Asian Energy Services Limited (530355) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Asian Energy Services Limited Q1 FY 2023 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashutosh Kumar, CEO and Whole Time Director of Asian. Thank you, and over to you, sir.

Thank you, and good afternoon, everyone. On behalf of Asian, I welcome everyone to the earnings conference call of the company for Q1 FY 2023. I have with me Mr. Nirav Talati, who is CFO; and Mr. Sumit Maheshwari, who is Senior Vice President and Investor Relations Officer. The presentation and the press release have been uploaded on the stock exchange and our company website. I hope everyone had a chance to look at our results and the presentation. As you would have noticed, our overall revenue in this quarter had been affected by a couple of things like interruption in ongoing seismic projects in Assam due to early arrival of monsoon and slowdown of Gevra project in Chhattisgarh. Both these projects have been resumed partially, and we are in the process of expediting the Gevra project execution further in order to recover the revenue that we lost in the last quarter. Our coal handling projects in Jharkhand has finally kicked up this quarter. The ground activities have started, and we now expect that this project will add and contribute to the overall revenue during the year. The ongoing field activity of CHP project at Gevra is also expected to pick up post monsoon, which will add further revenue to the company. Another significant event that is, we have successfully completed mobilization of the integrated operation and maintenance contract for Vedanta for their Suvali facility. We had started this contract from 1st April this year and completed the mobilization as per the contract. The other contract that we already had, which is O&M of Amguri field is progressing well. We are working on a few more opportunities in this segment, O&M segment, and we intend to consolidate our position further by securing at least 1 more contract in this year. So this is as far as a brief update is concerned. Now we look forward to have questions from the session. Thank you so much.

Yes, and we can take the question-and-answer session.

[Operator Instructions] First question is from the line of Rahul Shah, Individual Investor.

I have a few questions. Sometime back, we had heard of some merger news with Oilmax. So how is that progressing, sir?

This is Sumit here. There is nothing on discussion on the proposal of Oilmax merger with Asian. And whenever any such proposal will come, the Board of Directors of Asian will take appropriate action at that point of time. But currently, there is nothing on discussion on both agenda in terms of merger of Oilmax with Asian.

Okay, sir. My second question is, what is the total current order book position with the company as of date?

Also, presently, first estimate, we have around INR 60 crore of contract on hand. And...

So I'll answer this question. The total order book of the company comprises of all 3 segments is in -- currently is in excess of INR 500 crore. The majority of the portion comprises of the coal handling plant order which we have, and it includes a long-term contract of O&M also. The seismic business order book is currently slightly on the lower side because there has been no activity for last 5, 6 months in terms of the tendering.

Okay, sir. Another question is for Mr. Ashutosh Kumar. Sir, since I have been a very long investor with the company, I have seen a lot of value you can say degeneration for myself as well as for my clients. So looking at the current valuation of the company, why doesn't the company go for a share buyback, something like that or maybe bring out something good so that investors can cheer up what they have lost for the last 5 years.

So I will answer your question slightly differently. So if you remember, last year, we had made a strategic shift in our approach and ventured into coal segment. Our idea at that point in time was that the -- it's not good to rely only on one business, which was seismic at that time. And accordingly, we have kind of started putting in our efforts to get into coal, secure businesses in coal and all. And if you notice, we have been quite successful in our efforts in the sense that we have managed to secure 2 CSP contracts, the total value roughly around INR 300 crores at that point in time. I'm sure all of you have noticed that this quarter the seismic performance has not been good. That is primarily because there is not much happening in the seismic area. At the same time, because we had our coal handling orders, we have been working and that has been contributing to the overall order book as well as our revenue at this point and going forward. So in terms of value erosion, yes, there has been a little bit as is reflected in the Q1 revenue, but because we believe our strategy has been successful, and it's going to give returns and bear fruits in the months going forward. I would like to basically suggest to all of you that whatever value erosion that you're looking at is temporary. Our efforts in coal area is already adding significant revenue going forward. So you will see improve in the overall revenue and performance this point forward.

But sir, we are currently holding a sizable cash position also in our books. So maybe even if you see, you can say, INR 5 crore to INR 10 crore buyback also will create a good update for the shareholders also. Since we are -- we've never been a dividend-paying company as of yet. At the same time, we had some sizable price erosion also. And in the last 5 years, in fact, all the shareholders, we have not made significant wealth from Asian Energy, while we were expecting that management change, all the changes that have taken place will build up some good value for investors.

