Dhruv Consultancy Services Limited (541302) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Dhruv Consultancy Services Limited Q2 and FY '25 Earnings Conference Call hosted by Kirin Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Jainam Savla from Kirin Advisors Limited. Thank you, and over to you, sir.

Thank you. Good afternoon, everyone. On behalf of Kirin Advisors, I welcome you all to the conference call of Dhruv Consultancy Services Limited. From the management team, we have Mr. Pandurang Dandawate, Chairman; Mr. Snehal Patil, Chief Financial Officer; Mr. Ankit Sonawane, Company Secretary. Now I hand over the call to Mr. Ankit Sonawane for opening remarks. Over to you, sir.

Yes. Good afternoon, esteemed ladies and gentlemen. I extend a hearty welcome to each one of you who has joined us today for Dhruv Consultancy Investor Call, where we will dwell into the financial results of the second quarter of fiscal year 2025. Your participation and interest in our company's performance are highly valued. During this session, we will offer a concise overview of our Q2 FY '25 financials, providing insight into our achievement, the challenges we have faced, and outlining our future strategy. But before we immerse ourselves in the numbers, let's take a moment to reflect on our journey thus far. Founded in 2003 and headquartered in Navi Mumbai, Dhruv Consultancy stands as a beacon of excellence in infrastructure consultancy. Our commitment to delivering comprehensive services, span in design, engineering, procurement, construction and project management has positioned us as a trusted partner in the realm of infrastructure development. Our diverse service portfolio includes meticulous preparation of detailed project report, conducting feasibility studies and specializing in operations and maintenance growth. From project planning and designing to technical and structural audits, we emerged as a strategic alliance for investors navigating the intricacy of infrastructure projects. Let us now delve into the prominent achievements and milestones attained during the Q2 of financial year '25. In our recent quarter, the company has demonstrated significant achievements in Q2 FY '25 with several key milestones. We are actively pursuing international opportunities with expressions of interest submitted for 145 projects across African and Southeast Asian market funded by organizations such as the Asian Development Bank and World Bank, African Development Bank. Of these, we have been shortlisted for 21 projects and are in advanced stages with 10, having submitted financial proposal. We are excited to announce that our first international order has been secured in Mozambique valued at $5 lakh, marking a significant milestone in our global growth [Technical Difficulty] quarter of INR 347 crores to be executed over the next 2 to 3 years. Additionally, we have submitted bids totaling INR 700 crores with results expected soon. Looking ahead, we plan to submit bids worth INR 1,500 crores with an anticipated financial order book of around INR 800 crores to INR 1,000 crores, including international projects. The recent preferential assortment of particular at [indiscernible] further strengthen our financial position to support unit growth plans. Noteworthy contract wins include high-speed corridor projects in Gujarat valued at INR 5.7 crores and an NHAI project for Aligarh-Palwal highway 4-lane jointly secured with Global Infra Solutions and Civisor Ingenieria were INR 4.74 crores. These achievements, coupled with the technical scores consistently above 95, underscore our commitment to excellence and our competitive edge as the only listed company in our sector. Now let's take a closer look at company's financial performance. In Q2 FY '25, Dhruv Consultancy Services Limited achieved a robust total revenue of INR 32.92 crores, [ customers ] from year-on-year growth of 42.88%. The company's EBITDA stood at INR 3.95 crores, reflecting a healthy EBITDA margin of 12%. Profit after tax reached INR 1.89 crores, translating to a PAT margin of 5.73%. Diluted EPS were at INR 1.77, demonstrating consistency with last year's performance. For H1 FY '25, Dhruv Consultancy Services Limited reported impressive total revenue of INR 52.93 crores, representing year-on-year growth of 53.19%. The company's EBITDA came in at INR 6.77 crores with an improved EBITDA margin of 12.79%. Profit after tax amounted to INR 2.76 crores, maintaining a PAT margin of 5.22%. Diluted EPS was at INR 1.72, aligning closely with last year's level. Before we begin the interactive session, I would like to express my heartfelt appreciation to our esteemed stakeholders. Your unwavering support has been instrumental in our growth journey, and we deeply value the essential role you play in our continued success. Now I warmly invite you to join us in the question-and-answer session. Your insights and inquiries are invaluable, and we look forward to a fruitful discussion. Thank you once again for your presence and steadfast support.

