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

Ladies and gentlemen, good day, and welcome to the Ahluwalia Contracts Q3 FY '23 Results Conference Call hosted by Anand Rathi Shares and Stock Brokers. Please note that a copy of disclosure is available on the Investors section of website as well as the stock exchange. Please do note that anything said on this call, which reflects outlook towards future or which could be construed as a forward-looking statement must be reviewed in conjunction with the risks that the company faces. [Operator Instructions] I now hand the conference over to Mr. Prem Khurana from Anand Rathi Shares and Stock Brokers. Thank you, and over to you, sir.

Thank you. Good afternoon, ladies and gentlemen. On behalf of Anand Rathi Share and Stock Brokers, I welcome you all to Ahluwalia Contracts Q3 FY '23 and 9-month FY '23 post results con call. To discuss the current state of affairs and the way forward, we have from the management with us Mr. Shobhit Uppal, Deputy Managing Director; Mr. Vikas Ahluwalia, Whole Time Director; Mr. Satbeer Singh, Chief Financial Officer. We will begin this call with opening remarks from the management, and then we'll follow it up with the interactive Q&A session. Over to you, sir.

Yes. Welcome, everybody. Satbeer, can you make the opening remarks?

Yes, yes. Ahluwalia Contracts announced financial years of our quarter 3 financial '23. During the year quarter 3 financial '23, the company achieved turnover of INR 743.25 crores and PAT of INR 45.01 crores in comparable to turnover of INR 683.50 crores and PAT of INR 42.33 crores in quarter 3 financial year '22. EPS of the company for quarter 3 financial '23 is INR 6.72 compared to INR 6.32 in corresponding last quarter. During quarter 3 financial '23, company's EBITDA margin is 12.53% as compared to 10.989% and PAT margin, 6.06%, as compared to 6.919% in the corresponding period. During the 9-month financial year '23, the company achieved turnover INR 1,975.34 crores and PAT of INR 121.95 crores in comparison to turnover of INR 1,961.60 crores and PAT of INR 112.90 crores during the 9 months ended financial year '22. EPS of the company for 9 months financial year '23 is INR 18.20 compared to INR 16.85 in 9 months ended financial year '22. During 9 months financial '23, the company's EBITDA margin is 10.86% as compared to 10.75%. And PAT margin is 6.17% as compared to 5.76% in the corresponding period. Net order book of the company is INR 8,113.14 crores will be exited in next 24 to 30 months. Total order implored during current year till date is INR 4,017.63 crores and we are [indiscernible] one project amounting to INR 663 crores. And besides that, general information, this is -- our working capital days is 63 days. And cash position is INR 297.68 crores, PAT position is INR 158.83 crores. Retention money is INR 193.27 crores. Mobilization advance INR 283.96 crore. Unbilled revenue, INR 415.86 crores. Inventory, INR 231.21 crores. [indiscernible] INR 456.76 crores, and retention money total INR 193.27 crores, trade [indiscernible] INR 662.76 crores. Interest bearing mobilization advance is 41%. Fixed price contract 20%. And regarding order book, this is segment wise, commercial, 6.73%; infrastructure, 11.75%; institutional, 39.82%; residential, 11.56%; hospital, 29.35%; hotel, 0.79%. Regarding sector wise, government, 82.46%; private, 17.54%. And the region wise, east, 41.98%; north, 35.82%; west, 11.46%; south, 5.30%; and overseas, 5.44%. And now you may proceed, please.

We are ready to take questions.

[Operator Instructions] The first question is from the line of Mr. Mohit Kumar from DAM Capital.

Congratulations on a very good set of order inflow, especially for the 9 months. My first question is on the revenue guidance. I think we were expecting some incremental Q-o-Q substantial jump, which hasn't happened in this quarter. Can we expect the Q4 to be slightly better? And are you still holding on to the margin of revenue guidance or you're revising it?