No, you're right. You're right in the sense that there has been value erosion. So as far as buyback is concerned, that's something that board will have to decide, and we are happy to take you to the board, not a problem. I was trying to answer more from a performance perspective, that the decision that we took last year, of course, by approval of all the shareholders, has started [indiscernible]. You can't see the whole picture as of now. But as we move on and secure more and more CHP projects and other EPC in coal business, you'll see that in the coming quarters. But as far as buyback is concerned, obviously, it's up to the board. We take your suggestion. We'll propose it to the board, and whatever board decides.

Okay. Sir, then is it possible that we can become a dividend-paying company from this year itself since we had shown continuous profits for the last 4 quarters before this quarter?

I don't see any reason why not, but Sumit will respond to you.

Okay. Rahul, the board endeavors to declare dividend whether that's an appropriate thing. So what are the profits which we have made, the company had a carryforward book losses, which had prohibited company to declare the dividend earlier. So once we crosses that limit which we are quite hopeful to do in this year, then the board will definitely consider declaring the dividend, and the board will put up a formal dividend declaration policy also. So hopefully, in this year, we should be able to declare the dividend, subject to the board approval. But yes, we have recovered the previous losses, which had not allowed us to declare the dividend earlier, and now board will take appropriate decision accordingly.

Mr. Harbin Singh, an individual investor.

Am I audible?

Yes, you are.

Sir, we are moving from seismic to coal. So are we actually looking at this futuristically? I'm just asking because the whole thing is like renewable and nonrenewable segment. I hope you got my point.

Yes. If I have understood correctly, your question is when everybody is talking about renewable, how come we are focusing on coal. Is that the question?

Right, right, sir. Right, sir.

So if you look at the coal industry in Indian context, I don't think renewable is impacting the coal growth in any way. There is space for renewable as well as coal. The current growth in coal is driven primarily by the transportation requirements of it. It's not only about producing more coal. It's about connecting the coal produced at different mines to the end users, which is basically transportation. And the projects that we have targeted is exactly in that space, which is coal-handling plant. What it basically does is, it kind of creates a facility to transport the coal from mines to the loading facility, which kind of loads the coal into the [indiscernible]. There is more than enough projects coming up in this segment for next 2 to 3 years. So along with the guidance from the board, we could spot this opportunity, and now we have positioned ourselves to be a significant player in this segment. And that was the reason why we decided to diversify in this segment last year. I hope that answers your question.

Yes, sir, perfectly. And one more thing. As far as I remember, we made some investment in VAAN Electric sometime back. Is there any update on that?

Okay. Yes. So I'll give an update on the VAAN. So VAAN was our strategic investment to understand the aspect of e-mobility sector and segment. So we had invested there some in VAAN. So just to give an update on the VAAN, VAAN has already launched its product e-bicycle in January month in a very selective launch in Kerala market. And now after 3, 4 months of success and trial, VAAN has entered into a large-scale Indian distribution system where they've already appointed 30, 40 distributors. And they are opening 3, 4 exclusive showrooms. And now VAAN has developed their e-scooter also, which is currently in the process of getting the necessary approval from authorities in India, and they want to launch, once that approval is there, in the next year also. So VAAN was more of a strategic investment from our side to understand, and we updated related to the e-mobility segment, which is happening. And as a stand-alone, VAAN is doing good, and they are launching their product, which has been well received by the market. You will see a significant product launches and the value addition at VAAN level. And Asian is evaluating the further other opportunities also into this segment. As your last question was there that we were just focusing only on the hydrocarbon sector, at appropriate time, any other -- any new opportunity comes into enter into other segments also, we will evaluate at that point of time.

Sir, just -- there's one more question regarding VAAN, like when we started, our aim was to get into -- I mean, our focus was to get into fabrications, getting into making the channels and focusing on that investment on that, that is what I heard from management. So is it still the same, or are we interested in creating some distribution channels or getting into it? Are we thinking of increase in our strategic investment into this? Or are we on the plans like we are just focusing on creating charging stations in future?

