Dilip Buildcon Limited (DBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Dilip Buildcon Limited Q3 FY '20 Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to [ Mr. Abhishek ] from Axis Capital Limited. Thank you, and over to you, sir.

Hello. Yes. Thank you, [ Faizan ], and good day, everyone. On behalf of Axis Capital, I'm pleased to host the conference call for Dilip Buildcon Limited for the third quarter FY '20. From the management, we have Mr. Devendra Jain, who is the Executive Director and CEO; Mr. Rohan Suryavanshi, Head of Strategy and Planning; Mr. Radhey Shyam Garg, the Chief Financial Officer. We also have Mr. Ronak Saraf from S-Ancial Technologies, who handles the Investor Relations for Dilip Buildcon. Over to you, gentlemen.

Thank you, [ Abhishek] . It is my great pleasure to be hosting the call for Dilip Buildcon for the quarter 3 FY '20. And I welcome all of you on behalf of the whole Dilip Buildcon team. Without further ado, I would like to just delve into the conference. What I'll do is, first, I will list out some of the key developments that have happened in the industry what the government has announced, and then we will go through the presentation. We'll have a quick rundown of the presentation after that. So let me first start with the key highlights that the government has announced. So firstly, the biggest announcement has come in the form of national infrastructure pipeline. This is a massive infrastructure boost that has been announced by the Finance Minister, Mrs. Sitharaman. Now what the government has done has -- is that they have identified INR 102 lakh crore worth of project. And in the next few weeks, they anticipate a few more, INR 3 lakh crores worth of projects will be added later. Now this is a significant commitment, and this is in continuum with what the government has been saying for a while, of what the PM has said and what the FM has said in the past as well. What the government has also done right now is, it's intended to launch the NIP coordination mechanism, which will consist of the centers and the states. This will help in better coordination of all the projects. In the last 6 years, both the center and state together have spent about INR 51 lakh crore. And now they're saying, in the next 5 years or so they will spend another INR 100 lakh crore. Now in the NIP mechanism, as of now, the center shares 39%, state shares 39% and the private sector's share is expected to be about 22%, but this is expected to rise up to 30% by 2025. Out of the INR 105 lakh crore projects, the government has identified INR 42.7 lakh crore worth of projects are already under implementation, INR 19.2 lakh crore projects are under development, where the BPR is ready, but construction is yet to start. And the rest, INR 32.7 lakh crore are under conceptualization stage. So what it means is 63% of the total infra projects are already firmed up. And it's firmed up in areas in power, rail, renewables, urban irrigation, water, road, where road is almost 20% of the total spend. Now they're also saying they'll be spending about INR 2.5 lakh crore for ports and airport projects, INR 3.2 lakh crore for digital infra projects, INR 16 lakh crore for irrigation, rural and agri food processing projects have also been identified. So this is the rough breakup. Now in the budget, what the government has said is, they want to develop 2,500 kilometers of access-control highways, 9,000 kilometers of economic corridors, 2,000 kilometers of coastal and land port roads and 2,000 kilometers of strategic highways under NIP. They've spoken about the Delhi-Mumbai Expressway and 2 other packages that would be completed by 2023. The Chennai-Bengaluru Expressway would also be started. They've also firmed up a plan to monetize at least 12 lots of highway bundles of over 6,000 kilometers over 2024. This would be a welcome news to the whole sector and to foreign investors and domestic investors, who're looking at this as a potential investment opportunity. 148-kilometer long Bengaluru suburban transport project at a cost of INR 18,600 crores and which would have fares on Metro model has also been identified. Central government would provide about 20% equity and facilitate external assistance up to 60% of the project cost. They've also spoken about 100 more airports that they want to develop by 2024 to support the UDAN scheme. It is expected that the air fleet number shall go up from the present 600 to 1,200 during this time. They've also said that they want to provide about INR 1.70 lakh crore for transport infrastructure in 2021. And finally a big announcement was the 100% tax exemption for foreign sovereign wealth funds on interest, dividend or capital gains on