Capacit'e Infraprojects Limited (CAPACITE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Capacit'e Infraprojects Limited Q3 FY '20 Conference Call hosted by Prabhudas Lilladher Pvt. Ltd. Please note before we begin the call, I would like to mention that some of the statements related to today's conference may be forward-looking in nature. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Viral Shah from Prabhudas Lilladher Pvt. Ltd. Thank you, and over to you, Sir.

Thank you, Faizan. Good morning, everyone. I welcome all the participants for the 3Q FY '20 results conference call of Capacit'e at Infraprojects center. We have with us Mr. Rohit Katyal, Execute Director and CFO of the company; Mr. Alok Malhotra, President Corporate Finance; and Mr. Nishek Tijari, Head of Accounts. We would commence the call with the opening remarks from Mr. Rohit Tekata to give an overview of the company's performance. This will be followed by a Q&A. Now I would like Mr. Rohit Katyal to begin the call with the opening remarks. Over to you, Sir.

Thank you. Good morning, everyone. A very warm welcome to our Q3 and 9-month FY '20 earnings conference call. Along with me, I have Mr. Alok Malhotra, President Corporate Finance; Mr. Nishek Tijari, Head of Accounts and Audit and our Investor Relations team. I hope everyone has had an opportunity to look at our results. The presentation and press release have been uploaded on the stock exchanges and our company's website. Before I take you all through the operational and financial performance. I would like to highlight a few points. Given the challenging economic environment, our year-to-date performance has been satisfying. Based on our policy of suspending work wherever we foresee cash flows being a challenge, our top line witnessed a marginal decline. Despite this, we were able to maintain a healthy margin profile as is visible in our EBITDA, PAT and Cash PAT margins. Our working capital days are at 70 days vis-à-vis 68 in H1 FY '20. Further, we have turned debt-free on net basis as on December 31, 2018, which is a huge positive, considering the prevailing liquidated -- liquidity scenario. The recent budget announcement, such as building data centers, construction of many more hospitals, medical colleges to be attached to district hospitals and development of 100 airports by 2024, focuses on the governments focus towards infrastructure, which opens up serious opportunities for companies like us. Now allow me to give you an overview of our operational performance during the quarter. Order book. The total order book, public and private, on a stand-alone basis, as on December 31, 2019, stood at INR 10,820 crore. Pure residential segment constituted 34% of the order book. Commercial and institutional segment constituted 14%, while mixed-use segment constituted 52%. Our order book from the public sector included in the above amount as on -- as at the end of December 31, stood at INR 5,351 crore, which means 49% of the total order book. Projects currently under mobilization stands at INR 5,000 crore. Our stand-alone financial performance for Q3 and 9 months ending FY '20 is as follows: total income for the period is INR 1,241.3 crore as compared to INR 1,323.9 crore for period ending December 31, 2019, and therefore, witnessed a marginal decline of 6.2%. Our execution was impacted during the quarter due to NGT issues in the MCR and extended monsoons in MMR. EBITDA for 9 months FY '20, grew by 6.2% to INR 228.9 crore as compared to INR 215.5 crore in 9 months FY '19. EBITDA margin for 9 months FY '20 was 18.4%, vis-à-vis 16.3% in 9 months FY '19. Depreciation and amortization expenses for 9 months FY '20 stood at 81 -- INR 84.1 crore as compared to INR 64.4 crore in the previous fiscal same period. Depreciation for the quarter and 9 months ending December 31, 2019, reflect changes on account of adobe shop, IND AS 116, and hence not comparable with previous pay period. The impact on this account is INR 15.9 crore. The CapEx spends towards core assets in 9-month FY '20 stood at INR 70.5 crore. PAT for 9 months FY '20 grew by 25% to INR 87.1 crore as compared to INR 69.6 crore in 9 months FY '19. Tax margin for 9-months, FY '20, stands at 7%, vis-à-vis 5.3% in 9 months FY '19. Tax expense for the quarter and 9 months ending December 31, reflect changes made by taxation laws amendments almost 2019 as applicable to the company. Diluted EPS for 9 months FY '20 stood at INR 12.83 per share. Cash back for 9 months FY '20 was INR 163.1 crore as compared to INR 139.9 crore during 9 months FY '19, registering a growth of 16.6%. Cash PAT margins for 9-month FY '20 stands at 13.1% vis-à-vis 10.6% in 9 months FY '19. The net debt-to-equity ratio at the end of the period December 31, 2019, stood at 0. The cash and bank balance stood at INR 281.4 crore at the end of December 31, 2019. Total collections staying in line during the period for quarter ending December 31, were at INR 591 crore. The net working capital days stood at 70 days vis-à-vis at 68 days in H1 FY '20. With this, I now leave the floor open for questions. Thank you.

