Cemindia Projects Limited (509496) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Q1 FY '23 Post Results Conference Call of ITD Cementation India, hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Anshuman Ashit from ICICI Securities. Thank you, and over to you, sir.

Thank you, Lazan. Good morning, everyone, and welcome to the Q1 FY '23 post-results conference call of ITD Cementation India Limited. Today, we are pleased to host the management of ITD Cementation, which is represented by Mr. Jayanta Basu, Managing Director; and Mr. Prasad Patwardhan, CFO. I would now like to hand over the call to Mr. Jayanta Basu for his initial remarks, after which, we will open the session for the Q&A. Thank you, sir, and over to you.

Thank you, Anshuman. Good morning, everyone, and welcome to our Q1 FY '23 results con call. This is Prasad Patwardhan, CFO. I will take you through the financial performance, the highlights of our financial performance in this quarter, and then hand over to Mr. Basu for his initial comments. We are pleased to have shared with you that we are starting this financial year on a very positive note and have reported strong financial performance in this quarter. Our total operating income has crossed INR 1,000 crores once again. We are at nearly INR 1,100 crores as compared to INR 826 crores. So this gives us an increase of 33% on a Y-on-Y basis. EBITDA is at INR 101 crores in this quarter as compared to INR 85 crores a year back, which gives us a growth over 19%. PAT of INR 30 crores in this quarter as compared to INR 18 crores a year back, a rise of about 68%. Our balance sheet continues to be deleveraged and the equity ratio is at a very comfortable 0.3x. The good part is we have secured good orders in this quarter. Our order inflow in this quarter has exceeded INR 6,000 crores. This includes 1 large greenfield road order of about INR 4,850 crores and a few other orders as well. Our order book as of June end has crossed INR 20,000 crores, which is again an all-time high for the company. And subsequent to the quarter end, we have received another order worth about INR 450 crores plus. So the order pipeline and the orders received are at a pretty good level. That is all from my side to start with. I'll hand over now to Mr. Basu for his initial comments, and then we'll take your questions.

Well, thank you, Prasad, and thank you all for joining this con call. Good morning to all of you. Prasad has just briefed about our Q1 performance for first quarter, that is FY '22, '23. As we have seen that consistently, our top line is growing, and it is close to INR 1,100 crores in this last quarter, where we are sitting on huge order book of around INR 21,000 crores. And I hope, we wish that we'll be able to maintain the same run rate in terms of top line and order book and bottom line as well. Coming to the operational performance. I'd like to share with you the major project, what we are now doing at various segments. For MRTS, as we know that we are executing 3 underground contract, actually 4, but 3 underground contract is ongoing. Chennai Metro, 2; Bangalore, 1; and of course, Kolkata Metro is on verge of completion. At Chennai Metro, we have started. We have briefed last quarter, but now that development that we have mobilized the [ trade ] cutter machine, which is very sophisticated machine for the [ oval ] work. So already, we have mobilized around 4 and 4 numbers. And the good thing is that successfully, we could execute initial [ all ] panels to the new machines and the progress is as per our expectation. Underground Metro at Bangalore, almost 35% progress has been achieved. I have visited it last week, and the performance is well within our control compared to other contractors also who are doing better. Customer is happy, and things are all ok there. Then coming to Mumbai Metro, it is almost on verge of completion, currently at completed a long time back. And another important aspect of Mumbai Metro, if you remember that we have been talking about a critical activity, that is drilling and blasting tunnel to connect to the 2 shaft, which is very critical for underground work, and that has been completed now. So the risk what we have now before, which is now overcome. Metro job there currently we have marine jobs, Udangudi, Sea Bird project, Vizhinjam Breakwater and Indian Oil Corporation at [indiscernible] . All the jobs are going very well. And I must say that in Udangudi, we are doing breakwater, which is almost 9-kilometer inside the sea, probably first time in Asia. And it was a very difficult job. But today, we can say we're confident that we have almost achieved the required progress and the performance what we desired before. Similarly, at Vizhinjam also, the deep seaport where the breakwater construction was very difficult. And as you know that the customer Adani was standing for last several years to do the job. But we have started it last year, and we have done successfully. And now the job is now all because of monsoon, but after monsoon, we'll be able to start, hopefully by end of next monsoon. I mean before next monsoon, we'll be able to complete a job. These are the significant technical achievement, I must say. Similarly, a few jobs in the building sectors. We have just secured 1 in Sikkim University, then Gohati, 1 reverse-type development, Surat metro job, all has started and going on well. And the good thing is that the Bangalore Metro elevated contract. The client has already taken over 2 contracts out of 4. [indiscernible] is also on verge of taking over from the client. [indiscernible] of course will go up to end of this year. So I think that things are quite going okay. And we have also secured a big job in UP that is Ganga expressway, as you all know. So with that, recently, we have secured around INR 6,000 crores of order in last quarter, which is also a significant achievement. So that is what from my side, and I'll be happy to answer any questions from your side. Thank you.