[Operator Instructions] The first question is from the line of [ Rachna Sharma ] from HNI.

My question is with the diluted EPS aligning closely with last year, what is your outlook for EPS growth given the expected expansion in order book?

Order book today unexecuted, INR 300 crores.

Chairman and Executive Director of the company. The executed order book stands today at INR 300 crores and the submission of bids to the extent of INR 700 crores [Technical Difficulty] INR 40 crores in the period of next 1 year, executed order book should be doubled. So we have a straight to positive impact on EBIT and EPS and diluted EPS.

[Operator Instructions] The next question is from the line of [ Mahesh Seth ], an individual investor.

Yes. So my first question is with new capital raised, how will you ensure that the return on this investment needs or exceeds the cost of capital?

In the capital raise, we are definitely investing the business in twofold. One, we have started buying the equipment, state-of-art equipment, which are very useful for testing the things in the private sector. We have already deployed our one FWD that is falling reflectometer, the cost of about [ INR 2.5 ] crores around the clock to the airport near Navi, Mumbai, which is nearing completion. And with that experience, we have seen a lot of opportunities and growth in the testing and equipment sector in a private sector. So with this raise in the capital, we have first decided to buy equities to the tune of about INR 9 crores to INR 10 crores, which orders are already placed, and they are on the way. Mostly, they are from Germany and Denmark and Switzerland. Secondly, we have started repaying the debt, which was high-interest rate loans. And of course, the CC of the bank, which is to be utilized now in a minimum way. So working capital requirements shall be fulfilled from the equity side fundraise only. Thirdly, we had saturated in our bank guarantee limits which are to be submitted as a performance bank guarantee to the government assignment. And with this additional capital, we are now in a position or we are in a best position among our competitors to bid a more in number because we are sure of now the bank guarantees, which will be up to 100% margin. So with the effect of all these, definitely, the increase in -- you can say unexecuted order book. And of course, top line and the PAT and the EBIT, it should be much more than what capital we are deploying on the project.

Okay. Got it. So if you were to raise capital, we are purchasing new equipments and machineries, and expect the business to grow twofold, right?

Twofold. And of course, this bank guarantees is now stopping our bid process and competition because we have no bank guarantee limits prior to the fundraising. Now that limit is over. And now one more additional thing. Last year, we were ranked as one of the same consultants in India. Now we are ranked in top 5 consultants in India. And of course, beginning of the first assignment in international market, we are very much sure of getting good business in international market, which normally will bid at a very high profitability or EBIT not less than 35%.

Okay. Okay. That's great to hear, sir. And my next question is, as the only listed company in your sector with a high technical score, how does -- we maintain this advantage against both domestic and international competitors?

Surely. Technical score, just for information to the listeners, 80% weightage is given to the technical score and 20% weightage is given to the financial score. So higher the technical score, obviously, higher is the possibility of winning the bid that is part one that is the business. And definitely, higher can be the profit margin than EBIT because roughly the 1 mark carries a weightage of about INR 50 lakh. So if I score 2 marks more than my competitors, so I can bid even INR 1 crore or more than my competitor with safe win. So this is a twofold win for high technical score, and that is going to happen in another 2, 3 years in a big way. For the reason now, if you have heard about the agenda of this third time repeated government, what we call [ Indian ] government now, the speeches of the Honorable Prime Minister and other ministers and bureaucrats, they are always saying that the speed of the exhibition of the infra project will be doubled with whatever they executed in 10 years that will be exhibited -- double will be executed in 5 years. So obviously, all this has a straight impact on our business in a positive way.

The next question is from the line of [ Radaj Yadav ] from Raj Industries.

Okay. My first question is our EBITDA improvement is notable. So could you please explain the specific measures taken to enhance our operational deficiency?