investment made in priority sectors, which includes infrastructure by March 2024. So it will lead to more investment in the sector and more monetization of assets. So these are the key points what the government has spoken about, which should provide comfort and a way forward for both developers and investors in the sector. What I'll do now is, I'll run through the presentation and start from Page #4 to talk about the key highlights. So most importantly, in this 9 months, we have won orders worth INR 61,707 million, and this has been across different sectors. Most important, the diversification that we spoke about, we have significantly diversified our order book. And most of the orders that we have won has been outside of road sector. And if you look at the total order book, the build from 2 years ago to now, from 87% -- 85% roads, now we have come to almost 64% roads and rest is from other sectors. So the diversification that we have started, it is going very well. We have also won very recently a project worth INR 8,605 million. It's a HAM project in the state of Chhattisgarh. The biggest happiness for us is that we have completed a record number of 10 projects with a value of INR 68,636 million during the financial year, which is across 5 states, and these projects have been completed before time or on time. And we have successfully won bonuses across the project; the details of which are there. It is also my great pleasure to tell that we've also won the Silver Award for excellence in project management for the Nalagampalli to Andhra Pradesh/Karnataka border project in the National Highways Excellence Awards 2019 by MoRTH. This is the second year that we won this award, and this is the highest category -- highest award in this category. So the company continues to excel on its execution capabilities and won accolades for it. We've also won the prestigious Dun & Bradstreet Award for Construction - Infrastructure Development. So another milestone that we feel very happy about. Along with this, I think what's very important to point out is what we started during the year and what personally I feel very happy to know that our debt-to-equity ratio, we brought down to 0.87. As we had indicated, the trajectory that we'll go through, and this will come down further in the next quarter. More than that, we have reduced and brought our net debt down by almost INR 340 crores from March to right now, in these 9 months as a target that we had given to everyone, so we are very proud about the debt that we've brought down. Also very important to note that the company has made a cash profit after working capital changes of INR 12,922 million. And the cash generated in the first 9 months has been INR 1,523 million. So the cash generation has been very strong, and that is the key focus area for the company and that has been demonstrated. So now let me just go through the results summary. Revenue has been flat from last year. EBITDA also has been in the same range as the revenue and the PAT that we see has come down. Now let me address all 3 points. The revenue has been flat because: a, number one, we had delay in appointment dates earlier; and then what has happened is because of the extended rainy season, we've not been able to do the kind of work that we thought we'd be able to complete. Unfortunately, rainfalls continued till mid of November, which caused -- which hampered project progress and revenue hence. Now while EBITDA was in line, the PAT came down. Now this is all in account of increase in depreciation, finance costs and tax expense. The increase in depreciation is mainly due to the introduction of AS-116, where fixed assets of INR 642 million have been capitalized in the books, an impact of about INR 101 million is there. The full impact of depreciation of the assets capitalized basically has caused this increase in depreciation. And the finance cost has increased mainly due to increase in interest on mobilization advances and increase in BG commission. As more and more projects have come online, the mobilization advances and that interest is where we'd have mainly increased that cost. And the tax expense have increased because the ATI deduction -- AIA deduction that the company earlier had, has gone away and very few projects under that. So now we are under full tax regime, which is why we see that. If I go to the next slide, Slide #6. Similar revenue and EBITDA and tax. Same reasons, as I explained earlier. Slide 7 is a detailed breakup of the results for the quarter and the 9 months. If I talk about Slide 8. Again, continuing the stand-alone profit and loss for quarter 3 FY '20. Then the Slide 9 is, basically, 9 months results -- the details of it. If I come to Slide 