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

Ladies and gentlemen, good day, and welcome to the Dhruv Consultancy Services Limited Q1 and FY '27 Earnings Conference Call hosted by Kirin Advisors. [Operator Instructions] I now hand the conference over to Mr. Karan Thakur from Kirin Advisors. Thank you, and over to you, Karan. Yes.

Thank you. Good evening, everyone. On behalf of Kirin Advisors, I welcome you all to the Q1 FY '27 Results Conference Call of Dhruv Consultancy Services Limited. From the management team, we have Mr. Pandurang Dandawate, Chairman; Ms. Tanvi Auti, Managing Director. Now I hand over the call to Ms. Tanvi Auti for the opening remarks. Over to you, ma'am.

Good evening, everyone. I welcome you all to the earnings call of Dhruv Consultancy Services Limited for the quarter 1 of FY '27. I'm pleased to share with you all an update on our business performance, the key developments during the quarter and our priorities for the year ahead. Dhruv Consultancy Services has built a strong position as an infrastructure consultancy, providing end-to-end services across design and engineering, project management and technical advisory. Over the years, we have developed deep expertise across highways, bridges, railways, metros, airports, ports and other infrastructure segments as well. This is supported by our experienced team and established relationships with government and institutional clients. Quarter 1 FY '27 was an important quarter for us as we continue to strengthen our core business while also expanding into new infrastructure-related opportunities. During the quarter, we secured multiple orders across highways, railways, consultancy assignments while also receiving strategic empanelments that expand our ability to participate in a wider range of assignments. On the order front, we received a total order of INR 90 crores only in the first quarter of FY '27, some of them being INR 19.34 crore order for authority engineer and project management services for 140-kilometer Rowghat-Jagdalpur railway line, along with the consultancy order for Railover Bridge construction supervision in Uttar Pradesh. We also received an order for INR 8.34 crores from MPRDC for independent engineering services for the Ujjain-Jhalawar Greenfield Highway. We recently also received a INR 40.92 crores assignment from OBCC, Orissa Bridge Corporation, which is the highest ticket size ever backed by the company. Another key development during the quarter was our institutional presence through strategic empanelments. We were empaneled by BMC for project management consultancy for municipal infrastructure works for a period of 5 years and also by India EXIM Bank for BPR technical advisory work and lenders independent engineering. These empanelments provide us with additional avenues to participate in larger and more diversified infrastructure assignments. We also entered into the Wayside Amenities segment through a 15-year lease-based development and O&M project. We also acquired a 55 -- we have formed an SPV in which 55% of the stake remains with Dhruv Consultancy in Veral Drive Hub Private Limited. This will strengthen our new infrastructure vertical of Wayside amenities. We believe this initiative can create an additional long-term growth avenue while leveraging our existing project management and infrastructure capabilities. Coming to the financial performance. Q1 FY '27 recorded net sales of INR 15.55 crores and a total income of INR 15.95 crore. While the quarter's financial performance reflects and timing of project execution. Our focus remains firmly on strengthening our execution capabilities, converting our project pipelines into revenue and building a more diversified and resilient business. Looking ahead, we remain focused on our core strength in transportation and infrastructure technology while expanding into newer areas. Our international strategy also continues to focus on markets like Africa, Southeast Asia, Gulf and South and Central Asia. Overall, we believe Dhruv Consultancy is well positioned to benefit from the continued development of India's infrastructure ecosystem. Our priorities are clear: strengthen our order pipeline, improve the execution, diversify our service offerings, expand our addressable market and create long-term value for our stakeholders. With this, I would now like to hand over the call for moderator for the question-and-answer session. Thank you.

[Operator Instructions] First question comes from the line of Mehul Shah with VS Ventures.

So I just have a couple of questions. So Q1 FY '27 total income is around INR 16 crores with like several new mandates secured during the quarter. Like what revenue guidance would you say for FY '27 that we can achieve?