We don't have any operational deficiency right now. Very few things are there minutely observed because since we are a public limited listed company, we have a system of internal auditor, of course, external auditors because we publish our maybe limited review or maybe annual reports. So from operational, I'm not saying it is a deficiency. But since we were initially working in 2 or 3 states of India, and now we have the pan-India presence, we are working right now in 20 states of India out of 30, and we also have one international assignments. So to avoid any operational deficiency like the digital criteria or the communication criteria, communication limitations in Northeast country -- Northeast part of country where the access to Internet is limited and some unrest in a few states, which occurs be considering our large size of our country. So we have taken a few steps in this -- after this Q2 that we are -- we need vehicles for supervision on each side so that all vehicles are either diesel-driven or petrol-driven and having a monthly rent of about INR 60,000 to INR 65,000 because they need a -- government need a latest vehicle as per their specification. And of course, you can say they specify the model also like 6-seater or 5-seater. So we decided to go for electric vehicle wherever there is possible or we decided to go for CNG, where the cost reduction will be substantial in terms of traveling costs and the overheads. Rest of the things, manpower that we cannot have much -- we don't have any losing part because all is system-driven and we all have the cap system and HR -- software-driven HR management. So operational deficiency are not there. We are very much focusing on increasing our revenue and EBIT and PAT.

Okay. And could you give more details about our INR 5.7 crore high-speed corridor project in Gujarat and its anticipated completion time line?

Right now, we are at mobilization state, and we cannot comment upon unless we take over the project supervision completely. It's mobilization is in process and all agreements and all that things are in process. Once we get the letter of acceptance from client, we disclose it to the exchanges and in the public. Now after that, we have to submit the bank guarantee, then there are agreements wherein there is the interview of our key professionals and then they allow us to go on the site. It is a very slow process. And of course, if there is a problem from contractor side or the client side, like if it is a HAM or BOT, the financial pool has to be there before start of work, that is not our look out. If the issues are there for land acquisition or forest clearance, environment clearance, again, that is not our purview. So when all these things are cleared on the site, then we are allowed to deploy our manpower on the site and then only expenditure and build revenue would start. So right now, I'm not in a position to comment upon on this, but in any of the next investors meet, maybe after 1 month or so or after Q3, I will be in a position to give you the details of the project.

Okay. And regarding the INR 474 crores NHAI project, what are the [ area variables ] and how will the joint venture with the Global Infra Solution and Civisor Ingenieria go?

In a joint venture, the other players has low role to play. For the reasons we went building joint venture, suppose we will -- say Global, for example, 4 bids and we are a leader in 2 and they are leader in 2. So if we win only 2, then 1 is executed by us and 1 is executed by them as a leader. And we don't have any right on them, and they don't have any right on our revenues or profits and losses on this. So this particular project is our project. And again, the same thing is there. Right now, mobilization is not finalized, fully done. It is partly mobilized.

The next question is from the line of [ Sarah ] from [ TY Capital ].

My first question is that I see a big jump in other expenses from INR 13 crores to like [ 1-3 ], what would be the reason behind it?

We have to take it with revenue also. Revenue jumped from INR 20 crores to INR 32 crore, that is, I think, 1.5x the Q1. And INR 32 crore revenue or top line is highest ever in the history of company after the listing. So obviously, more the revenue, more the expenditure. So expenditure is related to a number of sites. So we have one more. We have one first international assignment. So obviously, expenditure has to increase because our EBITDA and PAT is with a fixed range.

When you mentioned the first international, you're talking about Mozambique, right?

Yes, correct, correct.

Yes. When we are going to see that reflecting our income?

Our first bill is submitted already on 11th of November and we are expecting the first payment in dollar in a period of another 5, 6 days, maybe 20th of November.

We could see that in this year only, maybe in quarter 3 or quarter 4?

Assignment of for 6 months for DPR and a cooling period. And again, I think 80 for supervision. So in a period of [indiscernible] revenue of USD 5 lakh is expected in [indiscernible].

Okay. Sir, currently, we have around INR 347 crores of order book and orders for next 2, 3 years. So how is the domestic order distributed across the different segments?