There is no change in our strategy in terms of VAAN. As we told you, VAAN has recently launched this product, and it's just 3, 4 months for they're launching the product. So we are still evaluating how the market is going to receive these products, and what would be the best strategy going forward in terms of expanding our services offering into this particular segment. So it depends on that particular aspect. The board will take appropriate decisions. But currently, nothing is on table in terms of increasing our stake in VAAN or enter into a different type of agreement or set up with the VAAN. Our strategy or investment objective in the VAAN remains the same.

[Operator Instructions] The next question is from the line of Prakash Diwan from Altamount Capital.

Can you hear me?

Yes.

Yes, okay. So I'm sorry. I kind of logged in a bit late, so if I missed out on some of the critical explanation on why -- what do you attribute this significant drop in revenue to, that was the first thing. And the second, I assume to understand in the earlier years, the quarter, whether that this O&M has started accruing from some of the orders that have certified last year, and quantum was estimated to be about INR 100 crores for the year with the run rate of almost 35%. If that is there, then why is there no other -- I mean, revenue from any other stream? I mean I'm very perplexed because there's so many positive things about the company and certainly the value let you down. So maybe I missed out on the explanation, but if you just explained that?

So the O&M revenue is on track. I'm not sure if you're there when we discussed that we have commenced one of our O&M contracts in Suvali for Vedanta.

How much is this size, sir? What is the size of that revenue?

That's INR 200 crores order book around -- in 4 years. So around INR 50 crores per annum. But there are reimbursables, which is...

And that has started, this particular quarter that you have reported has some component of this factored in?

Yes, there is.

Okay, okay. So INR 25 crores already has some part of this INR 12.5 crore run rate from this critical contract?

INR 7 to 8 crores.

Okay. So yes, definitely, some part started. So as the contract has started from the 1st of April, so the revenue and the run rate will increase going forward. For first 3 months, there has been some revenue booking, which is not very significant in terms of the overall annual expected contract value. But in the coming quarters, the more and more work will be taken care at those particular facilities, and the revenue will increase. And as Mr. Ashutosh explained, the contract is for the 4 years and roughly targeted revenue of...

INR 200 crores, yes, that I've got. So essentially, this quarter, you have some revenue that's coming. That's the most important thing, and it will grow as the contract this year.

Some revenue has come up, and it will grow going forward further.

Okay. So then my question continues to be more -- I mean, I'm more confused. I know you have answers, but I am the one who is confused. Why is this INR 25-odd crores -- I mean, sorry, INR 27-odd crores revenue that you got, but also has O&M, but then where is the big miss though?

Sorry. Could you repeat it one more time?

So it's INR 27 crores top line that you reported has some component of this particular O&M also in it. Then where is the core [indiscernible] and material handling business, I mean, is it virtually not being there, or what is this -- what's gone wrong?

So the major part that has been missed out, and Sumit will explain in detail, but I'll just give you a headline. Our forecast for this quarter included seismic revenue in Assam. And that was based on our experience last year when we could work during monsoon also. However, in this year, the monsoon came early in Assam. And due to that, we had to -- our seismic work in Assam was interrupted. We effectively lost a month. So that -- you are seeing that impact in the revenue, which is not there. Now after that brief interruption, we could resume the seismic work in Assam. So that's primarily the gap between the expectations and actual delivery in Q1. But there has been a little bit of impact from the coal-handling plant facility as well, which is nothing but a phasing. So a few things here and there, but that's more of a trading issue. The revenue you will realize in coming quarters.

So you're seeing this big miss is because a lot of your business comes from Assam and that 1/3 of the time lost because of the early monsoon actually led to the shrinkage of the time line of the revenue there? That's what you're saying?

Yes. Yes, Mr. Diwan. And apart from that, there were -- we were expecting certain contract award by the Government of India of NSP 2, which was expected to start working in May and June month, but those contracts have been delayed by the government by a couple of months, and those tenders are yet to come out. So that has bit dipped off seismic revenue. But as Mr. Ashutosh explained, the work has already resumed at 1 site in Assam. And on other site, we are expected to resume work in next month. And post October, there will not be any monsoon effect on overall seismic business and with the new line of orders, which have been tendered, which have been planned. So we are quite hopeful to make a very good recovery in coming quarters in seismic business, especially in Q3 and Q4. And as explained by Mr. Kumar in our CHP business, one of our contractor recently started working after getting the necessary clearance for the land acquisition and land approval being done by our clients. So there, the CHP segment, the work has started, and that will show in Q2, Q3 and Q4 coming quarters. And in other one of the contracts, because of the phasing issue, there was some slowness in the contract execution, which is also likely to be covered up in the coming quarters. So this Q1 has been exceptionally not a very good quarter, what we had earlier anticipated, but we're quite hopeful to make a good recovery in coming quarters and still do that.