[Operator Instructions] The first question is from the line of Parikshit Kandpal from HDFC Securities.

Sir, what is the contribution of the public sector order book of [ INR 5,300 odd crore ] in the 9 months and the third quarter revenues, if you can just highlight them?

So third quarter revenue has started building up for Bombay Municipal Corporation and for -- their data centers being made for DOT through BSNL. And the contribution to that effect could be about INR 15 crore to INR 20 crore only in Q3, however, we do believe that in the current quarter, the contribution from these projects, excluding CIDCO, which is under mobilization, will exceed INR 50 crores.

Okay. So a real ramp-up in execution may happen only from the first quarter of next financial year.

The ramp-up has already started. If you see that we have mobilized BSNL and MCGM project in quarter 2 and partially in quarter 3. And we have built approximately INR 14 crore in January. And just to give you an indication, which means the ramp-up is there. So we believe that these 2 projects will start. Giving the [ discrete ] revenues from this quarter and peak from next quarter onwards.

Okay. So from your order book point of view, so half of your order book is still not like, meaningfully contributing to the revenues. So if I go to the residential order backlog or private order backlog of INR 5,400 crore. So if you can just split up that, how much of that would be like projects like which are slow moving something like Orion, which you intend to later on, maybe take a call on that. So if you can just break it up into what is really executable as of now in that INR 5,400 crore of private order book?

So as a policy, anything which is slow-moving and defined slow-moving means anything, which is beyond the 6-month period, where foreseeable revenues are not there, do not form a part and parcel of the order book. So out of INR 5,400 crore, the entire order book in our view is executable, #1. #2, 50% of the order book which you -- which you just mentioned, I think a fair amount of part, as nonexecutable has been received in the back end of quarter 2 or 3. So for such mega projects, you require 3, 4, 5 months for mobilization. And therefore, we do believe that they will start meaning -- contributing meaningfully from quarter 1 of the next fiscal. We don't see any order within the system, which will not contribute towards revenue. If you may excuse me, I wouldn't like to take any names of any particular clients. But if we do remove any or move any order from the main order book towards slow-moving, we will promptly inform you.

Okay. So my only thing was that we have been averaging around 400 quarters -- INR 400 crore on a quarterly basis from that [ INR 550 crore ] private order book. So once this -- the public order book moved into execution from 1Q and if I understand that execution time period would be similar, so we could see a significant ramp-up from the 1Q FY '21.

Absolutely no doubt about that. We are very -- we're in a sweet spot. No doubt about that.

And just on the balance sheet side, if you can give us numbers on the unbilled revenue and debtors, how quarter-on-quarter, that has changed?

You see that the unbilled or the work done, not billed is -- on a particular date. And that may increase or decrease on quarterly basis. However, by the year-end, we do believe we will be maintaining the levels, which historically you have been seeing. So while on December 31, 2019, you saw an amount of about [ INR 520 odd crore ] towards work-in-process, towards work done, not build, that billing out of that of nearly INR 220 crore has already happened and under certification. So I do believe that most of it must have already been certified or will be certified in the next 5, 7 days time.

Okay. And just lastly on the margin, this quarter has seen very good margins, strong margin. So any change or revisions in the guidance for the EBITDA margin?

Please allow us to surpass the targets. Revenue in such challenging times, at times, we have to take tough decisions, all construction companies are doing the same. We do not want to be settled with slow-moving debtors. And therefore, while we may compromise with the top line. It is always better that we don't compromise with the bottom line. As a guidance, we have already mentioned that the guidance will be between 15.7% to 16.5%. You are -- what you are seeing is certain operational efficiencies kicking in on back of projects being handed over, and therefore, a little bit reduction on absolute basis in the fixed cost of the company. As the revenues grow, you may see better expansion. But at the moment, let's be -- let's stick to the overall guidance of 15.7% to 16.5%. No harm at all in improving on that.