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

Sir, my first question is on the margins. I think you guided for a double-digit margin for FY '24. Given that the inflation pressure is using -- is easing now, how do you see the margin for FY '23? Can we expect improvement in the margin compared to Q1? Q1, I think, is around 8.1%.

Yes. Okay. So there are a few aspects, which is bothering this margin. One is the inflation, as you rightly said. We have to also consider that, as I mentioned last time that the Bangalore Elevated Metro is still continuing. And the revenue of INR 1,100 crores out of the around INR 70 crores to INR 80 crores has come from Bangalore elevated metro for which we never draw any margin. If we eliminate that, the margin goes up to close to 9% or a little more than 9%. Going forward, once the Bangalore metro is over, I think the margins should improve. And definitely, next year, it should be double digit probably by FY '23, '24. Another one aspect also that some revenue we have done some big jobs, which are here to be -- I mean 10% progress, for that we don't need margins. That also contribute a little bit. So with that, I don't see much issue on that coming next quarter going forward from there.

When do you expect the Bangalore elevated to be completely out of our books?

By end of this year, I mean, December, January, sometime, it should be over.

Second is a very, very good order booking in the quarter. My question is on the Adani and the BMCT, both the orders are they fixed price contract? Or they are variable contracts? And when do we expect the work to start in these 2 projects?

Adani road is not fixed price contract. It is star price contract. Star price means we have agreed for certain basic price of material based on which our contract value has been finalized. If those basic price changes either upward or downward, [indiscernible] will be compensated or you have to give them back. So the risk of escalation is not there as far as road is concerned. And BMCT, that is JNPT gives a fixed price contract. And the estimate we have considered the escalation -- probably escalation costs in our price.

So when you say star price contract, what exactly do you mean which are indices your track in general? Or is it something to do with the actuals?

It is based on actual. If you see the escalation clauses by the government tenders, they have a formula, which is based on RBI indexes and on the material, on the fuel, on the labor, et cetera, et cetera. That is one concept. When it is star price, it is basically, you have built this job with the INR 5,000 per ton of cement, fixed. When the cement price goes up by INR 500, we'll be compensating -- they will compensate you INR 500 per ton. That is one of the concept of star price.

The next question is from the line of Vibhor Singhal from Philip Capital.

And congrats on great order inflow in this quarter and a strong revision as well. Sir, my question, again, I come back to the order inflow. So I think this is the second consecutive quarter in which we have more than INR 5,000 crores of order inflow. Last quarter also, I think we had very strong inflow. And this time, it was invested by the Ganga Expressway project. So now, sir, that we are at more than INR 20,000 crores of order book, which kind of gives us a more than a 5-year kind of revenue visibility, so going forward, what is going to be our bidding strategy? I know it is not possible to take a break and not bid for any orders and all. But is it like, let's say, I mean, growth suddenly has become now 24% for order book, which was less than 1% in last quarter. So are we still going to bid for maybe some other growth projects if we can get somewhere else? Or -- and similarly in metro and your marine works will our bidding continue vis-a-vis as whatever opportunity comes? Or are we going to go slow and first, maybe execute or complete this order book and then probably take a few more orders?