Yes. I will tell you about the overall financial performance first. So the revenue of INR 15 crores -- INR 15 crores, INR 16 crores that we have reported, this particularly is for quarter 1. And if you have seen for the past 22, 23 years, the Q1 and Q2 have remained, say, 30% to 40% of our year revenue. And Q3 and Q4 have remained on the higher side in terms of revenue, mainly because of the monsoon season, and this is the season for the works award. So usually, the Q1 -- entire Q1 goes in securing new orders, Q2 goes in mobilization. And Q3 and Q4, we start recognizing these revenues. So it's difficult for me to give any numbers as the SEBI LODR doesn't allow us to do that. But definitely, then Q1 and Q2, Q3, Q4 over the past years or so also, if you see, have been much better.

Okay. And so -- are you like investing in like any structured training or certification program to like develop the expertise in the newer areas?

Yes. So we have 2 kinds of training that is going on. First is a training known as skill bridge. So all the key personnel who are working on NHAI projects right now are being empaneled on the skill bridge portal where NHAI officers themselves are interviewing these candidates in detail so that it's kind of an empanelment. So once a key person who wants to work on NHI project or who we want to propose, we get them approved on the skill bridge portal where their detailed interview happens for that, a lot of preparation and is to be done because it's thoroughly scrutinized by an NHI officer. And once he is approved, then he can be posted anywhere on any NHI project. So that is one kind of training that is happening. Secondly, at our head office, we have a staff of around 80, 85. So they are being trained on a monthly basis for project management. We are also in the process of developing AI dashboards so that currently, we are executing close to 70-plus assignments. So with this implementation of AI dashboards, the project management will be much simpler. And those technology front trainings are right now going on in the head office.

So as you mentioned, you have like multiple projects going on. So how are you like tracking the quality control and mechanism and like to ensure the projects are there within the time?

Yes. So project completing the project on time is not our prime responsibility. Yes, we are responsible and we help with the approvals as fast as possible. So our responsibility comes there when it comes to giving faster approvals. The project milestone, achieving the project milestone remains with the contractor. Of course, we have to track those milestones and inform the authority whether the milestones are being completed or not. Secondly, our way of working is that we deploy manpower at the site location, the project site around -- at an average of 14 to 15 key professionals, plus subprofessionals, plus support staff are deployed on the site with an average work experience of 15 years. These are all civil engineers, most of them having master's degree, some of them PhD also. These are deployed at site for monitoring the progress, the quality at the site. A real-time communication happens with our head office on a day-to-day basis, where our head office team, which comprises of general manager, deputy managers and managers, all these having, again, average work experience of 10 to 15 years. Above them, we have a CEO and CTO who are monitoring these projects over the GM. So a real-time communication in between the site team and the head office team happens. All approvals are routed through the top management only. That is how we ensure that quality control is in place.

And so recently, you have received like 2, 3 orders. One was, I think, from NHAI and one was from the railways. So what is the execution time line for that?

So at an average, the execution time line is 3 years construction. And post that, 3 years DLP, which is a defect liability period or you can call it a maintenance period. So 70%, 80% revenue comes in the construction period and balance 20% comes in the defect liability period.

Our next question comes from the line of Neha Patil with Visible Ultra Source Limited. I'm sorry to interrupt you, but your voice is breaking.

So my question was with the India EXIM Bank impairment covering DPR and lenders independent engineering services, what new type of clients or project allow?

Sir, can you answer this?

Yes. See, you might be aware, EXIM Bank mainly has a role given by the Government of India Reserve Bank to fund the projects outside India being executed by Indian contractors. So our strength of the execution in civil construction is in Middle East, then Iran, Iraq and Afghanistan. So even part of Southeast Asia, partly. So therein Indian contractors like L&T, Ashoka Buildcon and many others, they are executing the projects outside India for which they need a funding. Sometimes it is on PPP mode, sometimes it is on BOT mode. So like in India, entire process has to be followed by the bank. That is first is due diligence, then loan syndication, financial close and vetting the DPR and waiting the bid submitted, vetting the bid by the contractor. So that is part of the services is vetting of the DPR, which is given by the EXIM Bank normally to the consultants, which are empaneled. This is part one. Part 2, they also appoint us as an independent engineer on similar such projects where the work is going on PPP mode.

