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

Ladies and gentlemen, good day and welcome to Capacit'e Infraprojects Limited 1Q FY '21 Results Conference Call, hosted by Prabhudas Lilladher Private Limited. This conference call may contain forward-looking statements about the company, which are based on the beliefs, opinions and expectations of the company as on date of this call. These statements are not the guarantees of future performance and involve risks and uncertainties that are difficult to predict. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Viral Shah from Prabhudas Lilladher. Thank you, and over to you, sir.

Thank you. Good morning, everyone. I welcome all the participants to the 1Q FY '21 Results Conference Call of Capacit'e Infraprojects. We have with us Mr. Rohit Katyal, Executive Director and Chief Financial Officer of the company; Mr. Alok Mehrotra, President, Corporate Finance; and Mr. Nishith Pujary, Head of Accounts. We will commence the call with the opening remarks from Mr. Rohit Katyal to give an overview of the company's performance. This will be followed by a Q&A. Now I would like to hand over to Mr. Rohit Katyal to begin with the opening remarks. Over to you, sir. Thank you.

Good morning, everyone, and I hope everyone is safe and healthy. A warm welcome to our Q1 FY '21 earnings conference call. Along with me, I have Mr. Alok Mehrotra, Mr. Nishith Pujary 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. The first quarter was a washout quarter for most of the construction industry. The lockdown, which was initiated at the end of March 2020, led to disruptions in operations, supply chain operations and labor availability, which resulted in operating of sites at negligible levels during the period of lockdown. As most of our projects are in the MMR and Pune region, we were unable to ramp up operations due to restrictions imposed by government. I believe that performance for this quarter, therefore, cannot be compared with figures on a year-on-year or Q-on-Q basis. Considering the challenging environment, when lockdown restrictions were eased, we increased pace of execution in projects with large customers consisting majority of our order book. I'm happy to share that as of end of July '20, we have commenced work on 90% of our order book, which is even higher for public sector at approximately 99%. We also have undertaken several cost-saving initiatives to reduce our breakeven levels while managing the increase in additional COVID-19-related costs. Going forward, our strategy is to focus on bidding for government clients in the midterm, ramping up operations to ensure complete stabilization of revenue in Q3 and improvement in Q4 '21, reducing working capital cycles to pre-COVID levels before March 31, 2021. We expect government's focus towards development of infrastructure as well as increased investments under the Make in India program to lend support to the demand for buildings and factories, which will open up a lot of opportunities for us. Further, the quality and timely delivery of projects will build the market share more in favor of organized players in the industry, and we at Capacit'e expect to benefit from this shift. Now allow me to give you an overview of our operational performance. The total order book as on June 30, 2020, on a stand-alone basis, stood at INR 10,386 crores. Residential segment constitutes 27% of the order book, commercial and institutional constitutes 20%, and mixed-use segment constitutes 53%. Work has started on 32 sites by end of July, which comprises 90% of our order book. Our order book from the public sector, which is included in the above order book, at the end of June 30, 2020, stood at INR 5,710 crores, comprising 55% of the total order book. Work has started on almost the entire order book. A large part of our public order book is an order from CIDCO. I'm happy to share that we have started to work on 5 out of 7 locations. The balance work will start shortly by August end and September end for each site, respectively. We expect to gain significant momentum and pace in execution by the end of Q2 FY '21, which will lend good visibility for revenues and cash flows in the coming quarters. A good part of these projects, besides scale of operations, it also offers us very healthy working capital support, which bodes well for us from revenue recognition purpose. Our order book from the private sector as at the end of June 30, 2020, stood at INR 4,676 crores that is 45% of the total order book. Almost INR 2,700 crores of this order book comes from large developers with extremely strong balance sheets and cash flows. Our continuous focus on client quality, on cash flow monitoring has certainly strengthened our business model, especially in these challenging times. Our stand-alone financial performance for Q1 '21 is as follows: total income stood at INR 28.8 crores as compared to INR 418 crores, witnessing a decline of 93.1%. Our execution, as already informed, was adversely impacted during the quarter due to the nationwide lockdown restrictions imposed by the government and subsequent mass migration by workmen. Loss at EBITDA level for Q1 '21 is INR 18.4 crores as compared to positive EBITDA of INR 76.5 crores in Q1 FY '20. Our net debt-to-equity ratio at the end of June 30, 2020, stood at 0.08. With this, I now leave the floor open for questions. Thank you.

[Operator Instructions] Our first question is from the line of Mohit Kumar from IDFC Securities.

Sir, you did speak about the fact that 90% of your sites are -- some work has started. But can you comment on the labor availability at the site and how it is ramping up? And when do we expect it to be normal? And given the current run rate, current outlook, do you expect Q3 to be completely normal?