Mohit, yes, we are holding on to our revenue guidance of 10% to 15% year-on-year. If you see, we have jumped -- from the last quarter, we have jumped more than 20%. And traditionally, the fourth quarter always -- run rate is the highest. So yes, we think we will cross INR 3,000 crores of the revenue in this entire financial year.

And margin guidance of 10%, is that number right, sir?

Yes.

Second question on the order inflow of what we had a very good fiscal year to 9 months. How do you see Q4? And any large opportunities, which you would like to highlight?

The pipeline is good, but we are being conservative going forward. I think there is a competitive intensity continues to be high. So since we already have a good order book appetite, we are not that hungry. So -- but still, we are bidding. There are a few marquee private sector clients for whom we've submitted bids. Over the next couple of months, the focus is going to be more on private sector clients.

And based on the current order book, sir, how do you see revenue for FY '24?

So I did say that there will be a lot of turnaround that we would get a 15% -- target of 15% growth in FY '24.

The next question is from the line of Mr. Shravan Shah.

Congratulations for strong order inflow for this year. Sir, just wanted to clarify, you said for this year, we are looking at more than INR 3,000 crore revenues. So that comes close to about 12-odd percent kind of a growth. So just trying to understand, sir, to achieve that, we need at least INR 1,000 crore plus kind of a revenue in fourth quarter. So are we confident?

Yes, yes, that's what our target is. If you see, traditionally, fourth quarter [Foreign Language] increase. We've done about INR 750 crores in Q3. So with a 20% jump -- between Q3 and Q2, there was a 20% jump. And we feel we can get that 20% jump in Q4.

Okay. That's great. Secondly, just in terms of the EBITDA margin, I think you last time mentioned at 12%, including other income, and just kind of answer to the previous participant, you said 10%. So just wanted to clarify because until now in terms of the -- including other income, it is 10.9%. So just trying to...

It's about 11% where it stands as of now. So I am giving you guidance that it will be around that.

Okay, 11%. So even for the next year, will it remain at 11%? Or will it...

No, it should go up. It should go up.

So closer to 12% that outflow that we are looking.

Yes, yes.

Okay. Just to clarify on the INR 653 crores L1. So is it that Tata Memorial still L1 or this is a separate order?

This is only Tata Memorial, which is the same.

Okay. Previously, I think it was INR 710. So you mentioned INR 653. So I just wanted to clarify. And any update in terms of when it will be getting converted into orders?

We feel that maybe in -- it may happen in this financial year -- towards the end of this financial year, end of March.

Okay. And in terms of the bid pipeline, what is it? And how much is the private and in terms of the central and state government? And do we see any further order inflow in 1.5 months?

Yes, there should be maybe around INR 400 crores to INR 500 crores. My answer to Mohit's question. I did mention that we are now a little more focused on the private sector. So because we want to hedge our bids as far as [indiscernible] are concerned.

Okay. So further then the bid pipeline right now is how much? And how much is out of that is private?

It's about INR 3,000 crores, and about 40% is private.

Okay. 40% is private. And in terms of the CapEx, how much we have done for 9 months? And what is left? And because last time, you guys are saying close to INR 50 crores, INR 60 crores this year and next year. So just wanted to recap on that.

Yes. So it's around this year is on a CapEx of about INR 80 crores because we have -- because of the sudden jump in the order book and a lot of new projects starting in new geographies like Bangalore, Hyderabad, Assam and also Maharashtra, we have exceeded our CapEx target. That is to be expected because of these new projects. So it's about INR 80 crores. And in the balance in the last quarter, it should be about INR 8 crores.

Okay. And next year, will it come down to...

It will come down. It will come down.

Okay. Satbeer, sir, if you can repeat how all the numbers -- actually, it was -- I was not able to write it up in terms of order book and the balance sheet numbers. So if you -- slowly, if you can speak up.