As I explained, if you see the political speeches or the speeches of the ministers and bureaucrats after the start of India government working, that is third time continuing the Honorable Prime Minister of India in the chair. Again and again, they are seeing that they are doubling the speed of the infrastructure projects, particularly, of course, the highway, which is a major chunk of the infra and doubling the speed of the execution means whatever they have done in 10 years, they will achieve 2x than that in the next 5 years. So sky is the limit for Dhruv because we are now scoring highest ever possible mark, number one. Number two, we are now among the top 5 consultants in India. So Indian market, domestic market, definitely our order book is going to be doubled in a period of 1 year or so. So straightaway impact on the EBIT -- revenue, EBIT and PAT and additional income from additional work orders from international market that will add to the duty of the business.

I got it, sir. My second -- last question is that I think promising project among the INR 700 crores bids submitted, so how much would be like -- if you have a number, like how much would we be successfully getting [indiscernible]?

If you see our last year success ratio, which is available, I think on websites also. Last year, we had a success rate of 21%. Now we have increased the, you can say, technical score, increased equipment band with the top line and profits which are definitely increasing our striking rate. I should not say, but NHAI and now they are very, very hard and [indiscernible] and in last 6 months, the 4 of the top consultants in India are [ devalued ] or blacklisted for poor service, at least, on the site. So it is not good to say, but competition has been reduced. So giving more [indiscernible] more than 25%.

And my last question is, what challenges do we see is executing on the current order book and how we are positioned to move these targets?

Sorry, your voice was cracking. Can you repeat last question?

And my last question is that how -- what are the challenges that we foresee in the current order book? And how are -- how do you, as a company, ready to face this?

Challenges you are asking, madam?

Yes, challenges and executing the current order book.

Yes, yes. Executing the current order book, there are no challenges, as I explained in one reply. We have a pan-India presence now, and we are improvising our systems. We have our regional offices located at every site and we are controlling that site through AI also and of course, all that Internet facility. So order book execution is not a big challenge for Dhruv. Secondly, a few challenges are definitely there as a business like election. For example, Maharashtra is now having the assembly elections voting on 20th and results are on 23rd, so is code of conduct going on. So our business is smart business. Our work orders or letter of acceptance of projects or even scrutiny of the tender submitted is at halt because government machinery is busy in the election processes. So these are the few challenges we are facing. So to await that challenges, we have started bidding with different clients. Like this year, we added MSIDC as the new clients, GSRDC as a new client, [ Upira ] last year, we added as a new client. Now in international market, ADB-funded project in Mozambique, we added a new client. So we also started hunting the business in a private sector. We have already got 3, you can say, thanks to the proposal. One is from FCC for Dhruv services technical consultancy. One is from GR Infra for Pune Ring Road. And third is one [indiscernible] spiritual organization, some internal roads supervision of the work. So the private sector has no such bars like government have, submission of bank guarantees, limit crossings in the bank guarantees or these core of tenders. So we are an equipment bank, equipment testing. We are increasing the equipment bank. So we are also adding private business in our order book and widening the client base. So this will take care of the political and local challenges or geographical challenges, which we are facing with limited clients, mostly the independent mark.

[Operator Instructions] The next question is from the line of Kush Tandon from Ananta Capital.

Sir, I just wanted to understand, is there any onetime expenses in our P&L for Q2 because revenue went up significantly, but expenses went up more than the revenue in terms of percentage growth. So just wanted to understand, was there some accumulated expenses of past quarters that have been put in this quarter? And how do you see that going ahead?

No, it is not like that. Basically, we have the mobilization expenses, as I already explained in previous reply, before the first bill is received in our accounts. So mobilization expenses are for a period of 3 months. And we have to pay traveling costs. We have to pay the bank guarantee margins. We have to pay the business development expenses. So all that expenditure is shoot up because of the mobilizing expenses, which we have got extra orders in this Q2. And of course, accumulated orders are -- have come in Q2, other than what we have disclosed on the exchanges because we declare on the exchanges letter of acceptance, LOA. Between LOA and work order, there is a period of 2 months. And from work order to first bill, there is a period of another 2 months. So all that was accommodated -- accumulated in the month of April and May, that was the election period for Central Government that all you can say, expenses are coming in Q2 because we had the limitations because of code of conduct to do lot of.