Okay. And my next question is for multiple projects. How does the project management and billing process differ from projects awarded by NHAI or other central government agencies?

Normally, lenders engineers fee are loaded by the bank on the concessionaire's financial close or contractors' financial debt -- loan. So the payment comes through bank, but it is released by the contractors or concessionaire. Through bank, we are getting the payments. Normally, in Indian condition, it is INR 2 lakh per month roughly for visit on the site once in a month for a 2, 3 days inspection. And also sometimes it is a specific site visit based on the specific approval given by the bank to the concessionaire like revision in concession period or extension of time, et cetera, et cetera. So in international market is much better than Indian market. It is roughly INR 4 lakh to INR 5 lakh per month.

And given the previous execution time, what percentage of this Q1 orders do you expect to be executed and recognized as a revenue in FY'27?

See, our -- any of the order is having the -- order is having the range of 3 years construction and 3 years defect liability period. So we have a strong order book already without Q1 add-on is about INR 250 crores. The projects which are there are at mid-level or at finishing level or some of them are completed or might get completed. A few of them are at defect liability period level. So based on the existing order book itself, we can say order book in 2 years. So that is, say, INR 300 crores of the order book is there. So 2/3 of that is INR 200 crores. That has to come as a minimum in a period of 2 years. So that is a rough calculation, what I can say. But this year, what happened, we have already got about INR 90 crores to INR 100 crore orders in Q1 only, wherein if you compare the last year, it was for entire year, it was INR 90 crores to INR 100 crores. And in Q1 itself, we got that order. And again, in Q2, which is in running condition, we have got additional INR 60 crores, INR 65 crores of the orders in our kitty. So what I can say specific answer to your query, roughly 15% to 20% of the order book gets converted into the revenue.

Any specific or lenders independent opportunities emerging from Middle East, Iran or Iraq and could this become a meaningful part of international business?

Yes. Mozambique, we are already empaneled right now in this second quarter for one assignment. Ghana, we are the most preferred bidder or we are the winner, but turnaround time in international market is very, very slow. So because of that, orders are getting converted after 4 months or 6 months of declaration. In Saudi Arabia, we are trying to get some private assignments. We have started submitting the bids. 1 or 2 bids we missed because of this war situation right now even there. But we are hopeful of getting 10% to 15% of our order book from the international market.

And in Q1, it was an operating loss of INR 3 crores. How margins as the new project moves into the execution?

Basically, this is only a paper loss, which is correction in the estimates you might be aware. Our revenue is based -- it is an Ind AS type of accounting system and our revenue is based on the accounts -- sorry, our revenue is based on the expenditures done on particular project. So -- this estimate is corrected because of many factors, mainly the change in the policies by the client. The main client is NHAI, of course, like network survey vehicle scope was removed from our assignment and it is given separately to someone else as a policy and all over India, not alone to Dhruv. So this has resulted into reduction in the work order, which was given initially. And we corrected ourselves in a timely manner, so that it should not be a wrong presentation to the investors and to the lenders. So this is a paper loss, what is the INR 3 crores or INR 4 crores what is there in Q1. But now the bids we are submitting are with a better profit margin for 3 reasons. And we have already won -- we are H1 already in 2 or 3 such assignments. We have rated #9 in India among the 100 consultants. And out of that above 9, there are 6 to 7 consultants which are bidding -- not bidding regularly or they are bidding rarely. So this rating has given us a bigger advantage in the sense that rating has been given first time a weightage to the technical score. So now we are scoring technically much better marks, and we are loading better and better profits. So just I will quote one example in the Assam, we have won the 6-kilometer long bridge assignment across Brahmaputra, and we are H1, of course, letter of acceptance yet to be issued, but we are H1. In that competition, there were 4 bidders. One bidder was INR 12 crores, another bidder was INR 13 crores, third bidder was INR 20 crores. Our bid was INR 33 crores. Still we win the assignment. So you can understand we are best positioned today for better profitability and whatever loss occurred to clean up the balance sheet and the P&L.

The stronger order inflow in Q1, should investor expect a meaningful improvement in revenue and profitability from [ Q2 onwards ]?