10, the stand-alone balance sheet. Snapshot of it. The investments have increased in this quarter from last quarter because of investment in HAM projects. The inventory has come down a little bit. We talk about -- there has been increase in Trade receivables a slight bit because of work that is increasing. There is a decrease in debtors on account of better collection. More details -- if anybody has any questions, you can ask those later. Similarly, stand-alone balance sheet snapshot on Page 11 as well. 12 and 13 is a stand-alone cash flow. We've given all the details and the breakup of how that's been. Like I said, the most important point is that, in the 9 months, we have generated free cash flow of INR 1,523 million. If we come to Slide 14. Snapshot of the working capital. It's in the similar line as earlier, and we expect this to come down a little bit as the -- in the -- as the financial year ends. So we'll see that. Slide 15, as usual, as we always give, it's a quarterly net working capital days, how it panned out, how it's been looking. Slide 16 is a net debt trend for the last 3 years from March to December quarter. See, most important, if you look at the last 2 financial years, the net debt had been going up. Now this time, like I pointed out, we've reduced the net debt by almost INR 340 crores, and the trend that we expect to continue. Slide 17, the net debt-to-equity ratio, on an annual basis, we're already at 0.87. We expect it to go down further as we had indicated earlier. Slide 18 is a breakup of the debt. Net debt-to-equity ratio on equipment and working capital. Slide 19 is net debt-to-equity ratio on a quarterly basis, how it's been coming down. Slide 20 is the explanation of the income tax, as we've explained earlier in the past as well. So just refreshing of that. Then we have the consolidated profit and loss for the quarter 3 and 9 months. So one thing to point out, given the fact that we are in the process of hiring off our assets, and we've already sold some to Shrem. And now the second bunch of them, also we've identified a seller and we sold to Cube. So this is just as a mandate, but this would not be the right way to look at the company because the stand-alone is what would give the -- paint the true picture. Going forward, Slide 26 gives a snapshot of the order book. Currently, we have about INR 21,000 crores plus of orders as of December '19. And as per our guidance, what we'd spoken about in the -- at the start of the year that we will want to win about INR 8,000 to INR 12,000 crores of new orders in this year, we have already won about INR 7,000 crores of orders. We are very confident of meeting our guidance or maybe we -- probably we might end up exceeding it, but very confident because the order pipeline is very strong. Slide 27, the diversification. How the road -- how our order book has looked over the years. So from an 87% road business at the end of March 2018 to right now, it's come down to 63%. Next slide is sector-wise breakup of the order book. 29 is client-wise breakup of the order book. Majority orders, like we've always focused, is from the central government. Now geography-wise breakup of the order book is the next slide. Quick snapshot after that on Slide 31 on the projects won in the first 9 months. All different sectors. Slide 32. Like I mentioned earlier as well, the project that we have completed in FY '20 and till now, 10 projects. So many -- company has till now, through its history, completed almost 15,000 kilometers of roads. And currently, it is executing another 15,000 kilometers of roads. So that execution phase has continued. Slide 33, the deal with Cube highways that the company stuck in explanation of that there's a slide on it. Slide 34 is monetization of the road assets with the Shrem Group, the deal with them and how it's panning out. So till now we have already received INR 1,371 crores from Shrem. The deal is almost complete, and this is -- there are 2 projects which are still under construction, which is detailed on Page 35. So they're also at the final stage, and we should be able to finish them in this quarter. Slide 36 is a progress of all the new hybrid road projects. As you can see the pace is -- progress is going well as construction has started because of all the mobilization and all the preparation work that we had done in anticipation of the appointed dates. A snapshot of the equity commitment that we need for the HAM projects are in Page 37, as we have indicated in the past. 38, 39 are now and 40 are all the key outstanding projects that we have, anybody wants to look at that. So that is basically quick review of the whole presentation. I now open the floor for question and answers. Thank you.