Yes, our strategy will be a little different now. But you cannot stop the growth. Growth has to be there. And today, whatever order -- I mean if you bid today the work will start after several months, maybe 7, 8 months or even a year. If you remember the BMCT JNPT job, we have started bidding 2 years back, the order has just come. So it is like that. But definitely, our strategy will be a little different. I don't think we'll be interested to do further road work, unless we complete this big job at Ganga Expressway. That is number one. Number two, certain sectors like elevated metro and difficult jobs also we will be now very selective going forward. But underground metro and the marine jobs, which is our bread and butter and we do well, we'll definitely keep on pursuing for further order book. At the same time, also you have to see that our resources are available in terms of not only plant, we have to have our human capital as well as the firm-based non-firm-based. So based on all those aspects. Now we have got the opportunity, I mean, the privilege to select the job, which is a very good situation for us. So accordingly, we'll have our strategy now.

Sure, sir, definitely. I think it's a very good situation to be in, in which we can pick and choose which projects we want to build. Sir, this Ganga Expressway project, what is the status on that? When do -- has work started -- when do you expect it to start?

Actually, there is a zero date, which is basically when the financial closure of the -- I mean, Adani, they will take financial closure and the environmental clearance, both the things are the trigger point. So they are working on that. And the idea is to have it after the monsoon is over, that is from the October. So the zero date for us will start from, say, around October, end of September or October.

And we have to complete this in 3 years.

It is not 3 years. It is around 27 months as per the contract.

27. Okay, 27 months. So 27 months from October is when we have to complete it.

Yes.

Okay. Perfect. Also, sir, now that we've got 1 very good acquisition in this quarter and the order book as well, any changes to our guidance? We have earlier guided to basically 20% to 25% revenue growth in this year. Are we going to maintain that? Or is there any change to that, that you foresee?

Actually, if you see the Ganga Expressway contribution in this year, it is very nominal. If we start the work from October, it has got some design involved. So design is -- I mean design and the approval of that. So exactly this year contribution will be not much. Of course, for the marine work, BMCT will get some contribution, which already we have factored in our guideline what we have given last. I don't think there will be much changes. It will be around whatever we have told last time.

Got it. Got it. sure. So just one last book keeping question, if I may. Sir if I could get the gross debt number and the cash on the balance sheet at the end of the quarter.

Gross debt is about INR 500 crores. It is more or less at the same level as it was in the previous quarter. It's the cash on the book, which has gone down. So the cash was at nearly INR 380 crores in March. It's down to about INR 180 crores. So the net debt that is why it has gone up a bit. But at the gross level, the debt continues to be at the same level as the previous quarter.

And so the cash would be lower because seasonally, Q1, some clients tend to pay a little bit delayed payment. So it would be a seasonal thing? Nothing to fall out in that type of projects?

In fact, we got a lot of payments from our clients in the previous quarter, which resulted in a higher cash balance as of March. And that surely has got deployed in our projects, all these new orders that we have secured. The money has been deployed on these projects. So that is why the cash flow balances have gone down.

Okay. As at year-end, we expect the debt to remain the same, INR 500 crores?

Yes, it may go up marginally because of all these new orders, there will be some funding that we'll go into these new orders as well, but we don't expect it to be significantly different.

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

Congratulations on a decent set of numbers and strong order inflows. So my first question is that for the last 2 quarters, last 3 quarters, we have been ballpark range of INR 900 crores to INR 1,050 crores kind of turnover. So order book has almost jumped 50%. So by when do we see this run rate hitting INR 1,500 crores. So is it like third quarter or fourth quarter, we'll start seeing that happening?