There was no one-off, right? In this margin?

There is no one-off. The point is that, as I have explained that you have to view the company -- the company's EBITDA, PAT, Cash PAT over a period of 12 months at least. So if you look at that, we have given that once we start handing over projects, there will be an improvement of 100 to 150 basis points. And that practically will happen over the next 2, 3 quarters. So let's wait and watch for that. There is no one-off answering your question.

The next question is from the line of Varun Ginodia from AMBIT Capital.

Sir, I have 2 questions. One is on the order book. So if I see your order book number in 3Q and compare that with 2Q, given you have not won any order inflows in 3Q, but the decline in order book is lower than the revenue booked in the quarter. So have you taken any order back into your order book? Like Ahuja, which was gaining traction. So has it come back to the order book? Or is there anything else in there?

Yes, Ahuja order book in the last conference also, we explained it has come back to the order book because Ahuja now -- the constitution has changed, Fosun China is a majority stakeholder, as we believe, #1. #2, when you talk about the order book, you cannot add up figures and -- because there are scope provisions. In your existing orders, if there are scope provisions that will increase the value of the order, and if there is scope reduction that will reduce your contract value. As a prudent company, we need to take that into account and revise the order book upwards or downwards to come at the realistic figure.

Got it. And second question is on the collections. If I look at the collections number, the 9-month number is lower than first half numbers. So like first half number was about INR 780 crore, INR 790 crore odd, and 9-month number is about INR 530 crore, INR 540 crore. So why the decline in -- I didn't get the maths there? I thought 9 months should be higher than first half?

Really appreciate you pointing that. Actually, that's some typographical mistake. The collection figure of INR 591 crore is for Q3 FY '20 and not for the 9 months. So the collection for Q3 FY '20 stands at INR 591 crore. You may add the first 2 quarters collection to arrive at the overall collection, which may be at par with or maybe similar to what last year's solution would be.

Got it. And just one last question, if I may, on CIDCO execution time line, if you can provide some color there? Like how will that execution happen over FY '21, '22, I mean, of the total order book, how much revenue you expect to book in FY '21, FY '22, if you can give some color there?

Okay. CIDCO project consist and comprises of 7 locations. Of that, as on December 31, 2019, 4 locations have been made available. The client has informed that in a phase-wise manner, as per the contract terms, the balance locations will be made available before 31st of March '20, and therefore, we do believe that this project will be executable over the next 3 financial years starting April 1, 2020. So the peak revenue will happen over '21, '22, '23 and will taper off from this project perspective in the year thereafter.

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

Sir, my first -- again on the CIDCO project. So have you received all these sites? Have they been handed over? And are we -- have you taken any mobilization advance?

So the first tranche of mobilization advance has been received by the company. And this mobilization advance is interest free, #1. #2, I just mentioned that out of the 7 locations, 4 locations were handed over in the last quarter, which have been mobilized, and we are awaiting the final approval of the drawing, which should happen any time to start the work at the ground level. For the remaining 3 locations, we expect the position to be handed over because that's in the scope of the client, within the current quarter.

Sir there was another BMY order from CIDCO is supposed to come, have you heard anything on that?

That would be for plant to -- at the moment, once the PQ or prequalification or the tender documents are out, we will be able to comment. At the moment, we only have the information that 131,000 units further have been approved by the board. That was -- and in the print media. So that's what we are given to understand. But any which ways preparation of prequalification documents, the whole process just take 5 to 6 months, at least. So I don't think that any major project from CIDCO perspective will be out, but obviously, there are plans by the Central and State Government.

And sir, last question, Sir, what is the kind of CapEx that you've done in the 9 months?

We did about INR 74 crore.

It was for first [ quarter], it was INR 39.5 crore, am I right?

That's right.

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

A couple of questions. Sir, first is, what is the update on the MHADA order, how is that project shaping up?