So sir, what you are saying is because project starts, you have to incur expenses and revenue may not have started. So there was some bunch up of expenses because of project execution in Q2 and some of Q1. So going ahead, sir, once the revenue starts, these expenses are also normalized. So I think we can expect profit margin to improve going ahead, sir?

Definitely. As I explained this onetime, you can say, as you rightly indicated, it is a onetime expenditure prior to first bill. Now the expenditure -- this first onetime expense -- expenditure will be paid over another 10 to 12 months revenue. And it will have much less impact -- means, it will have definitely more EBIT and more profitability coming ahead, revenue started realizing. That is one. Secondly, the bids we have submitted and we have won recently, they are with better EBIT margins because we have the good technical scores. International bid, of course, what we submitted and what we are expecting from Mozambique appointment, almost 75% of the EBIT. That is our first international taste. We were expecting 35% only. So that revenue will start coming up from the month of November only. So all -- impact of all these things, definitely, we are eyeing at a more EBIT, which is looking very low in the Q1 and Q2. Definitely, we have a target of much more -- much higher EBIT than given FY '23, '24, that was 17%, 18%. We are targeting much higher EBIT than FY '24, March FY '24.

Okay. So sir, basically, what you're saying is H1 had a combination of upfront expenses and lower revenue. I mean, Q2 was much better than Q1, but Q1 was impacted because of elections. And going ahead, H2 can be much better in terms of revenue as well as margin?

Yes, yes, H2 traditionally, historically, if you see an intracompany or even brewer, we were on SME previously, so H1, H2 comparison is available for last 8, 9 years. H1 is traditionally 40% and H2 is traditionally 60% average. And EBIT and profit also in the same ratio because EBIT profits start realizing on H2.

Okay, sir. Okay, sir. And sir, going ahead in the next H2, is there an order book, if you ask if we just do March '25. If you can give some guidance, how our order book will look like in the next 6 months?

Today, it is INR 650 crores, total order book that should reach INR 2,000 crores by end of March. So you can say April, May is our declaration date. So I'm calculating. So INR 1,000 crores, which shall be the -- sorry, executed order book, and of course, all that addition will be unexecuted and minus you have to deduct whatever is converted into revenue.

Okay, sir. So unexecuted order book is INR 300 crores as we speak.

INR 400 crores plus.

So that will be INR 400 crores plus in March?

Yes.

The next question is from the line of [ Aditi Roy ] from [indiscernible] Advisors.

Congratulations, sir. My question what risk do you foresee with the international projects, particularly with compliance foreign currency and regulated challenges?

Foreign currency, we are not facing any challenge right now because we are getting in USD. So it is on positive side, currency impact, that you can also agree. Secondly, we are working -- right now, we are bidding only with the -- on the project or assignments which are funded by either World Bank, ADB or African Development Bank. So any uncertainty from funding side from the local governments or local country government, we have no straight impact negative impact. So we are playing very safely in the international market right now.

Okay, sir. And my next question is, are there any potential delays or challenges in the current projects, especially considering geographical diversity?

Good question, madam. Any extension in the time line of the project completion is beneficial to us. It's very surprising. Suppose we have submitted our bid is closed at INR 10 crores for a period of, say, 2 years. So that is 24 months. So roughly, I will get a monthly revenue of interest divided by 24, that is about INR 4 lakhs per month. So suppose -- no, sorry, sorry, sorry. It is INR 10 crores divided by 24 months into 100. It is INR 40 lakhs. So my revenue per month is INR 40 lakhs. Suppose the project is delayed by, say, 6 months, but when we say project is delayed, it must be completed 70% or 80% and delays are normally not on account of consultants because we have only -- we play only the role of supervision. So delay is normally from contractor side in execution or delays from government side for land acquisition, court cases, recutting issues, utility shifting issues, local registrant and so on. So any extension in the time line I will get proposed net per month payment on the extended contract. So that is -- that they have to pay and they cannot replace or conclude our contracts unless the project is completed because we are very much geared with the project, and no one will even think of changing at the flag end of the project.