[Operator Instructions] The first question is from the line of Shravan Shah of Dolat Capital.

Sir, firstly, now looking at the 9-month number, in terms of the full year revenue, are we able to do the INR 10,000 crores revenue that we guided. So for that, we need INR 3,500 crores plus revenue in the fourth quarter. So are we comfortable? Or maybe we can see maybe INR 300 crores, INR 500 crores lower revenue in the fourth quarter?

Shravan, thank you for your question. I think it -- as a prudent strategy, we would like to have a guidance of about INR 9,500 crores plus rather than the earlier indicated, just because of these external factors that we've spoken about. So I think that would be prudent for us. So you're right. We should -- we would like to state that as INR 9,500 crores plus.

Okay. And secondly, will you be able to say anything in terms of the FY '21 guidance or now post the fourth quarter we will be able to inform?

We will give that post -- on the fourth quarter call, Shravan.

Okay. And sir...

It will depend because all projects are now online, unlike this year where we were struggling to get appointed dates and then after that monsoons also were not in our favor. So now because all appointed dates are in hand, we expect no challenge to revenue. Like, this year also the revenue has been impacted because of these external factors that I mentioned, the delayed opportunity dates and the extended monsoon. Along with that, we [indiscernible] also that contributed to delays further.

Sure. And in terms of the, sir, inflow, I think last time we said INR 12,000, INR 13,000 crore, and in your opening remarks you said INR 8,000, INR 10,000 crore, or maybe you can exceed? And so just if you can once again help me that how much more we're expecting? And how much more are we comfortable in terms of the HAM for this -- considering the fact, definitely, we are maybe discussing with the investor in terms of the remaining 7 HAM projects for monetization. So if you can also help me what would be the deadline maybe in the next 6 months? Can we expect the monetization deal to be announced? Or also if that is not happening, then how much more HAM we can expect?

Sir, so I'll quickly answer all your questions. Number one, I had always indicated, at the start also from INR 8,000 to INR 12,000 crores of order when we had always indicated that number. So even right now, I said the same number. There is no change in that. But now for the remaining year, what is left, we expect at least INR 5,000 crores to INR 7,000 crores of new orders that we will win. So we will probably exceed the upper end of the guidance that we had given earlier at the start of the year because the pipeline looks pretty strong. Talking -- so when April, May, we're expecting at least INR 23,000 crores to INR 25,000 crores of order book, balance new order book, that we will have in hand, I mean if I do the math on that. Secondly, you spoke about the monetization of the assets, the HAM assets. We are also I mean that -- those discussions are very -- at a very high paces. We expected that we would be able to do it in this financial year, but now I think because we are almost at this point, prudent call would be maybe by quarter 1, we would be able to close that deal, if not in this quarter. So from that also that deal is well on track. The only thing is because there seems to be a good traction on that, we are okay with our strategy that we mentioned that we'll continue monetizing our projects and continue bidding for new HAM projects because of that. So that seems to be going in line with how we expected it.

Okay. Lastly, sir, in terms of the working capital days, definitely not much increase, but debtor days slightly has increased. So will it come to the normal level by March end?

Yes. Yes, it will come to the level of -- around in the -- it will be in the range of 100 days, 100 and 105 days in between this range. That is the normal range of the debtors. If you see, that is all normal range, 100 days.

Okay. And sir, one number that maybe you can answer during the call anytime when you have the number. I just need the number in terms of the 24 projects that we sold to the Shrem. How much in terms of the balance sheet, how much number is there in whatever equity, loans, investment, in any form? How much is there in asset side and the liability side as on today? And how do we see, as on March, that number for the Shrem part? So whatever the money we have given that this much money has come, but because of the rule in terms of on-paper transfer to the Shrem. What is left as on today in asset side and the liability side, in any form, investment, loans, whatever? So if that number is ready, you can give or maybe during the call, you can give?

Yes, yes. It is with me. It is INR 385 crores it is in advanced received against sale of equity in noncurrent liability. INR 387 crores we have passed the entry for the share transfer. INR 450 crores we have made the payment through the unsecured loan of FTVs. And INR 117 crores it is shown as a liability in respect of noncurrent assets classified as held for sale. And there is INR 32 crores direct investment in DBL Tuljapur Ausa by Shrem.

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

Sir, firstly, what is the status of Cube Highways deal? When we're supposed to be close? And when do we expect the money to come in?