Yes. So coming to your question on workmen, labor availability, we have added about 2,500 people in July, and currently the strength is 4,000 plus. So the strength which had come down to less than 600 sometime in June now stands at 4,000 plus. And since the movement has started and we are airlifting from certain places, we believe that the strength will be 5,000-plus by this month end, which will basically take care of the core requirement. Balance labor can get added over the next couple of months because CIDCO will require labor only starting October because currently mechanized works are going on. Second question of yours concerning quarter -- stabilization of revenues by quarter 3. We do expect substantial stabilization. However, we do not want to firmly commit because things are still fluid from COVID perspective. If there are no further new surprises, we believe that quarter 3 stabilization activity will stand completed, and there will be improvement in quarter 4 from a revenue perspective.

Yes. I understand the challenges. But sir, is -- what is the -- is there any update which you can share on the CIDCO and MHADA BDD chawl order book? Is there something happening out there? How is it ramping up, both the places?

So CIDCO, we will start our invoicing from the current month, and we expect ramp-up of revenue from quarter 3 onwards. And we will start picking up -- peaking our revenues by quarter 4. So there is -- that's a positive news which I had earlier also shared during my opening remarks. As far as MHADA is concerned, the transit camp work has started, the filing works have started, and we believe that by quarter 3, the commercial building, which would be approximately INR 1,300 crores, will start giving revenues also. So during the last quarter, I had mentioned, there will be a look-ahead of about INR 2,000 crores over the next 2, 2.5 years, and we are well on course if you leave these 5 months of COVID behind us.

Last question, sir. How is the private order book moving, in the sense, do you expect execution to pick up in this quarter? Or do you expect it to be slower compared to your public order book?

So public order book ramp-up is starting from this quarter. As far as our private order book is concerned, we have already seen improvement, and we believe that there will be substantial revenue, which will be added in this and the next quarter from the private order book as well. And therefore, I mentioned that you will see improvement in quarter 4 over the last financial year, okay? So that's what I mentioned. So when I'm saying order book, private order book also is seeing significant improvement right from Phoenix to Oberoi to Brookfield to projects being executed for K Raheja and so on and so forth. We have ramped up nearly 400 people at Piramal and Raymond also. So the labor improvement is significant, and I do believe that for most of these projects, September should be a normal month.

Our next question is from the line of [ Suraj Navandar ] from Prithvi Finmart.

Sir, if I'm not wrong, in last con call, you had said that the bill finalization part hasn't taken place because there was lockdown in last 10 days of March. So I was expecting some spillover effect that those bills will get certified in this quarter. So I think that hasn't happened. So can you clarify on that?

You see that the lockdown and most of the offices were closed up till June in Mumbai and Pune, all right, while we started the operations at the project sites, but the client billing engineers were not available. However, in the intervening period, starting July 1 till today, nearly 80% of those uncertified bills have been certified already. So you will see normalcy by the end of quarter 2, and that's the reason why the bills could not be certified, which remained uncertified on March because we had our conference call in May -- June, all right? The lockdown had not eased out by that time. So therefore, a substantial billing has been certified in July and August and thus you will see normalcy in all the certifications by quarter 2 end. That's not a challenge.

So in Q2, we may see once abnormal jump in the revenue bookings, if I'm getting it right?

No, sir, you are asking for bill certification. Uncertified work done bill is billed already. When it becomes certified, it just moves from uncertified bills, that is, other financial assets to certified sales.

Receivables.

Receivables.

Okay. Okay. And sir, just another point, you said that we are around at 4,500 workmen. So if I remember correct, you said we had around 10,000 workmen before COVID lockdown. So we are at 45% of the workforce right now, right?

No. What I had mentioned is that 9,221 were the workmen and balance were technicians. The question was asked about only workmen and not technicians. Technicians, we continue to have our strength what we had prior to the COVID. That's not a challenge. The workmen of 9,221, that had reduced to 600, which currently is at 4,000-plus. And I said that we will be increasing that very easily to 5,000-plus by this month, which [ we'll place ] on the core because we are not concerned about the unskilled labor. The problem was the carpenters, the fitters, the bar benders. So that core will be completed by this month end, and the balance additions will happen over September and October.

Our next question is from the line of V.P. Rajesh from Banyan Capital.

My question was regarding the debt we are currently carrying and what is the cash on the balance sheet.

So the total cash on the balance sheet is INR 320 crores, approximately. And the total debt -- just a second, I'll give you the exact figure. So the gross debt is INR 308 crores, plus long term -- so total INR 345.54 crores. And the fixed deposits and free cash in totality would be close to INR 320 crore.

Okay. And the follow-up question there is, what portion of this cash is encumbered with your performance guarantees? Or this is completely free cash?

The free cash is close to -- as on date, I do not have the figure around 30th June, but it should be -- free cash would be more than INR 120 crores as on 30th June, and there will be a substantial improvement in the current quarter on the free cash.

Our next question is from the line of Prem Khurana from Anand Rathi.

Sir, to begin with, I think in your opening remarks, you spoke about cost rationalization. If you could take us through, I mean, what all have you done to kind of make sure that the costs come down substantially. And when you say cost rationalization, this is essentially at the corporate entity level or we also have something that we planned for our sites wherein, I mean, you get to reduce your site establishment or some of these -- or the extents which are particularly related to site?