Very well, we have received the clearances to start with the transit camps. The transit cams have been revised to 22 story into 3 towers. And we believe that we will start the execution of that over the next 4 months or so. 1,200 tenements have signed up to MHADA because that's in the scope of MHADA and therefore, the deadline of December 2019, where MHADA had to move out about 100 tenements to outside transit camps. That has been shifted to March, and we believe that, therefore, if they are able to keep up with that target of March 2020, you should see opening up of nearly 2,000 crores of worth order fronts from June 2020. So many positive developments on that front. And after 1 year of detailed engineering design, MHADA has ultimately been able to move forward by giving us a place to start the construction.

Sure. Secondly, what is the kind of CapEx that we foresee in FY '21.

FY '21, the budget has not been finalized, except for CIDCO project and the order which we have just had in the current quarter, which we announced maybe yesterday, I think so. All other CapEx has been completed. That means except for out of, say, INR 11,000 crore of stand-alone order book, has CapEx for approximately INR 6,200 crore odd stands completed. Exact budget, it would be inappropriate for me to give you a number. Once the budget is finalized, I'm sure my IR team will forward that to you.

Sure. And lastly, I mean, obviously, there is an economic slowdown. You also mentioned that cash flow is a problem in the overall system, so how are we -- I mean, what is our thought process first on managing our working capital on existing projects? And second, as far as new order inflows are concerned, how are we approaching that?

So I'll take your second question first. New orders have to be from clients, which are at par with existing quality or better. You have our order book. And if you see the top 10 clients, I don't think anyone can complain on that. And therefore, any new orders will be at par with those quality of clients or better. There's no question of going to the grade B, grade C and even digressing from the geographies where we are operating, #1. #2, there is no doubt that the last 5 quarters have been our most challenging quarters, at least what I have seen in my career and what capacity has seen in a short span of 7 years. So what that only suggests that we have to be overcautious, we have to be ready to sacrifice top line to maintain the cash flows and to maintain the bottom line and the financial strength of the balance sheet. There's no point in having INR 100 crore increase in top line and a corresponding increase of INR 100 crore in the debtor levels. So that's what the company is focused at, any which ways, having said that, we are not away from the industry. If everyone is facing challenge, we also have faced challenges. The only silver lining is that we have been able to navigate through it a bit better.

The next question is from the line of Alok Deora from YES Securities.

Just a couple of questions. So what kind of revenues we are looking at from CIDCO project in FY '20, if at all?

FY '20?

Yes.

We are looking at certain revenues, which could be recognized from the design engineering and approvals there, too. The actual execution and meaningful will start from quarter 1 next financial year.

All right. And just one question on the order intake, like we are already sitting on a very robust order book. So what kind of order inflows are -- we are looking at now? Because considering the huge order book and execution is likely to pick up in the next year or so. So how are we now targeting the fresh order inflows?

So this has to be looked from 2 perspectives. #1, in December '17, we had 63 operational projects, today, we are at about 42, 43 of operational projects, which means at least 20, 25 projects have been completed, handed over or are under virtual completion. Okay? So the challenge during the completion of the project is that you have to prepare your final bill, submit that, collect your money, and that takes the time period of 3 to 4 months, but the positive side to that is that since now, the company's total number of projects have reduced to that 40, 42 or 43 and further slated to come down below 40 by March 31, 2020. This freezes management bandwidth. Why has this happened, the order book of your INR 10,000 crore, now it spread over only 37 or 38 projects, which means the revenue per project will be higher, thereby driving the revenue up and also giving the management the bandwidth to maybe take repeat orders from some of its existing market clients as in when they come up. Adding new client, as I earlier mentioned, would be only if the client is at par or better than the clients we have. Like we have GIC, we have Canadian Pension Fund, we have Oberoi, Brookfield. So these clients giving repeat orders, it's always a welcome thing. Because the number of projects have reduced. So we do have some appetite but this appetite has been kept for these clients.

Got it. And just one last question. So have you seen any strengths built up in your existing clients -- to step the initial phase where you've witnessed some sort of slowdown in the order from their side? Like in the existing order or the projects which you are doing for them?