Yes, please. This is -- working capital days is 63 days. And cash and cash equivalent is INR 297.65 crores; bank position is INR 168.83 crores; retention money, INR 193.27 crores; mobilization advance, INR 283.96 crores; unbilled revenue, INR 416.86 crores; inventory, INR 231.21 crores; and debt is INR 466.76 crores; interest-bearing mobilization advance, 41%; trade [indiscernible], INR 662.76 crores; fixed price contract, 20% approx. And besides that, you want order book also?

Yes, sir.

It is segment wise, commercial, 6.73%; infrastructure, 11.75%; institutional, 39.82%; residential, 11.56%; hospital, 29.35%; hotel 0.79%; and about sector wise, government, 82.46%; private, 17.54%. Region-wise, eastern region, 41.98%; north region, 35.82%; west, 11.46%; south, 5.30%; and overseas, 5.44%.

[Operator Instructions] The next question is from the line of Mr. Parvez Qazi from Nuvama Group.

Sir, a couple of questions from my side. First, what has been the payments from the trade government? Are we seeing some challenges, et cetera, there or they continue to be regular? And second, on the bid pipeline, which are the segments that we are targeting? You mentioned that we are maybe looking at more private sector orders going ahead. So may be in the institutional segment? Or are we open to taking orders even from private residential side?

So we bid pipeline out of that. As I said, we focused on the private sector. Private sector, we bid for a few hospital projects -- have been and are bidding for a few hospital projects and some commercial projects. As far as the residential listing is concerned, we have slowly started looking at proven -- at residential developers with proven track record. We are doing our due diligence, and we are not averse to taking up some jobs, but limited in number. What was your first question? I think I answered the second and the third one.

Sir, about the payment from the state government.

Yes. Sorry. So yes, situation has improved. In this quarter, Bihar -- I'll start with Bihar. There is a substantial improvement. The financial closure for the [indiscernible] project has happened, and the concerned department has got the first tranche of payments, and we will be getting live soon. As far as the 2 hospitals that we are doing, Nalanda, our preliminary inauguration was done by the Chief Minister with an eye on completing the entire project by May, June. And we have got about INR 100 crores of sub-payment last month in that project. Similarly, the Chapra project, because that is in the Chief Minister constituency, we gained, funds will start flowing in that project also. So there's a substantial improvement in Bihar. As far as Bangalore is concerned, we have completed -- we were doing 2 projects -- 3 projects in the state government. The 2 projects are over. Milan Mela, where most of our payments have come in. As far as the auditorium is concerned, the bills are being certified. Our final bill is under check. That project is also complete. It's slated for inauguration in March. One project -- housing project for ITPO, that project is going on, and payment does not seem to be an issue there. So that is as far as payments from state governments are concerned. Another, we've made [indiscernible] into Assam. We are doing 3 projects with the state there. There, we have no cause to complain.

And apart from this, sir, you called upon the project in [indiscernible] would also be great if you could touch upon some of our other major projects like the Bongaigaon and Nalanda and other -- some of the hospital projects that we are doing.

Yes. I should have mentioned Himachal also. We are doing 2 hospitals for the state government there. And when the elections were happening, I mentioned in my last call, there were cash-through issues, but funds have started flowing there also. The Hamidpur project in Himachal, we are targeting in August '23 completion. And the Chamba, we are targeting a completion by October, November. As far as the Jammu Hospital is concerned, we are also targeting a completion by the end of this year. The pace on that project is picked up. That is the central government project, so funds have not been an issue there until now. As far as Mandale is concerned, work there is also progressing. And if you've gone through the new order inflow detail, there is a INR 60 or INR 70-odd crore of structural steel work that has been added, obviously, through a tender. So that project is proceeding fine now.

Great. Last question for Satbeer. Sir, do we have any loans or borrowing in the balance?

No, 0.

