main, the revenue and the margin. So that's the 2 major question marks for all the analysts despite so much of order book. So let's assume now, as you are saying there are supply chain issues are there, labor though have improved to 80%, can -- first of all, can we see a flattish to 1% to 2% growth in the third and fourth quarter or that is also difficult to say?

I don't -- I'll be candid. Third quarter, there are continuing issues, headwinds. One, I have already mentioned supply chain issues. B, our projects in Delhi, though construction continues to happen in NCR, but productivity is not high, again for obvious reasons, because of pollution. So third quarter, I don't see any major improvement happening. But fourth quarter, yes.

So fourth quarter can be 5% to 10% or it can be higher than 10%?

Don't put words in my mouth. But fourth quarter will be significantly better.

Okay. And then coming to the -- for the full year of FY '22 and '23, then on a broader level, because last 3, 4 years we were marginally growing kind of a thing, then can we expect a 20%-plus kind of a run rate because our order book is definitely INR 8,100 crore and maybe we will be winning a couple of more projects. So...

Yes, 15% to 20%. Yes, that's our target. FY '22 onwards, 15% to 20% growth.

And you already mentioned that the margin in FY '22 would be coming to the previous peak level that is close to 13% kind of a thing that would be coming?

Yes.

Yes. Sir, I need now order book breakup segment-wise, region-wise and the government-private, that would be helpful.

I think Rohit will provide that. Rohit, go ahead.

I'm sorry, we lost the line of Mr. Rohit Patni. I'm calling him again.

Satbeer, can you provide us that, Satbeer?

Yes, yes. I'm giving that. Yes, the government is 80% and private is 20%. And geographically, North is 55%, East 33%, West 10%. And segment-wise, Commercial 6.31%, Hospital 52%, Institutional 24%, Residential 12% and Infra 5%.

Okay. And sir, any write-off or liability written back in this quarter?

Satbeer?

Yes. So liabilities written back is around INR 6 crores, INR 7 crores and -- INR 3 crores, sorry. And written-off is not there this quarter, but this, we have made provision for around INR 5 crores.

Okay, INR 5 crore you made the provision. Okay, okay.

We have next question from the line of Mohit Kumar from DAM Capital.

Sir, have you provided anything in this quarter? Last quarter, I think you guided for some write-off on the debtor side?

Yes, last quarter, we have written-off around INR 5 crores. And this quarter, we have made a provision. We have not written off. It's also INR 5 crore, approximately.

Okay. Secondly, on this -- on the -- last quarter, you said something about there was some issue with receivables from Bihar and West Bengal. Can you please comment on that? Have you seen any improvement, something?

Yes, yes. Definitely, there is improvement. Most of our receivables have come in. And whatever is pending, we are hopeful that in December we will be up to date.

And in general, how has been the payments, sir, in the last quarter Q2? And what are you hearing from the client for -- in general, what do you think about the payment cycle?

There is an improvement. As far as Bihar is concerned, just prior to elections, some payments had come in. But there was a bit of a logjam because the state machinery had got busy with elections, but we are hopeful. As I said in December, all our payments will come. Bengal, things have improved substantially. So again, by December, we should -- our payments should be up to date. Generally also, by and large, I think last month, 1.5 months, there has been an improvement all around with most of our...

Can we safely assume that working capital will not deteriorate in FY '21?

I think so.

We have next question from the line of Vaibhav Shah from Centrum Broking.

Sir, in last quarter, we had guided that we had taken a write-off of around INR 5 crores in Q1 and there is a pending write-off of around INR 10 crores to INR 15 crores which will take...

Sir, I'm sorry to interrupt. Mr. Shah, would you please try to use the handset while asking your question. Please use the handset, sir. We're not able to hear you properly. Thank you.

Can you hear me?

Yes.

Sir, so in the last quarter, you had told that we had taken write-off of around INR 5 crores in Q1 and we had guided for a write-off of around INR 10 crores to INR 15 crores in Q2 and Q3. So where are we on that? So we -- do we take another INR 5 crores write-off in Q3? Or what is the plan?

We have provided INR 5 crores in this quarter also. We made a provision. We have not written off. But that -- we will -- we have to see what the situation would be there for recovery. That -- accordingly, there would be any kind of provision or written-off. But definitely, there would be there.

Okay. Okay. And secondly, on a couple of projects. So what is the current status at government hospitals in Chapra and Nalanda in terms of execution?

Yes, yes. The execution is well underway. And as far as Nalanda is concerned, both these projects actually in the next 1 year would be substantially completed.

And what would be the broad status of the completion as of now? Have we made certain progress on those?

Which ones, you're talking about these 2 projects only?

Yes, yes, on these only. At Nalanda and Chapra.

Yes, yes. As I said -- yes, yes, the projects are well underway. In fact, at Nalanda, the structure is almost complete.

Okay. Okay. Okay. Sir, and lastly, and in NCR projects, so what has been the impact of -- is there any ban due to pollution or there is a partial ban or something or we are going on track?

No, we are -- the construction is happening. As I mentioned earlier, there is no blanket ban on construction as yet. But productivity is low on account of DG sets are banned.

They've tightened the -- some rules for pollution, et cetera. So that's why there is a little slow. There's a little -- there's a lot of checking happening at sites from the department, things like that.

So like DG sets are banned. So that affects progress. Then secondly, fly ash is no longer available. It's -- it can't ply -- fly ash laden trucks cannot ply within the city limits. So such things are affecting the production on the ground.

Okay. Okay. And sir, can you provide a ballpark figure for the NCR order backlog in our current order book?

Would you have that, Satbeer or Rohit?

Sir, I have no...

27% in Delhi NCR.

[Operator Instructions] We have next question from the line of Jiten Rushi from Axis Capital.

Sir, there a few questions in terms of the order inflow has remained good so far in the first half and continued in Q3. So sir, can you throw some light in terms of the guidance and probably how much you're targeting this year and CapEx done so far?

I think in terms of order book, as I said, we are bidding very conservatively. We are not aggressive. We don't have an aggressive target. We stand at about INR 8,120 crores, and there is a project of Sion hospital in which we are L1, which we are also expecting shortly. So other than that, maybe another INR 1,000 crores as far as further orders are concerned. As far as the CapEx is concerned, I think this year it should be anywhere between INR 25 crores to INR 30 crores. Till date, we have done about...

INR 8.7 crore.

How much?

INR 8.7 crore.

INR 8.7 crores.