Site establishment is a cost which is required to be incurred for the able execution of a project. That was already incurred. What is currently under -- what will be currently incurred will be for PWD and ongoing CIDCO project. So that cannot be rationalized. That's a part of the cost -- the direct cost, which you carry on the site establishment part. When we spoke about cost rationalization, this includes the rentals on equipment, which we have reduced substantially. We have renegotiated the terms with our vendors on the rental part. Apart from this, there will be rationalization in the human resource cost, which you have seen in quarter 1. You will see rationalization going in quarter 2 and quarter 3 also before we turn to normalcy by quarter 4. Apart from this, rentals on offices across the geographies where we are present, that has reduced significantly because the work-from-home culture has come in. We have nearly, at a corporate level, 50% of the staff or more working from their respective homes and the productivity has seen basically an improvement as opposed to when they were actually working in the old fashion from offices. So these are the rationalization measures which we are talking about. Apart from this, obviously, the businesses across are low. So you would benefit on the direct cost basis with maybe reduction in certain requirement items, which do not have a pass-through.

Sure. So how about workmen costs? I mean fair to assume that given the fact that most of us have been facing issues in terms of labor availability or workmen availability, at least in the interim the costs would go up on workmen's side just so you can get them on site to make them...

Not at all. That's a myth. The labor -- the reasons for labor going back is known to all. I wouldn't like to elaborate on that. We have not seen any pressure on the pricing of labor contractors. The price continues to be the same as pre-COVID levels. Obviously, you will be spending -- we did spend money on fooding, their health care, which basically will continue maybe in this quarter also, their transportation, maybe airlifting them. So these are onetime costs, and that should not be construed as any increase in cost of the item rates which are given to labor contractors.

Sure. Just one last from my side. So essentially, I mean, we've seen some disruption on execution side because of this COVID now. So I understand, I mean, as far as government orders are concerned, you've already been given an extension of 3 to 6-odd months. How about private side? Have you been able to kind of negotiate or come to terms with our clients and private sector side? Have these guys approved your extension in time line for execution of these projects that you have?

So on the private sector side, we also invoked force majeure with all our clients and the supply chain and so has been done by our clients. So there will be an automatic extension for private sector as well. There is an understanding and MOUs in that regard. That's the one aspect of it. And the second aspect is the material is passed through so there is no cost impact as far as capacity is concerned on the commodity side.

Our next question is from the line of [ Prateek ], an individual investor.

My question was regarding the Mumbai monsoon, which happened in the month of July. So what percentage has it affected our business normal operations?

So yes, there was excessive monsoons more than what you would generally expect. But it's a given fact that you generally lose 15 to 20 days of execution period. So this wet spell just lasted 3 to 4 days, that there was a disruption or slowdown in the work, which happened, obviously. And -- but that's nothing new. It happens every year. So there is no impact on the overall operations of the company, and we do not see it to be any major event because, luckily, at none of our sites there was flooding or any accidents, god willing, and none of the cranes had any damage either. So answering your question, there is no change as far as our company operations cycle is concerned. It continues to be normal.

And sir, there's one more question from my side. You talked about this labor improvement, availability of the labor improvement. So what role is Captech Technologies playing in that? And how much we can attribute to them in providing the labor to our company?

No. See, Captech, we have an investment which we are -- we have investment of 40% in that start-up. The app is now live, and it's undergoing trials at our 4 project sites. So we do see that a lot of contractors, labor contractors have already registered on that. And I don't have any data at the moment how much of labor has come back from our labor resource department and how much has come back from the Captech app. But maybe if you provide us with your e-mail ID, our investment team will send across the details to you.

Our next question is from the line of Sahil Doshi from Antique Securities.

Sir, just 2 questions from my side. One, regarding the cost measures and the various force majeure clauses, et cetera, which we have imposed. Possible to quantify in terms of the impact which it will have for this year in terms of both the cost impact as well as the savings which we can see over the years? And how much of it is sustainable? That's one. And second question is, sir, on the receivables. Possible to share how the collections and receivables are mapped out? And if possible, if you can share some aging of the same.

So the total -- I'll answer your second question first. The total receivables, which include the certified, uncertified plus retention, is INR 569.7 crores, okay? Out of this, the retention amount is INR 162 crores. So -- because there were hardly any billings which happened in the quarter 1, so the amount is comparable with what it was in the quarter 4 of last financial year. Out of this -- this takes into impact the entire provisions for ECL also. And obviously, if you don't consider this 4-month lockdown period or more, the levels would be similar to what they were in March '20 end. We have seen an uptick in receivables from July onwards, and we do believe that, that will continue. And we should, as explained earlier in the earlier questions, you should see normalcy in the working capital cycle going through quarter 3 and fully restored or bettering that by quarter 4.

Right. Right. And sir, on the question regarding the cost measures and...