Well, this quarter, that is second quarter also will be almost close to first quarter because there is some effect of monsoon, which is obvious. But in third and fourth quarter, if not INR 1,500 crores, it will be close to that.

Great. So next year, we are definitely well placed to cross that INR 6,000 crores of turnover mark if that run rate sustains for the next year, which should, I believe be, because at the INR 20,000 crores order book, typically company report INR 6,000 to INR 7,000 crores of turnover, taking the 3 years' time to completion of the order book. And largely, you have EPC project, there is no hand, there's no BOP. So the work time to start like really quick after you get the LOAs. So is it the right assumption?

Yes. So we have the question and answer together. So I think it's okay.

Great, sir. So now the only puzzle here is that whether these orders -- now we have seen inflation now cooling off the last couple of quarters, we have recently maintained our margin to higher single digit. Now we have all these complex job very limited elevated component and all are like right of way is not a constraint. So do we expect that margins to maybe ballpark crossing the double-digit and maybe that closer to 12% than to 12%, so maybe little closer to 12% in that range from next year, given that commodities have been cooling off?

Yes. I'll maintain the same whatever I have told last time and today morning also. This year, it will be close to double digits, if not double digit, but next year differently, it will be 10% plus.

No closer to 12%. So between -- like somewhere between that band of 10% to 12%.

Okay.

So that is our explanation Parikshit. And we hope we'll be there in FY '24. And you will see that improvement in the margin from Q3 or Q4 onwards.

Sir, I mean, you have done a very excellent job in containing your balance sheet, especially on the debt side. We have seen companies with a similar quantum of debt -- sorry, similar size of order book of INR 20,000 crores, having debt of more than INR 1,500 crores to INR 2,000 crores, even in some cases, INR 4,000 crores. But you have very well contained yourselves in that debt. So the only thing is as the growth picks up, whether that will translate into profitability and flow to the part is a question which we as an analyst look at. And we have had multiple accidents in the past wherein we had faced these issues on elevated metro where we have made losses. 1 project, 2 projects have really impacted our performance. And now we don't -- I hope that you have been giving comfort many quarters that we don't have any more projects like that, which will continue to bleed us on the profitability. I hope you will maintain that -- are you still maintaining that? I mean, given the visibility on the project on the execution which is happening? Do you see any more pain points coming off from any write-off, further write-offs in the order book?

No. I think we all know that we had Bangalore Metro, which is -- which should be behind us totally by end of this year. And prior to that, we had Delhi. Apart from these 2 jobs, we don't see any issues on any other jobs. Yes, margin will be a little more, a little less, but there is no major hit coming from any job.

Sir, beyond this, any other elevated projects in the order books? Beyond the Bangalore Elevated Metro?

No, no, no. No, Bangalore is over. Bangalore is hardly maybe another INR 100 crores net flow on that.

Okay. So we have totally stopped bidding on elevated side? Or we are bidding very, very conservatively?

No, we have not totally stopped. We are open in this, but definitely we will be very conservative in this segment going forward.

Okay. And this INR 4,850 crores of the Ganga Expressway project, this is including GST, excluding GST?

Excluding GST.

Excludes GST.

I mean this GST will be how much, sir? 12% or 18%?

Now it is because of the change in regulation to last month, it is now 18%.

Okay. So you have adjusted this order book for 18% of GST.

So this INR 4,850 crores is excluding GST. So GST will be over and above this INR 4,850 crores.

Okay. Okay. Great, sir. I think they've done a phenomenal job, especially on the balance sheet side. I hope this momentum now gets translated -- order book momentum gets translated into margin is what we are looking at.

The next question is from the line of Abhay Lodha from Sanmati Consultants.

Congratulations for a good set of numbers. Sir, I have got 2 questions. And we have got the total order backlog of INR 21,000 crores approximately as on 30 June '22. Now just I wanted to know how much value of the tender we've already participated and which is pending. And how much amount of the contracts were L1?