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

Sir, my question is on margins. Sir, it's all almost 14 quarters now where we have not hit the double-digit mark in terms of EBITDA margin. So even last quarter, we said that second half, we are looking to improve our margins in the range of 12% to 13%. And now again, you've downgraded it to 11%. Third quarter has been weaker than first and second quarter in terms of EBITDA margin. So how do we read this EBITDA margin trajectory? Because are we trying to reiterate that things will be better in the coming quarters. But again, we actually are not able to improve on the margin. Now the commodity prices have actually reduced. Even then, we are not getting that margin benefit.

Parikshit, first of all, let me correct you. We have double-digit EBITDA margin, right? .

This quarter, 9.6%, I think, the margin.

It's about -- other income stands at 10.9%.

I think I'm excluding other income.

Okay. So if you exclude the other income, then yes, it's at about 10%, yes. And there have been factors. Commodity prices, you mentioned commodity prices are again, the steel prices have gone up again. And so there is -- so we have -- as I said, by the end of the year, I have given a guidance of about 11%. And if you do a peer comparison, I think we are much above our peers. I have a chart in front of me. If you look at the profit ratios or PAT ratios, we are much better off, right?

But why -- if it's the new orders, which is coming in now. So I'm assuming that they are taking up -- assuming the elevated...

They are design build orders. It's now that the first 3 to 4 months only designing. It's now -- and the infrastructure costs and everything is there. It's only now the orders that we've got in the last 2 quarters, it would be -- we have broken ground on some, but on a large number of those projects, we'll be breaking ground now.

In terms of competitive intensities, and in fact, I know building segment, there are a handful of contractors who execute more than INR 300 crores or INR 400 crores project, single projects. I would say there'll be a handful of contractors, maybe 5 to 6 -- or maybe 5 to 10 maximum. But why the intensity still remains so high? So we know there are a few contractors who are largely positioned towards Southern India, large order books, and there are a few in western -- somewhere in north. So -- but still, we see that margin is much lower versus other segments like growth and all where we see 13%, 14% margin and where there a lot of many large number of players present in those segments, why in building segment we continue to see most of the developers -- most of the players reporting only double-digit or high single-digit kind of margin? So if you can give some color on competitive intensity because what we understand that demand continues to be very robust. Private real estate is doing so strong, seems to be on an up cycle. All the factors seems to be falling in place, especially on the demand side.

As I said last time, Parikshit, there is bound to be consolidation in the medium term here because of the fact that the competitive intensity is high, that is why we are being very, very conservative and careful. As far as the road construction listing is concerned, EBITDA margins will be higher, but you see a lot of those players having cash flow issues, and they are now trying to move to the building segment [indiscernible] of this world or other infra players like KAT. You see a lot of them [indiscernible] coming and even picking up private sector jobs in the building segment. So while I don't know -- I'm not intimately involved with the road sector, but this is a pointer that obviously, things are not hunky-dory there. As far as we are concerned, to answer your question about single-digit margins or lower margins, I think to alleviate cash flow problems, people are bidding indiscriminately and trying to pick up more jobs to get that mobilization advances. We don't do that. In fact, if you heard the figure, that Satbeer said. But we have actually -- the mobilization advance is -- interest-bearing is only 41%. We have only availed interest bearing advance on 40% of our jobs. Slowly but surely, we're building cap reserves to ensure that we don't -- in the next 3 years or so, our target is to absolutely stop availing the mobilization -- address mobilization advances from various clients. So that is how we are consolidating. And other thing that we are doing is, today, we are present in 16 states. That's a question, which you asked me in the past also, why are we not going towards the southern part of the country. We are there now. We moved to Assam also. So that we go into areas where the competitive intensity is less. The projects -- 3 projects that we've started in Assam, there, we feel our margins are going to be higher because proven and right construction companies, there are lesser. Similarly, we started -- we piggybacked on one of our existing clients, Amity. We started 2 campuses for them in southern parts of the country, one in Hyderabad, one in Bangalore. So that is why I say that in the coming quarters, our margins -- EBITDA margins especially is going to go up.