Okay. Sure. And I have one another question. Do we expect the PAT margin to stabilize around the current level? Or is there a target margin you aim to achieve?

Definitely. As I already explained, our H2 has much profitability, much margins because of the impact of the central elections on Q1, our expenditures where increased revenue was limited Q2 is to work order second mobilization expenses are there, but they are sort of onetime revenues. And traditionally, our balance sheet in our H2 has much better revenue, much better profit and much better EBIT. And as I explained, technical score, playing a very important role and international orders playing very important role. And of course, the private assignment, which normally we have a profitability of 50%. But they have started adding very, very slowly month-on-month. And it should increase definitely in balance period of, say, 4, 5 months of this year, but a very fine impact in next year.

Okay. And my last question is, could you provide guidance on revenue margin and profitability targets for the second half of FY '25? And any particular project that will be the focus?

Projects, we have standard bidding processes, and we have the project like 4-lane, 6-lane roads in India, iconic projects, elevated roads, ceilings, all related. Tunnels we added this year. All that we are bidding and we are getting it also. Sometimes with joint venture, sometimes as solo. Now as I explained, any infra company, H1 is normal or below average and H2 is much better because our working season starts from Dussehra, all our -- it is a auspicious day in India and all contractors start their work from Dussehra. Obviously, every planning is there from the month of October, November and that execution period end at the end of May because then monsoon comes. So traditionally, H1 is 40%, H2 is 60% in terms of revenue, in terms of EBIT and in terms of everything.

The next question is from the line of [ Babu George ], an individual investor.

Sir, my question is, can you share more details on how the INR 33.24 crores raised from preferential allotment will be utilized for the growth plan?

Yes, surely, surely. We have planned -- we have now already expenditure is done. So we had a plan to buy equipment to the tune of 8 to 9. We already ordered, part payment has been released and this equipments will give a good revenue to the private sector, mainly the texting part. Secondly, working capital requirements are increasing for main reason that our bank guarantee limits with the HDFC and PNB are saturated, and any bank guarantee now to the government as a performance bank guarantee before the work order, so we have now to pay 100% margins to that bank guarantee. So almost INR 5 crores and another INR 4 crores, INR 5 crores are reserved for the same purpose. Whenever we get any enhancement in unfunded limits from the banks, then only working capital limits for that particular reason might be reduced or it might be continued. Thirdly, we have purchased new office because our manpower has increased. Our business has been increased, our presence is in the international market also. So we have purchased office space near to our clients office in Mumbai, which, again, we bid about [indiscernible]. And rest of the things, mainly, I can say, payment of the high interest rate debt, which was a unsecured loan, of course, part payment, part fund are utilized to reduce the utilization of funds from the banks, they are mainly CPR working capital limits. So all that has been done already at a breakup of [indiscernible].

Sir, my next question is, how is the revenue mix expected to shift between domestic and international operations over the next few quarters and years?

I cannot comment upon quarter, but year-on-year, definitely, I can quote one example of good consultants, which are again based in Navi, Mumbai, and they were [indiscernible] start bidding internationally and in a period of another 3, 4 years, they start getting the work orders and a period of [indiscernible] years now, they have closed their Indian outlet. They are enjoying more profits and more business cities in international than the Indian assignments. So definitely, I can say, we are not doing that because for our company, nation first is our logo, our aim. So we will definitely continue to work with Indian conditions, Indian clients. But I can say, to have more satisfaction on the PAT and EBIT, which is normally investor interest, we will definitely go to the extent of 30%, 35% of the order book in international markets in another 4 years.

Sir, for international expansion, do we need any additional funding?

No. Absolutely, no. We are in talks with Exim Bank. We are getting ourselves internal there also and once we get impaneled with Exim Bank, then I think some funding can be -- some bank guarantees at international level can be given by Exim bank. But as of now, I'm not foreseeing any immediate fund requirement.

As there are no further questions from the participants, I now hand the conference over to Jainam Savla for the closing comments.

Thank you, everyone, for joining the conference call of Dhruv Consultancy Services Limited. If you have any queries, you can write us at [email protected]. Once again, thank you. Thank you, everybody.