Thanks for being so candid admitting that it has been not at all a good quarter. I earlier heard somebody say it was just a slight value erosion. This is not slight. I mean if I was running the company and reporting these kind of numbers, I'm sure I would have a question by the board on a lot of accounts. I can understand government orders getting delayed, but we've always seen executing a pipeline of orders that we already had in the bag. That's the worry with INR 400 crores, INR 500 crores expectation of top line for the year, I mean, this is serious. And you are anticipating some sort of a spillover in the subsequent quarters. Hopefully, that will pay off. So you do believe that Q2 with -- from a business perspective is not very good because of the monsoon in all the other areas. And I was under the impression Q2 is bad, you would probably have all that lumpiness -- all the spillover coming into Q2. So Q2 could not be as bad as, we believe, it seasonally it is and you might see some improvement on a Y-o-Y basis as well.

So Q2, you will see improvement over Q1, and that improvement will come primarily from a CHP business, which has kickstarted, the groundbreaking has been started. Q3 and Q4 will be significantly better compared to Q1 and Q2 because I think it also will come in play.

Okay, okay. So seismic is virtually not there because of these factors that you explained such as Assam floods and all that loss of time and all that, right? So -- and that will happen and CHP also you had some delays in the execution starting. So that will also start reflecting. That's really good.

Yes.

Okay. Great. And on this O&M thing, we kind of missed that little bit, this is last question. Do you anticipate actually getting execution started for more orders from here? I mean order booking is one thing because I now want to understand whether business has started or revenue started -- after -- beyond this INR 200 crores that you mentioned, is there something else in the bag?

No. O&M -- generally O&M contracts take a long time to materialize. So I can't really guarantee that we'll have one more. All I can say you is that we are currently actively pursuing 2 tenders for O&M.

Okay, okay. And these are, as usual, from the likes of Vedanta and [ OGC ] and all?

Vedanta and other private firms, yes.

Private firms, okay. But same ticket size, INR 200 crores over 3, 4 years, as you said earlier?

Yes.

Super. And this employee cost that's gone up. You will have seismic going on, coal handling is way to start. O&M is just one contract that is off the floor. Why is the employee cost gone up? What's your reason? Have you hired for future? What is the reason?

Mr. Diwan, it's a mix of 2 things. First thing is, as our O&M contract is started, so we've hired a lot of people for doing the O&M contract. So their costs are coming into employee costs. And the second thing is, as we explained to you in the seismic business, the flood, which has affected our operation, still we continue to employ few people in anticipation of making good recovery. So that's why the employee cost is slightly higher as compared to our revenue. And there are some employees which we have hired for executing our CHP business also, for which the revenue will start coming in coming quarters. So you will see a normalization vis-à-vis employee costs versus our revenue in coming quarters.

Oh, excellent, okay. And so from a revenue flow perspective, you're saying Q1 was the significant miss, but a lot of that might start getting captured in Q2 and as we started to set Q3 and Q4 to be even better? That's the whole narrative, right, in terms of the plan. And from that perspective, everything is looking good, and it's more back-ended for this financial year, the revenue and profitability. Then -- okay, so then the stock value erosion and the stock seems to be the only mismatch. So there will be more attractiveness. Ever since you bought this company -- sorry, bought this company off the private equity fund, there is no infusion, right, by the promoter here? I mean, I guess -- I'm sorry, I don't have those old data, and no buyback also?

Oilmax promoter has invested INR 80 crores of primary equity in the company in year 2017, 2018.

Yes, yes. I mean -- yes, so that's like -- so we know the transactions, yes, yes. That is okay. I mean that can be after -- because this is looking more attractive and so they wanted at whatever price, they wanted it, this was looking far more attractive given what you are saying. So I'm just checking, there's been no buyback, I mean, no acquisition by the promoters in any of these couple of years, right?