So like, with respect to Cube Highways, we have stated earlier also like, the deal is subject to certain conditions. And we are in the process because all the projects, as you know, once the appointed date is received, then only the progress starts. So typically, the conditions which we were there is like, actually, like, receiving 90% ROW in each of the projects, achievement of 50% of the physical progress. And other parameters include, like, the quality certification from the [ PMC ] team of Cube. So all these things are in progress. We are yet to hit the milestone, which would trigger the investment from Cube. So that is likely to happen in Q1 of this financial year. So post that only the initial part of money, which is available during the construction period, it would start coming.

Okay. Sir, secondly, on this -- you mentioned that order pipeline is very strong. Is it possible to share which segment, the -- apart from the road, you see the order basket, which is pretty strong. And if I'm not wrong, NHAI order basket is around INR 1 lakh crores, am I right?

Sorry, sir, I couldn't get the last part. What INR 1 lakh crores?

The NHAI basket is around INR 1 lakh crores, right? Apart from that, NHAI, which are the -- which are the segments you are targeting? And where we see the order panning out?

So right now, the total orders that we see is about INR 80,000 crores, which is EPC and HAM put together, the pipeline that we can see that's floated by the NHAI. Hence we are confident of meeting our guidance. The 2 areas where we are focusing on right now for the remaining orders is roads and mining.

Mining, sir, is it possible to share the opportunity, same basket?

I told you INR 80,000 -- in mining or roads, which one are you asking?

Mining, mining, sir.

These are all MDOs and all that we keep bidding for the national government.

Understood, sir. Last year, sir, what is -- how much mobilization advance you have taken during the quarter? And what are the fund and nonfund base limits as it stands today for us?

Mobilization advances during the quarter, we have received INR 375 crores.

Okay, sir. So what was the fund and nonfund base limit, sir, which we have?

Yes, just a minute. So in totality, like, our banking limits are at INR 9,200 crores.

[Operator Instructions] The next question is from the line of [ Ajit Singh ], he is an individual investor.

I just want to know about the Delhi Metro project. What happened to it? Media report was, it got canceled. If it was canceled, then why it is not notified to exchanges?

[Foreign Language]

So why it has not got notified to exchanges? And that is why I think the whole issue of DBL is that -- people say that this is like management or integrity issue? Or what happened? Or maybe there is someone required who need to notify it to exchanges. Because there was a media report and investor was not aware that what actually happened.

It is completely our mistake if that has slipped. But however, if you look at it, we announced the L1, and after that, the management only takes any order into account when there is -- when we give out the -- LOI has been received and only after that. So if you look at our order book, it is not part of our order book at no part of it...

I got it, but there was no clarification on the -- your side or -- because you come in -- I saw all your interviews, there was no...

Yes, understand, sir. But like I said, I'm -- if it hasn't been notified.

[Foreign Language]

[Foreign Language] This is a deviation of SEBI guidelines.

[Foreign Language] They called us for the negotiation.

[Foreign Language]

Tweet is not an authentic document. Still, we don't have any [Foreign Language] from the DMRC [Foreign Language] still we don't have. [Foreign Language] Tweet is not an authentic document.

No. So -- but then, why there is nothing on -- between you and them. If you are saying they already are going for rebidding, then why there is nothing else, like, from your side to initiate the legal action or some communication to them. How can they will go and rebid -- started rebidding without notifying you guys?

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language]

[Foreign Language] But from your team no one came to clarify it.

[Foreign Language]

[Foreign Language] Otherwise, this is a deviation of SEBI rule itself that you have to clarify if there is something. If this happens if you saw in the website that they have reorder for a tender...

[Foreign Language]

[Foreign Language] While I think this is [Foreign Language] with the exception of L&T. [Foreign Language] So anyway, I think there's a difference of opinion, and everybody has a right to opinion. [Foreign Language]

[Foreign Language]

Then we will appreciate that. So we will take care of it in the future. Thank you very much, sir.

One more question I have about the guidance. So like the last time...

Mr. Ajit, sorry to interrupt you. This is the operator. May we request that you return to the question queue for follow-up questions. We have many participants waiting in the queue. The next question is from the line of Parikshit Kandpal from HDFC Securities.