Yes, yes. Definitely. Definitely, definitely.

Our next question comes from the line of Priya Jain with Green Capital.

I have a few questions with me. Yes. So the thing is after securing this new Rowghat-Jagdalpur assignment, what new capabilities or domain expertise is group building internally for railway consultancy?

Yes. So presently, we have a dedicated team working for the railway sector. Only for this particular assignment, we have to deploy 108 manpower at this project. So deploying such -- deploying and recruiting such huge manpower is a big task and our recruitment team is doing their best for it. So such high level -- high expert -- all of them working from -- for the railway sector only. So all these manpower coming in will further strengthen our railway sector. And as we all know that the union budget since last 2 to 3 years, the focus has been railways along with the highway sector as well. So we see ourselves establishing ourselves prominently in the railway sector as well as we have done in the highway sector.

So one question on financial side, like Q1 operating margin was minus 23%, if I'm not wrong. What quarterly revenue run rate is required for the company to return to the positive and sustainable operating margin?

So there are 2 factors that this loss has occurred. One being there are certain tax reversals that has been done, which is not in our control, which is controlled by the income tax department. Second being the lower -- the current revenue base is insufficient to absorb the large size assignments that we have currently got. So the operating cost structure with right now that the company is operating is pretty high. So profitability is sensitive to the execution scale. So once -- with these new orders as and when they start converting into revenues, the losses will be absorbed.

Next question comes from the line of Sakshi Shinde with Shah Consultancy.

The first question is INR 8.34 crores MPRDC assignment for the independent engineers service. What is the role of during the different stages of greenfield highway project?

So this is an independent engineer assignment wherein we are responsible to track the milestones, then the quality of the assignment, then the drawing approvals, the design and drawing, although in case of independent -- since this is a project of independent engineers. So it is BOT project. Hence, the investment has been entirely done by the contractor and not by the government. So our role remains lesser than that of authority engineer. But again, the final approvals and the milestone certification, billing certification is being done by us only. So throughout the construction as well as the defect liability period, we will be deploying manpower at the project site who will observe and provide inputs to our head office and our head office team then reports to the government. So we act as the eyes and ears of the authority. And that is why as a project management consultant, our responsibility remains to ensure quality, then material certification from where the material is being brought conducting, whether tests are being conducted properly on the material, checking at the lab testing equipment, everything, then issuing approvals from the government side. All that is being handled by our team.

Okay. So the number of projects across states are increasing, what system has Dhruv put in place to maintain the consistent quality and project monitoring across various geographies?

Yes. So right now, as I said that we are in the process of building AI dashboards. Right now, we are executing 65 to 70 assignments in the entire financial year, which is the highest compared to any consultancy firm in India, even though there are -- we are rating on #9, but none of the consultants in India today have such large assignments that group consultancy has. So we are in the process of building dashboards wherein the entire -- in each and every project, what is the current status of the project, how much manpower has come, how much material utilization has happened. So there is a detailed schedule given in the contract document of the contractor. So the entire schedule is being tracked by the AI dashboard, which we are in the process of development. So in another -- so this will further enhance our capability to take -- to do not just 60, but maybe 120 assignments in a year. So this will strengthen our operational efficiency.

Okay, ma'am. And my last question is as the large proportion of workforce is being engineers and so what currently has been biggest challenge in recruiting and retaining specialized engineering talent?

As far as retaining, there is not much of a challenge because we have a huge database of engineers and we being a listed company, hardly 1 or 2 of our competitors are listed. So that gives us a very big advantage when it comes to the employees selecting our company as their -- that is why we are able to bag a big number of assignments because as you know, the consultancy is mainly manpower driven. So the more talent we can attract, the more number of projects that we can take. So challenges as such, not much. But yes, now with every manpower, we are trying to build their expertise with the growing world now that technology has also advanced to quite a higher level. So we are trying to -- we are in the process of currently upgrading all that. And hence, a combination of the younger generation as well as the older generation is required. So those are the things that are going on, on the manpower front.

Our next question comes from the line of [ Videp Purohit ] with [ Phoenix Capital ].