See, I'm sorry, but I don't have metrics at the moment to give you an exact number, but yes, during our next conference call, I will be better placed to give you exact amounts from cost saving perspective. Because the cost saving as a percentage would depend on the revenue clarity, which will be absolutely clear by the end of quarter 2. Hopefully, there are no further lockdowns or suspension or any other surprises. That will give not only capacity, but any other construction company or any other company, serious clarity on what the quarter 3 and quarter 4 revenues would be like. So let's take an assumption that we believe that the cost saving would be INR 35 crores to INR 40 crores in the year, but as a percentage, it could be maybe 5%, could be 7%. That guess cannot be given at the moment. Therefore, I would be better placed to answer this question with accuracy during the next quarter's conference call.

Understood, sir. Just one follow-up on the receivables bit, sir. I understand like you mentioned it's easing and is getting better. Can you get some sense of who would be the top 5, top 10 and what would be their contribution? And also, we had seen you had taken some provisions in the previous 2 quarters. So do you feel the need to take any further provisions here on?

We have not taken any -- see these are the auditing requirements. What provisions you are seeing is slightly higher because of the COVID environment which was prevailing at the end of June quarter and also during the whole of July. So your ECL, okay, was provided at INR 6.3 crores in the current quarter. Generally, it has -- we provided INR 16 crores last year. So the total provision, including current quarter, stands at about INR 35 crores. Apart from that, we have provisions of approximately INR 11 crores. So in all, the total provisioning as on date stands at INR 46 crore, which is substantially large for a company of our size, which only exhibits the prudence in accounting which we follow. Now answering your question, do we have to take more? I don't think so. Maybe you will see some reversals in this provisioning starting quarter 3, all right, because we do see movement in retention amounts getting released in quarter 2, quarter 3 and, therefore, I believe that the provisioning will get reversed to some extent in quarter 3 and to a major extent in quarter 4. So therefore, I don't see. But you can never rule out the ECL being added by a couple of crores and some reversals happening because that's the way how auditors work these days. And we are also audited by the top 4.

We'll take our next question from the line of Parikshit Kandpal from HDFC Securities.

Sir, can you give -- so now the moratorium is coming to an end by August -- this month, so how are you geared up in terms of servicing the debt? And also, if you can highlight on the LC part. So how has that been settled with bankers?

So LC, we have got interchangeability from all our major bankers. Maybe a couple of banks who did not give, we have already paid all the June liabilities on due dates for the LCs. So majority of the LCs were the state Bank of India, Union Bank and Corporation now which is also Union Bank, and with Indus Ind. So all these have been interchanged and, therefore, you see an increase in the debt level. So there is no issue as far as the LC payments are concerned. On respective due dates, they are being converted into CC limit. And this will continue. Now coming back to the interest, there's hardly any fund-based limits in the company. So I don't think that there should be any sort of a challenge for the company to pay off the interest in the first week or second week of next quarter -- sorry, next month as and when the moratorium ceases to exist. So I hope that both the questions of yours have been answered.

Yes. Sir, second question was with regards to the CIDCO project. So you've got the first tranche of advances. So based on your own assessment, when do we expect the second tranche to come?

Second tranche, 50% advance has already been received by the company.

Okay. So we had earlier received INR 225 crores in the first tranche and now another, you say INR 110 odd crores...

INR 110 crores has already been received. We will start our billing this month and, hopefully, we will claim the second tranche, the remaining 2.5%, INR 112 crores, INR 113 crores, whatever it is, in the next month. So therefore, I said that you will see substantial improvement in the liquidity of the company. And whatever little, 0.08 net debt that you see, I sincerely believe that by this quarter end, that will go back to net debt-free status.

And on the CP side for this project, have you tied up like all the bank limits and BG and other bank limits -- so bank guarantees and all, everything is tied up from your side?

Yes.

Because I think there was in between some Yes Bank BG getting changed to some other bank you were planning to...

Oh, the Yes Bank BG getting changed that has already happened. So State Bank of India, along with [ PSB ], they are the financiers, a separate consortium for this project. Similarly, there's a separate State Bank of India for MCGM because we have to remember that pre-COVID and post-COVID times -- so yes, people should [indiscernible] whether it's our supply chain or whether it's client side or whether the contractor's side, the whole supply chain from the customer to the smallest of the vendor, the way we worked pre-COVID will totally change how we worked post-COVID. So we will be shifting completely to project-specific funding, whether it is from our reserves or whether it is partially by debt. So each project will be project-specific. So all projects at the moment, whatever the company has, including PWD J J Hospital, which also has started, all the financial closures for these projects are in place.

Okay. Just in the earlier part, you highlighted that 90% of the sites are now operational, the work has started happening, and in public, almost 99%. And on the labor side, you still have almost close to 50% availability. So in terms of execution efficiency, so what kind of run rate, monthly run rate you'd be at now? And maybe starting September, what kind of numbers you are looking at, monthly run rate?

