Dilip Buildcon Limited (DBL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Dilip Buildcon Limited Q2 FY '21 Earnings 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. Jiten Rushi from Axis Capital Limited. Thank you, and over to you, sir.

Yes. Thank you, Faizan. Good evening, everyone. On behalf of Axis Capital, we welcome you into Q2 FY '21 earnings call of Dilip Buildcon. Today, from the management, we have Mr. Devendra Jain, Executive Director and CEO; Mr. Rohan Suryavanshi, Head, Strategy and Planning; and Mr. Radhey Shyam Garg, Chief Financial Officer. We also have from S-Ancial IR, Mr. Ronak Saraf. We thank the management for giving us the opportunity to host the call. We will begin with opening remarks from the management, followed by question-and-answer session. Thank you, and over to you, sir.

Thank you, Jitenji, and thank you, everyone, for joining us today. I hope all of you are keeping safe and sound in these tough and extraordinary times. So first of all, I, along with the whole DBL family, would like to welcome all our investors and partners to this conference call for the quarter and half year ending 30th September 2020. It is my great pleasure, as always, and honored to be able to host this call and update all our partners with the important milestones we have achieved this quarter and our plans for the year going forward. So the way that we structured this call is that I'll give you my opening remarks on the industry and the company. While our CFO, Mr. Garg, will then take you through the financials. We've also put up a very nice presentation, as always, and I hope you had a chance to look at it because it outlines very, very -- in great detail all the numbers and facts and figures. Now as we are all aware that the early few months of this year have been unprecedented for the entire global economy due to the COVID-19 pandemic. But even in these COVID-induced challenges and lockdown, it's heartening to see that the government of India has shown tremendous proactiveness and growth in infrastructure spend and projects awarding. The highway authorities have awarded 5,052 kilometers in the first half of this financial year compared to 2,103 kilometers in the first half of last financial year, which is a jump of 140%. Now in this awarding, NHAI has awarded 40 projects totaling 330 kilometers, with a capital cost of INR 47,289 crores in this first year -- in this first half of the current financial year compared to 828 kilometers in the first half of last financial year and 373 kilometers in the first half of financial year '19. So you can see there has been a big jump in the last -- in the last 2 years in terms of pure awarding. Now all these 40 projects awarded till September, 24 were awarded through EPC mode, and the remaining were awarded on the HAM mode. It is also very heartening to see that NHAI has set in a target of awarding 4,500 kilometers of projects for this whole financial year. Now while the awarding activity has been robust, the road construction, obviously, however, has lagged in this current financial year compared to last year, which is primarily due to the COVID-induced lockdown and the early and extended monsoon that we've seen. The highway construction of 3,951 kilometers in the first half of the fiscal was 15% lower than the 4,622 kilometers constructed in the first half of last financial year. The national highway construction in the first half of the current fiscal has fallen to its lowest in the last 3 years, but it was still a decent 22 kilometers per day compared to 25 kilometer per day of last financial year and 24 kilometer per day in the financial year '19. Also, it is important to note that in this entire financial year, most have set a construction target of 10,250 kilometers. Now while these targets are being set, the reasons which impacted the construction until now, let me elaborate on that a little bit, over the lockdown and the monsoon. So the lockdown brought all construction activities to an abrupt halt. So the construction pace in April was the lowest, but...

This is the operator. Sir, we are not able to hear you. [Technical Difficulty] Ladies and gentlemen, please hold the line. We are checking the line for the management. Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you, sir.

I apologize for the technical difficulty. So I don't know, for some reason, the call dropped. Sorry. So coming back to where we were. I was saying that the lockdown had brought all construction activities to an abrupt halt. And so obviously, construction in April -- the pace of construction in April was the lowest, but it has since then picked up. While -- as it was picking up, the companies were hit with a challenge of labor unavailability. And as that was getting a little bit sorted out, early monsoon hit us. So obviously, this year, there has been a series of challenges that companies across have faced. Now in this year, the nation also faced the situation of prolonged monsoon like last year. The monsoon for current year is the third highest in the last 30 years, which obviously made construction difficult. In this process, also 2019 and 2020 have also become 2 consecutive years of above-normal rainfall, which has happened after 60 years. The last time it happened was 1958 and '59. So obviously, with such consecutive rainfalls and excessive rain for the 2 years, we had very adverse conditions for this sector. But however, to soften all these impacts, our government came out with a host of measures. What was notable that the governments around the world unanimously agreed that the only way to recover from the damage of the COVID pandemic was to infuse liquidity into the economy. Our government has also, on its part, played on the front foot in trying to revive the economy by implementing various measures and pushing the infrastructure sector. They came up with initiatives in various forms, such as giving term loan repayment moratorium for 6 months, reducing repo rate in order to ease low-cost finance, deploying dedicated lines of COVID-19 loans, releasing retention bank guarantees and extending time for infrastructure projects, amongst other measures. Also earlier this last month, the government of India has come up with a third stimulus package. The honorable Finance Minister had announced the additional spending of INR 37,000 crores over and above INR 4.13 lakh crores CapEx plan approved by the government in the budget '20-'21. Now out of the INR 37,000 crores, INR 25,000 crores has been the amount of CapEx on roads, defense, water supply, urban development and domestically reduce capital equipment. And besides this, the central government has approved issuance of a special interest-free 50-year loan to states of INR 12,000 crores for infrastructure development. It is also very heartening to see that the government has hinted that the budget '21-'22 will be majorly focused on boosting infrastructure sector. So we can only hope, along with all the other measures that the government has taken in the past and the documents that they've brought out in terms of the national infrastructure pipeline, that the government is really focused on the infrastructure going forward. Now if I talk about our company, specifically, let me start by how the order book is looking. I'm pleased to inform all our partners that we have 1 project worth INR 1 lakh 36,083 million till date in FY '21 in various sectors, such as road, special bridges, tunnel and irrigation. We have been constantly increasing diversification over the last few years, and it is imminent from our order book, where roads used to be 90% of our order book almost 4 years back, to now it's come to 50% roads. The rest is split with irrigation, which is 20%; mining, which is 12%; special bridges, which is 9%; tunnel, 5%; airport, 2%; and metro, 1%. Now besides the order that we've already won till now, the company is targeting new orders of at least...