Congratulations on good set of numbers. Sir, [Foreign Language], was there any bonus component this quarter?

Yes, we have INR 133 crores bonus from Tuljapur Ausa and Wardha Butibori.

And that has been recorded in the revenues, right?

Yes, yes, it has been recorded.

Okay. And revenue -- and what will be the -- so EBITDA, how much will be that? Then, like, in revenue INR 33 crores and EBITDA will be, like, 80% of that?

No, no, EBITDA will full 33%. Bonus income, there is no expenditure against the bonus income. It will be full only.

Okay, both 33%, 33%. And for 9 months, sir, what will be the bonus component for the 9 months?

It is in the -- INR 124 crores.

Okay, INR 124 crores for the 9 months. Okay. Sir, just on the CapEx for this year, I think you have already incurred around INR 200 crores Capex. So what is the guidance for the rest of the year?

Rest of the year, it will be in the range of around the INR 30 crores, INR 35 crores.

Okay. And sir, next year, if you can...

One more thing to clear, this INR 200 crores, what we have incurred first 9 months, it was around INR 120, INR 130 crores was the -- from the opening capital advances we have given in the financial year till '19. So in this year, we have incurred only less than INR 100 crores -- we are going to incur -- less than INR 100 crores in this financial year.

And the revenues [Foreign Language] this year, we will take another like -- for this fourth quarter, we will take another INR 6,000, INR 7,000 crores of orders. So for next year, what kind of CapEx number then we're looking at? Or can we manage with the current asset base the next year turnover?

If you see CapEx [Foreign Language] 100 crores to INR 150 crores for next year.

Okay. Okay. Sir, [Foreign Language], but still we are stabilizing it somewhere around that number of 100 days. So any chance -- are we engaging with rate -- credit rating agencies for a upgrade for the credit rating?

We are into discussion with the credit rating agencies. So maybe, like, they want to see the track till the Q2 of the coming financial year. So maybe after Q2, they can consider us a possible candidate for the upgrade.

Okay. And just lastly on the fund and nonfund base limits. Is there any -- versus the last quarter, has there been any upgrade in terms of limits, if you can just highlight that. So how much well equipped we are to bid for new projects? And what kind of limits, unutilized limits we have?

We have -- see, our -- like, we can share with you in terms of utilization, we are always at around 84%, 85%. And we have reasonable level of levers both that is nonfund base limits available for -- to cater to our bidding requirements. And all the projects whatever has come, whatever entices of our interest, we have bidded for those projects. Not that because of any constraint in the availability of limits, the bids have not been put forth.

Okay. Sir, has there been any increase, sir, last -- versus the last quarter, in the limits?

Limits, yes, because there has been substantial, already, we have received -- because we have not like applied for any kind of announcement. It was the last year's working capital limit only, which we have continued with. So only the churning of the guarantees are happening in terms of, like, whatever was utilized earlier, those are getting released, and will be getting reutilized.

But we are well equipped to bid for next 10 -- like INR 7,000 to INR 8,000 crores of orders if we get, the limits are in place to basically take those orders?

Yes, yes, sir, very much in place.

[Operator Instructions] The next question is from the line of Jiten Rushi from BOB Capital Markets.

Sir, just wanted to understand the execution of...

[Foreign Language]

Yes, sir. Can you hear me now?

Yes, yes.

Yes. So sir, just wanted to understand the execution phase for the Mumbai-Nagpur Expressway and the Purvanchal Expressway. Because Mumbai-Nagpur, you have seen some good execution happening in Q3. So what would be the run rate in Q4 and FY '21, for both Mumbai-Nagpur and Purvanchal?

[Foreign Language] that is on 25% ongoing project. [Foreign Language] So that project is on full swing now. [Foreign Language]

[Foreign Language]

Still that project is pending on Supreme Court level. [Foreign Language] So then immediately, we'll start the work in 1.5 months [Foreign Language]

[Foreign Language]

[Foreign Language] they are pending on the Supreme Court.

That will take some [Foreign Language]

[Foreign Language]