Yes. So as I told you, when you talk about the pre-COVID 9,221, you have to also see the number of sites. So we have handed over about 4 projects this quarter also, all right? So that labor reduction will happen automatically. And CIDCO gear-up will not be required, as I explained earlier, before September and October because mechanized works excavation and up to the plinth area works are at the moment going on. So that's one aspect. Secondly, when we need to stabilize, that means the revenue going to INR 150 crores that is pre-COVID levels by quarter 3, you will see substantial increase in workmen in August, September and October. So that will be the way how the labor will ramp up. So please do not consider 50%. I said the core strength. That means all the skill demand power required for all the projects which have started execution will be available with the company by August end, and we will further keep adding us per the site requirements in September, October. And if there are no new surprises from COVID perspective and, hopefully, no other perspective, we don't see a challenge post August in adding to the labor requirement.

And on the run rate side? So post -- if all these things fall in place from post August, you'll be getting INR 100 crores per month kind of run rate?

Sir, I don't give comments on that. However, you should expect the company to have quarter 3 as complete stabilization period and substantial improvement on the revenues in quarter 4 over the last financial year.

Okay. So just on the bid pipeline, sir, so how do we see the bid pipeline on the private side and the public side? So I think you've highlighted earlier in the call that your focus is on public side and some strong players of -- strong balance sheet players on the private side. So how do you see this panning out in this environment of COVID environment? How do you think...

Sir, it is too early to say how the private sector would pan out. However, as you know that we already qualify in all projects, midsize, large size on the government side as well. So in the midterm, at least for 4 quarters from now, the focus will be on government side. And given our order book, I don't think we need more than 2, 3 orders because our revenues for current year, next year are not dependent in any way on any fresh order intake, all right? On the private side, we do have indications from clients like Godrej, who are ramping up their operations. They believe consolidation -- they believe and we also believe consolidation will happen. But you will see the bidding start only from quarter 3. Whether we will bid or not, it depends on any further inflow of government orders during this and next quarter. A lot of hospitals are lined up. The Health Ministry has already announced 70 hospitals coming up from the central government in various states. So there is enough activity on the health care side, on the institutional side, and that's our focus, which I mentioned in the last quarter and, again, I have reiterated in this quarter also. So from private sector side, action you will only see from quarter 3 onwards. I don't see anyone coming out with projects in a hurry at the moment.

Okay. Sir, just the last question, if I may. Just on the order book, have we removed the slow-moving orders? I mean, if you can highlight what could be the quantum orders would have been removed?

INR 750 crores has been removed. We have kept it as slow-moving, so that doesn't form a part...

Next quarter.

So by next quarter, there will be absolute clarity on which orders because we are -- as I said, that when we say 90% of our work has started, the 10% is those order books where we are at the moment in discussions with clients to understand their financial tie-ups, not immediate, also in the midterm and long term. So if a particular client doesn't have visibility, then we will take an appropriate call during this quarter, and we will keep all of you all appraised about it.

Our next question is from the line of Vijay Bharani from Spark Capital.

So my first question is on the cash flows. So if one were to look at the cash flows for the next 2 years, say, including FY '22, do you foresee any capital requirements, say, by way of increased debt requirement, et cetera because of increased execution in FY '22? Or would you manage the cash requirement for working capital, et cetera, through internal approvals?

So estimates which we have in front of us suggest that we will not be requiring any equity raise or any major increase in debt levels. The debt level will only get better from quarter 3 onwards. However, a INR 10 crore, INR 15 crore blip cannot be ruled out during -- as you have seen in quarter 1 and quarter 2. So apart from that, answering your question, no equity, no increase in debt.

Understood. So my second question is on the private order book. Of the INR 4,700 crores, you said about INR 2,700 crores is coming from well-funded and strong developers. The remaining -- could you highlight how the remaining developers are faring, how their collections and executions have been faring?

Okay. It is very difficult to pinpoint on any particular client because, ultimately, we are contractors. When we talk about our top 12, 13 clients, 90% of our order book is with those clients. Now you are talking about the remainder INR 1,500 crores. We are under discussions with those clients. And as I explained in my prior -- the immediate prior answer, we will have absolute clarity in quarter 2. And whether those orders of INR 1,000 crores or so have to be carried forward or kept as slow-moving will be identified and promptly informed to all of you. However, having said so, the order book is very, very strong. We have another 8 months to go in this financial year. So we do believe we will be able to maintain last year's closing order book position in the current financial year also. This gives a very strong visibility for the next 3, 3.5 years.

Understood. And last question. On the working capital, including retention money and WIP in the other financial assets, what is the position there, sir?

So work has just started from July, as I explained. The WIP will get converted into uncertified and subsequently certified bills over the next one quarter or so. So as I told, you will see normalization in certified bills over the next 4 months, you will see normalization on -- and substantial reduction in the WIP or which comes under financial assets over the next 3 to 4 months also. These are -- these go hand-in-hand. As your execution improves, your work in process, which you couldn't bill, gets converted into billing.

We'll take our next question from the line of Deepak Poddar from Sapphire Capital.