No.

[Operator Instructions] Next question is from the line of Mohit [ Rathi from CCIP ].

Yes. Thank you for explaining the Q1 numbers. Just you mentioned something about phasing on the coal handling plant. Could you explain more in detail like what is phasing, and how it will play out?

So for example, if you talk about a particular project, the typical coal handling project is around 24 months. So if you look at Gevra, before the monsoon, we were progressing well in Gevra, and then part of the revenue captured in Gevra was in the last financial year. After that, the monsoon came, a few other challenges came. And therefore, we -- the revenue booking has slowed down. In fact, the project progress has slowed down. And in subsequent quarters, it will again come up. So that's what I meant by phasing. So typically, any coal-handling plant, all the revenue will not be captured in any particular year. So the key really is to have -- do you want to add?

Yes. So I just -- as Mr. Ashutosh Kumar explained, the coal-handling plants are spread over of between 18 months to 24 months, and these are mix of mechanical, civil and a lot of activities. So it depends on the managing the project and the project structure and the project cash flow. Few quarters, you booked slightly extra revenue in terms of placing of orders and making the order. And the few quarters depends on your site execution in terms of the availability of land and the challenges related to the monsoon and the civil structure. You try to manage your operating cash flow level. So overall projects will get completed in the similar period time frame of 18 months to 24 months, but depends on at which particular stage you are into the project and which makes more commercial sense in terms of that particular month activity. You decide to slow down activities for a couple of months, and you decide to further expedite the activities in coming months to maintain the balance, both in terms of your costing and in terms of your utilizing best of your resources, giving the best value to your resources. So that is the meaning of phasing. So the last quarter because of the rainy season and the challenges related to the civil structure in that particular project during both particular period, there has been some slowdown into those activities. In the coming quarter, those activities will further pick up, and overall projects will be completed in the same division. So that's what we meant by the phasing.

So is it fair to assume that when you are bidding for a project like you are bidding for the IRR of the project, so that will get realized in this CHP?

Yes. So whatever is our estimated margin, so when we build the project, we keep all those things into the picture, and we calculate and take factor of all these aspects into the picture. And we strive to maintain our margins with all these slowdown in fast-track activities keeping into the mind. So the entire margins will be realized during the project execution.

So we are still on track, basically?

Yes. So we are slightly delayed in that particular project, not from the client point of view, from our internal estimate point of view, and we are quite hopeful to cover up the ground in coming quarters and stay ahead of the track.

Sir, second question was now that the crude oil price has gone up substantially in the last 1, 2 years. Like do you see any new opportunities or something like we had 1 Nigerian contract, which we terminated, and things like that? Do you see any new opportunities on the horizon?

Our business model is not actually directly dependent on crude oil. As you know, our business has been focused around seismic. And subsequently, we decided to get into coal and all, which has nothing to do with crude oil. Seismic, I wish -- we always thought crude oil increase will have impact on seismic. Unfortunately, no, because seismic orders are driven by government policies and government decisions to start seismic program. In terms of APC in oil and gas local market, we don't see much activity in the area of our interest in the short-term basis. So I would say, short-term basis, crude oil price increase probably will not affect us one way or the other.

But I mean, long term, also, so if price is increasing, I'm sure there will be more demand for seismic activity. So that is where I was coming from, but your point is well taken. I mean, government policy is good for you. Point is well taken.

What we meant to say is no directly proportionate relation with the crude oil prices with our business activity, and our endeavors to get into the long-term contracts, where we minimize the cyclicality related to the crude oil prices and all those activities. So it's not a direct proportion related to the oil and gas activity with the crude oil prices.

[Operator Instructions] As there are no further questions from the participants, I would now like to hand the conference over to Mr. Ashutosh Kumar for closing comments.

All right. I would like to thank all of you once again for joining on this call and asking questions related to our business, which kind of helps us look further into how we are conducting our business. I hope we have been able to answer queries to your satisfaction. If you still want to ask more questions, please feel free to contact our -- Mr. Sumit Maheshwari. For now, thank you, and see you next time. Thanks. Buh-bye.

Thank you. Ladies and gentlemen, on behalf of Asian Energy Services Limited, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.