The projects where we had faced issues were areas which we have removed all of them from our order book. And in case we face any further stress from any other particular client because, as I said, that we are exercising abundant caution, and if we feel, on basis of evidences, on the ground level and not at the excel sheet level, but on the ground level, that if any client is going to face any tailwind we will not hesitate in suspending and informing you about such projects. Because as you rightly said, the order book is so strong, a couple of orders getting suspended does not make any material difference to the company.

[Operator Instructions] The next question is from the line of [ Hardik Sodha ] from Crescita Investments.

This is [ Vijay ] [indiscernible]. So just wanted to get an insight into -- in terms of the major that government has taken on the real estate, however, most of our clients doesn't fall into that criteria. But still, the clients, which were having the problem in terms of the receivables in, where we have stopped the project. So is that going to help us in terms of overall perspective from 1, next 6 months to a year line down the line, and secondly, in terms of our working capital, however, we have been managing it quite well. Do you see the issue getting now subside? Or do we see challenge for a consistent -- challenge to be remaining in next 6 months?

Okay. So when this actually started after the aftermath of ILFS. And then subsequently, with spread to certain NBFCs, not to take names, and therefore, whichever client at that moment in time, had exposure to such NBFCs were the clients on whom, we press the break paddle. Now we -- nearly 5 quarters have gone by since that debacle of ILFS. However, I do believe that the next 2 quarters, that is the current quarter and the next quarter, warns us to be very cautious because we do believe that the banks and the financial institutions, whatever good NBFCs are left, they are only financing the reputed clients and brands. And now by brands, I mean, Godrej, Oberoi, blah, blah, blah. So most of those are in our client book. So we wouldn't like to experiment with any new client on the basis of a sanction letter of NBFC. That's very clear. Earlier, we used to do it. We have burnt our fingers. Answering your question on the government side, the government initiatives take -- have been announced in quarter 3 of the current financial year. It doesn't happen so quickly. It will take some time to -- for it to get reflected. What will get reflected soon is like a radius project, which now we understand the Chembur project is going to be executed by L&T Realty. Maybe that is being initiated by the lenders or whatever. In that eventuality, we do hope that amounts for which we have done provisioning we will be benefited by the reversals of those, thereby improving the cash flow. But the government initiatives you have to give 2 to 3 quarters to actually see the beneficiaries. Because there are catch points in the government initiatives, which mean that it is for projects which are cash flow positive, which means that, ultimately, those projects shouldn't have a loss. #2, it's a seniority debt as opposed to a debt at par with the bankers. So it depends on how the banks react and how -- which are the projects, which would actually qualify because we can only see the macros. The macros only the actual developer would be aware of. So we have to wait and watch. Let's give it a couple of quarters.

Sure. So just another question. In terms of the growth, we have been saying these last say 12, 15 months whether a year of consolidation. Again, this year also, we've seen the revenue not moving up despite the order book so next year, as you've spoken in few other question earlier, the next year, the CIDCO revenue will start kicking in. So on the private side also, do we see growth of private side is more of kind of 10%, 15% kind of growth where CIDCO will add much more on top of that. What is the overall status because despite order book, 6x and all that, we are not seeing the traction that we were looking at or we were seeing in the earlier past. So just your comment on the same.

So first of all, the CIDCO project has come in quarter 3 -- quarter to end -- quarter 3, the agreement has been signed in quarter 3, the mobilization has started from November onwards. Such a big project takes time to mobilize. So it's only a matter of time that the revenues will be visible. The government has clarified, is committed to speeding up the project, and we hope that they do that, #1. #2, your private side, excluding -- plus the government projects, excluding CIDCO, are close to about INR 6,500 crore. And we do believe that they will grow a revenue of nothing less than INR 150 crore per month. That is the minimum which we are committed to do and give to the clients. All the new projects are [indiscernible] have started picking up. From this quarter onwards. And we believe that, as I answered earlier, the NGGM and the data center projects will also start picking up from this quarter onwards. So we do believe that there is enough juice in our order book, excluding CIDCO to grow at the levels at which the competition is growing. So CIDCO will be the sweet spot where capacity stands in.

The next question is from the line of Sagar Parekh from Deep Finance.