Sir, if I see for the last 4 years, if we set aside, let's say, FY '20, we have been growing at about 20%, 25% kind of CAGR. You did mention that 3Q is a stabilization period, and from 4Q onward, you expect some revenue growth over last financial quarter. So do you want to go back to similar kind of like of a trend? Or do you see any kind of disruption because of the current scenario that those trends would be difficult to replicate? So any comment on that would be helpful.

Our order book, as I told you, is close to INR 10,000 crore on a stand-alone basis. So the point is given an average completion period of 3.5 years, obviously, we are on a good growth path. And our next 3, 3.5 years order revenues do not depend on any fresh intake of orders. So therefore, obviously, it will be fair to say that there will be growth as it was in the prior years and leaving aside this 5, 6 months of the COVID and the ramp-up period timing, which is required by any company. Whether that will be 25%, 35%, 45%, that's anyone's guess. But the projects are being ramped up. And in quarter 4, you will see substantial improvement over quarter 4 of FY '20 and not of Q3 of current financial year, which means that we are very optimistic that by quarter 4, our revenues will go back to the peak, which the company had seen about 18 months ago.

We'll take our next question from the line of Faisal Hawa from H.G. Hawa and Co.

Question is that with so much difficulties in recovery of money and overall post-COVID difficulties also, do you feel that many more small contractors or even contractors which are not very well financially arranged will also fall by the wayside and the competitive intensity in the contractor business will really fall? Do you see any signs of that happening?

It's too early. We are still in the moratorium and the cover period. How many people do restructuring is anyone's guess. We do not know about that. However, I have maintained over the last 2, 3 years in most of the earnings call and otherwise that in building sector, the sector -- that's the only sector in which we operate, unlike other sectors, the competitive intensity when the project size is about INR 350 crores, INR 400 crores as it is, is very less. So if you talk about the building side and you would like to count how many people would actually qualify in government projects of INR 400 crores, INR 450 crores, then you may [indiscernible] side, you may have 3 or 4. And if you add bigger players and the more organized players on all India basis would not go -- exceed 25. And basically, people in COVID times and people who don't want their management bandwidth to be stretched basically are focusing on concentrated or focused geographies. Like if you see Capacit'e, we have been operating, over the last 8 years, in 6, 7 cities or geographies, as you may call, and we have maintained that we will continue to maintain our focus accordingly because the supply chain and other matters also help things. So answering your question, I really hope that no company -- no good company, which was healthy pre-COVID, goes down post COVID. But the competitive scenario has been very comfortable. And with organized players, we don't see any bloodbath or undercutting in pricing because the order books right from the biggest Larsen & Toubro or you talk about a mid-size player like Capacit'e or anyone is exceptionally good. There is no need to go and bang your head for taking a new order at the moment in time. And as I mentioned earlier, the government spend is on the increase. You already are seeing a lot of tenders being bid. And you will see improved and heightened bidding activity in quarter 3 and quarter 4 for government projects.

Our next question is from the line of Alok Deora from Yes Securities.

Just a couple of questions. One was on, you mentioned around 32 sites are currently operational. So what is the view on the balance -- what is the status on the balance site? When are we expecting those sites getting started?

As I explained, this 32 sites constitute 90% of our order book and, in any case, do not cause any disruption in our planned revenues over the next 2, 2.5 years. And as I have mentioned earlier that for the remaining sites, which are 4 or 5, we are under discussion with those clients to understand the financial closures of those projects. And once we have clarity, we will take it forward. So at the moment, as I have mentioned earlier, we can have absolute clarity during the next quarter call earnings, and by which time, whether the project has to be taken forward or dropped will emerge, and we will be able to answer you with more clarity.

Sure. And sir, you mentioned about some costs coming in, in near term related to airlifting of labor to regain our strength in terms of labor force. So that cost would be -- I think, would be borne by Capacit'e itself and not be passed on to the clients. So could we see some margins continuing to be under pressure in the near term despite the execution picking up?

No. As I explained to you, these are one-offs. So if you spend maybe INR 1 crore or INR 2 crore on fooding, that -- it has already been taken in quarter 1. Now if you are spending some money, let's say, INR 50 lakhs or INR 1 crore or more on the transportation over the next -- in the second quarter, that's a one-off. It is not that we are going to be in COVID forever and these costs will continue. The issue was that when Maharashtra opened, Bengal restricted the transport of people, then Bihar had floods and the labor movement became a little bit uncertain. So then you have to step in as a principal contractor. And second point of yours was concerning the clients getting the call. As I mentioned earlier, the clients have invoked force majeure, we have invoked force majeure. So we cannot -- I don't think that we will be able to recover any of the costs from the client, which pertains to COVID-related costs. And therefore, whatever hit had to be taken for the first quarter has already been taken. And whatever little hit or maybe INR 1.5 crores or INR 2 crores for remobilizing labor which will happen will be taken in quarter 2. So I don't see quarter 3 or quarter 4 any hit or any reduction in margins. By quarter 4, we should be at pre-COVID level margins or better.