Okay. First, this participation, I think it is around close to INR 8,000 crores, which consists of overseas job, 2 overseas job, 1 in Bangladesh, 1 in Sri Lanka and a few jobs in Adani in private sector and some jobs in Tamil. So around INR 8,000 crores job we have participated. None of the results is yet out, is out. So there is no job, which is we are at L1. But definitely, a few jobs, which we are discussing with the private client like Adani, where we are expecting the order very soon, which will be around INR 500 crores to INR 600 crores. So to summarize INR 8,000 crore job we have tendered for and around INR 500 cores to INR 600 crores we are expecting from the job what have tendered for.

Okay, sir. The second question is regarding the earlier participant has asked. Again, I'm asking, but in a different way. Regarding margins, we are the -- this current quarter saw 9% margin approximately on the sales book buyers, whereas our competitor like Patel Engineering, they are generating margins of 14% to 15% consistently since last 3, 4 quarters. So why there is so low margins and there is something in tendering process or some specialized job, which they are doing which we are not doing? Can you put some -- throw some light on it, sir?

Yes. I think to answer this question, it will take a long time. They are company of our standard and their margin, if you see also close to our -- around 9% to 10%, even less than that. They are a company, those who are small and the business model is different. I don't want to comment on that. But definitely, on our side, I can comment that our margin has affected because of 2 reasons. One is the commodity price, which is common for everybody. And second, which is not common for everybody, we had some bad jobs, which is still going on. But as I said that by end of this year, those jobs will be completed, and they will find that our margin is improving.

The next question is from the line of Vijay [ Sadla ] from VL Finance.

Congratulations on good set of number, sir. I have 2 questions. One is regarding the interest cost that we are paying. It seems pretty high given the kind of debt or basically debt and cash we are holding on the books. So can you explain in detail what are other elements in the interest cost apart from the core interest cost? So if I can understand, there is a bank where in other costs also involved. So if you can just split the interest cost, that will be great. And secondly, just coming to Bangalore Metro. How much is the residual now to be booked in this year? How much is the residual turnover that is to be booked in the current year? And have we raised basically the portion of -- with the government on -- regarding the losses in the Bangalore Metro? And when we can expect those money to come back to us?

Okay. Regarding bank interest, I think, Prasad will address it. But before that, let me address the Bangalore Metro. I think Bangalore Metro, we are still around INR 80 crores to INR 90 crores of job we have to do, which should be over by this year, December, January. And regarding claims, yes, as we have maintained on the con call that we have got several claims, which we are pursuing with the client, and those things are under discussion. And some will be settled amicably. And if not amicably, it will go for arbitrations and proceeding as per the contract. So regarding interest, Prasad, if you can.

Yes. Thank you, Mr. Basu. The breakup of our interest cost is roughly -- it includes interest on the borrowings that we have on the banks and financial institutions, which is about 1/3 of the figures that we have reported. Nearly 1/3 is interest on customer advances. Most of the advances that we get from our clients are interest bearing. And our customers are charging interest generally at market rates. It is linked to the MCLR of the banks. So about 1/3 of the interest cost that we are reporting is interest on customer advances. And the remaining 1/3 is roughly the cost that we incur for getting bank guarantees and letters of credit. So largely, that is the split of the finance cost that we reported in our financials.

Okay. Okay. So these costs will remain more or less the same? Or it will be a function of kind of turnover.

It's not a function of turnover. If we take more advances, then if the advances are interest-bearing, then we'll end up paying some cost on it. If our debt increases or decreases, correspondingly the interest cost will also vary. So there's not a function of our turnover, but it is a function of the debt and customer advances and LCs and guarantee limits that we utilize from the valuing system.

Okay. So basically, out of this 1/3, 1/3 is only a pure interest portion?

Yes.

The rest is all -- okay. Got it, sir. Thank you very much, sir.

We'll move on to the next question. That is from the line of Parikshit Kandpal from HDFC Securities.