Okay. Sure, sir. Hope that we come back to our older margins of 12%, 13% range. Wish you all the luck.

The next question is from the line of Mr. Sandip Sabharwal from asksandipsabharwal.com.

[indiscernible] Ahluwalia [indiscernible] your debt profile, you don't have any debt, whereas other companies are [ loaded on to ] debt. [ However, I think taking into account ] what the last participant asked -- [ because it was a specific ] question. I actually asked you in the last conference call, on the quarter 3 margins, you said that from quarter 3 onwards, it will be 12%. So now the only question I want to ask is that when you say -- talk about margins, how do you -- is it suggesting it was based on the projects you are doing the estimate there? Because in 3 months from what you said you will achieve, the actual margins are more than 1% lesser.

Yes. So Mr. Sabharwal, it's not an estimate per se because there's a certain degree of [indiscernible]. But there are projections that are made on every project quarter-on-quarter, and they are reviewed. But as you know, if you're tracking this industry closely, as you know, there are a number of factors which can't be planned for. I'll give you an example. In the last quarter, there was a strike -- raw material strike in Bangalore, which lasted for almost a month, right? So, a, not only did it impact our revenue, but it also impacted the pricing. When the crushers restarted again, the transporters hiked their prices by 20%, one. Secondly, you must be aware of when the work stops during the -- stopped in Delhi or NCR [ by the entity ]. Now while that happens every year, this year, it happened in fits and starts, right? It was shut down for 7 days, then it started; shut down for 15 days, then it started; shut down for 7 days. So [ on certain factors ], this can't really be planned. They do impact progress, do impact margins. And that is why -- and it's not only that they impact Ahluwalia. They impact construction companies across the board.

Right. So I think all your points are very well taken. And in fact, [ it supported the initial ] commentary also, try to explain these issues. Then I think that now it will go away as such. But I think...

Your point taken.

I think this is a really good company, and I hope you do well in the future.

Thank you, Mr. Sabharwal, and your point is well taken. We will -- based on our projections or guidance, when we start off the call, we will bring all of you up-to-date on where we've been found lacking and where we've achieved our guidance. Thank you so much.

The next question is from the line of Ms. Deepika from PhillipCapital.

Congratulations on [ leasing ] performance and strong order inflow in this quarter. Sir, my first question is regarding the order book. Now we see that most of the new orders are, as you said, are design and build. And the design and build is going to take [ 3 to 4 ] months. So what percentage of order book is executable in quarter 4?

Sorry, Deepika, can you repeat that? You said what percentage of the order book is executable in quarter 4? Is that what you said?

Yes, in terms of revenue. Because while the designing is going on, it will contribute in your revenue and margins, right?

No, not much. They're not -- the revenue is -- and margins are miniscule for designing, though we do get some payments when we submit our drawings, but it's not a large amount. So as I said, a large part of this [indiscernible] happened in the last quarter. We should like -- to give you an example, we won the redevelopment of Chandigarh [indiscernible] railway station. So the designing has been happening for 2 months, 2.5 months. We should break ground in this quarter on that project. Similarly, the Central University project in Dharamshala and Dehra [indiscernible]. That also, design and environmental approval are clear. We should be breaking ground in the month of March there. So I think barring about INR 700 crores to INR 800 crores worth of project, where designing will happen in the last quarter and breaking ground will happen in the first quarter of the next financial year, we are good to go on all the other jobs.

Very well, sir. Sir, these new projects, again, on margins, at what margins have you taken these new projects?

So as I mentioned in response to one of the earlier questions, in some of the newer states [indiscernible], say, Bangalore, where we are piggybacking on an existing client, [indiscernible], the margins should be higher. But in other states or in Delhi, the margins are roughly on the line that we are declaring now.

Very well, sir. Now, sir, most of the fixed price contracts, are get -- shall be getting over in the coming quarters, and the new projects will start. So where do we see margins [ for FY '24 ] and that's excluding other income?

So I did mention about 12%.