Okay. Just one last question. So we are a handful in terms of order book and because the execution is also sort of picking up gradually. So are we really looking to take up any new orders? Or we would like really selective or it's close to some existing site or existing projects so then we might be interested?

See, if you see our presentation, there is a slide on what the order book mix in 2018, what happened during 2019 and what happened in '20. So if you see that from 100% private order book and then going to 88% private order book, today, our order book is 45% to 55% as private and public. So I don't see that -- Capacit'e has already demonstrated that by a lean management, it is very well equipped to change with the changing scenarios. So -- and our belief that strong balance sheet is important. At times, you -- we decided to drop revenues but focus only on the marquee clients. So that strategy was already there with Capacit'e. If you saw, we had a dip in the revenues during quarter 3 and quarter 4 of last financial year. That only happened because of our focus to execute works for only the good clients, all right? And therefore, when you see our today order book, I don't think anyone can point a finger on any of the creditability of any of the clients which we have in them. So our focus was on quality clients. We were choosy. We will continue to be choosy.

Our next question is from the line of Vipul Shah from RW Equity.

Yes. Most of my questions have been answered. Just one question, if I may, what is the fixed cost per quarter which the company necessarily carries? What I mean is in the June quarter gone by, the absolute amount of cost which the company has incurred and which you foresee continue to go forward.

See, the fixed cost of quarter 1 is not comparable because no rentals on equipments were considered or paid because of the force majeure invoked by us. And as you start with quarter 2, you will see some of these rentals starting to get booked. So giving you a number would not be appropriate. However, you will see the fixed cost increasing and being maintained as a percentage to the top line. So we believe that in quarter 2, our fixed costs would be close to about INR 30 crores. It will increase gradually on quarter 3 as our revenues ramp up.

So this -- or rather the force majeure that you have claimed on your equipment rentals, is that a cause for litigation? Or is that a settled issue?

Everything is settled. House rentals we have paid everyone because our staff was there. When there's a force majeure clause declared by the pandemic by the central government, where is the question of dispute arising?

Our next question is from the line of Siddharth Rajpurohit of JHP Securities.

Sir, like you said that pre-COVID and post-COVID will be 2 different cases. So in the history, we have seen that dry construction used in the construction was not accepted well for -- where a few players have used it. So how do you see the use of dry construction going forward? Will it help us in terms of cost rationalization or increasing the project time, something on that, sir?

Increasing the project time, I'm sorry?

Reducing the cost or improving the project time line?

Yes. So I guess that you were referring to the precast technology, all right?

Precast and also of cement -- other cement-ready materials.

So these were already under use. So what happens is when you do completely precast, though it is not acceptable by all the clients, depends on the clients' requirement, your labor requirement at the project site level drops. So given the situation what everyone faced during the COVID period, I'm sure that there will be a mix -- the shift will be towards mix of in-situ and certain elevation features in precast. Like if you go to Middle East, you see a lot of precast being used in the car parks, and once they start with the typical [indiscernible] cast-in-situ, okay? So that shift you will see in India also. Whether it happens over the next 2, 3 quarters, that's difficult to say because ongoing projects cannot be changed. New projects, you will see a lot of these things being adopted by the consultants, by the clients and, obviously, by the contractors.

Our next question is from the line of Nitin Gandhi from KIFS Trade Capital.

Yes. This -- considering this is a slowdown in sales happening by the private developers, are there any discussions happening for slowing down the project execution of this for almost INR 2,700 crore good developers which you have in the order book?

No, not at the moment in time. We have been told to go full blast.

Okay. And as far as CIDCO is concerned, you said maximum will be executed by Q2 '22, right? Out of INR 5,700 crores PSU order book, 5 sites are operational you said, right?

CIDCO project is INR 4,500 crore. Out of that, 5 sites work has already started. Fifth site, we expect the work to start by August end. And the sixth site -- last site, seventh one will start by September end. And the overall completion period is 43 months from the date of handover of the last project -- last location.

[Operator Instructions] Our next question is from the line of Jiten Rushi from Axis Capital.

So just one question from my side. So what are the CapEx plan for this year and next year since we are taking up large equity for CIDCO and MHADA? So any CapEx plan decided on the same, sir?

MHADA CapEx will not be on the balance sheet of Capacit'e. It will be on the balance sheet of Tata Projects Capacit'e LLP. And CIDCO, the total CapEx plan is close to INR 100 crores, which will start from this financial year and completed in the next financial year.

Partially this year and probably next year.

That's right. That's right.

And any other CapEx [indiscernible] for any other ongoing...

Majority of the CapEx was done in the last financial year for all the ongoing projects. We believe that we were only left with INR 20 crores, INR 22 crores of CapEx, which will happen during the current financial year.

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

Two questions, sir. First is, sir, on the ECL policy, so how much you provide if the dues is for more than 1 year or, let's say, 2 years? What is the percentage you provide?

Above 2 years, 50%; above 3 years, 100%. And there are various percentages for 30 to 60 days to 90 days. If you provide your e-mail ID, our people will provide exact details of that...

Sure. Sure. I'll do that. Secondly, sir, are you confirming that there is no -- absolutely no risk to any -- loss in any contract because of the -- I'm saying any major source of disruption in pricing on any contract because of COVID? Whatever hit was taken has already been taken in Q1 and some part to be taken in Q2. Am I right in saying that?

Yes. So your understanding is absolutely clear that there is no price negotiation with any client. There is force majeure, so we will not get losses which we incurred during the COVID lockdown period from the client and, therefore, the hit has been taken in quarter 1. And whatever balance expenditures, that is the fixed cost, will hit you in quarter 2 will be taken in quarter 2. So this is one-off hits, which due to the unforeseen situation, and we see normalcy, stabilization in quarter 3 and substantial improvement in revenues from quarter 4 onwards.

And sir, is there any chance of recovery of some compensation for the cost incurred?

That would be reading too much into the lines. Yes, there are some clients who may give something, but as I said, when we invoked force majeure clause, the clients also have done similar things. And in force majeure, you basically cannot claim, you can request. Now how many people heed to our request is another thing and, therefore, any comments to be given on that would be premature.

[Operator Instructions] We'll take our next question from the line of Parikshit Kandpal from HDFC Securities.

Sir, any -- so you said that the client may not compensate, but you may request them. But is there any relief the client has given you especially in the payment terms? Have they made it a little bit accelerated or have asked for deferments? If you can highlight. Because in government, what we are seeing in the road sector, NHAI has eased some of the payment terms. They are giving more accelerated terms to the contractors. So any such thing in the building segment, both on private and government side?

So from our government side [indiscernible] we are also seeing accelerated payments being given. On the private sector side, the payments have started. As I told you, the major clients have already started releasing the payments. And it's absolutely clear with all the clients that work will happen only if payments are received. Because, obviously, we have a huge outstanding receivables, we are not asking for work to be done in the future. So I don't see any disruption over there, as I explained earlier. You will see payment improvement going forward. No one can expect any credit terms beyond 15, 30 days. Earlier, we would wait till 60 days. That also is ruled out now. So payments have to be paid by the clients across their supply chain, which includes Capacit'e, if the work has to happen at the project site.

Okay. So on the CIDCO project, this total 5 sites constitute -- out of INR 4,500 crores, how much will be the value of the order book of these 5 sites?

I don't have that exact value, but you can take 55%, 60%. It should go to 75% by August end and 100% by September end.

Okay. And with the recent lottery, which was announced for the police housing, this was for the CIDCO project only, right?

Recent lottery?

The INR 4,000 crore-plus for police housing by Maharashtra government...

Police housing is different, sir. Police housing, there is a separate department where we had bid during the last time. We have to -- CIDCO will be taking out lottery system, all right, maybe in the next few quarters or maybe next quarter or so, post Diwali period. At the moment, everything was under lockdown, so there was no question. Police housing is a totally separate department. And that also is coming out with substantial housing.

Okay. And lastly on some of the stock receivables like radials and I think you were stating that some of these projects were being taken by [indiscernible] and L&T was taking over one project. So any update on that?

We still continue with the lockdown. We have spoken to HDFC, who's one of the lenders, and they believe that over the next 2 months, they will be resolving that because no plant -- no banker would like to lose their INR 400 crores, INR 500 crores from my INR 20 crores. Secondly, and most importantly, we have to remember that the total provisioning by Capacit'e over doubtful debtors is, put together, INR 46 crores. So if we add another INR 4 crore in the next 3 quarters, I don't think anyone should have any discomfort what would happen if a particular client's money does not come. Having said that, that no way means that we will not cover up our outstanding. We have taken the necessary steps, and it will be very difficult for the lenders or the client to start work at those 3 projects without paying us. And you are aware that all these 3 locations are extremely prime locations in Mumbai city. So if the lenders have to lose INR 3,000 crores, INR 4,000 crores for not paying us INR 47 crores, INR 48 crores, that would be their choice. As far as we are concerned, we are very optimistic that over a few quarters, we will be able to recover that money back and reverse the provisions.

Okay. And just on the net working capital, how much is the absolute amount now versus March or...

Sorry, sir? Please repeat the question.

What will be the absolute net working capital amount? So I know it's difficult to calculate based on...

I will tell Amit to mail that to you, please?

Okay. Sure, sir.

[Operator Instructions] As there are no further questions from the participants, I now hand the floor back over to Mr. Viral Shah for closing comments. Over to you, sir.

Yes. Thank you, everyone, for participating in the call. I especially thank the management for giving us an opportunity to host this call. Now I hand the call to Mr. Rohit sir for his closing comments.

Thank you, everyone, for joining on the call. We hope that we have been able to answer your queries. For any further information, we request you to get in touch with SGA, our Investor Relations advisers. Thank you. Stay safe, and look forward to catch you in the next conference call. Bye-bye.

Thank you, members of the management. Ladies and gentlemen, on behalf of Prabhudas Lilladher Private Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.