Ladies and gentlemen, we are checking the line for the management. Please hold. [Technical Difficulty] Ladies and gentlemen, thank you for patiently waiting. The line for the management is reconnected. Thank you, and over to you, sir.

I'm sorry, again, I don't know why we're facing technical difficulties. Sorry. Coming back to the slide presentation. Besides the order that we've already won until now, the company is targeting new orders of at least INR 30,000 million to INR 40,000 million in the remaining part of FY '21 across various sectors. And we are confident that we will have a very robust and diverse order book by the end of the financial year, which will give us great visibility until FY '24. Now moving from order book to execution this year. We are expecting to do revenues close to last year's revenues. While we had a great expectation from this year, because we had a very strong and open order book with all projects firing, unfortunately, COVID and monsoon played [ also ]. But even then, we are managing to do as much as we have done last year. It will be a good -- a huge success for us in the face of such adversity. Let me also give you some idea about how the sites are looking right now. The manpower is now back to normal, and execution pace has picked up. Barring -- as soon as monsoons ended, we are now looking at firing on all cylinders. On its part, the government is also making timely payments, which has helped us lower our working capital cycle. Finally, let me talk about our asset monetization plan. We only had 7 HAM projects left without an investor till now. But as we have told in our last call that we are in the final stages of signing with a reputed global firm. The deal is on track, and the investor has done its due diligence. We will inform you when the deal concludes. The deal will help in releasing all our investor equity. It will further strengthen our balance sheet, help us reduce debt and provide us with equity for future investments. Now on that high note, I would like to hand over the floor to our CFO, Mr. Garg, who will run you through the financials.

Thank you. Thank you, Rohan. Good evening, everyone. I welcome all our partners to our quarter call. This quarter was impacted by lockdown in some parts of the country and heavy and extended monsoon in many portions of the countryside. I've met so many challenges, as Rohan mentioned a few of them. The company has performed well, and revenue has grown on quarter-to-quarter basis. With this, let me present the results for the quarter 2 of FY '21. Our revenue increased by 6.5% in Q2 on Y-o-Y basis and also increased 2% on Q-on-Q basis. This is basically because we had a very good executable order book. This revenue growth would have been higher if there would not have been lockdown in some parts of the country and rainfall would have been lower. However, revenue has decreased by 7% in first half of the financial year, mainly due to subdued quarter 1 on account of extended closure on account of COVID. EBITDA decreased by at least about 4% in Q2, mainly due to underrecovery of our fixed overheads. EBITDA decreased 17% in the first half on account of underrecovery of fixed overheads, mainly in quarter 1, and lower revenue as against the expectation in quarter 2. Profit after tax decreased by 24% in Q2 on account of decrease in EBITDA and increase in tax. However, the good thing is that we could reduce our finance costs, which has decreased in Q2 vis-à-vis Q1 as well as Q2 of FY '20. Tax expense increased as claim for a deduction under 80-IA is no longer available to us. Profit after tax decreased by 56% on H1 due to decrease in EBITDA and increase in tax. Now let me take you through stand-alone balance sheet. Expenditure on fixed costs -- fixed assets is about INR 48 crores in Q2 and INR 142 crores in the first half of the financial year, marginal increase in inventory due to lower operation level than expected. Decrease in debtors as of 30 September 2020 vis-à-vis 30 June '20 on account of better collection, we could improve our cash flow because of this. However, debtors have increased vis-à-vis 31st March 2020 due to marginal delay in some collection in those days. Increase in loans given is mainly on account of loans to SPV, which are created for HAM projects. Decrease in current assets is mainly due to decrease in advance to suppliers and retention money. This brought me to net debt equity ratio to 0.9 in Q2 of FY '21 from 0.92 in Q1. Basically, to some extent, we could improve our working capital cycle. The decrease in noncurrent liabilities on account of decrease in noncurrent portion of mobilization advance. Increase in other financial liabilities is on account of increase in current maturity of long-term borrowings, increase in other current liabilities on account of increase in current portion of mobilization advance. Now I will take you through some other financial numbers. The cash generated from operating activities is positive at INR 281 crores in Q2 as compared to negative INR 200 crores in Q1. This is on account of better working capital cycles. Working capital days have decreased to 101 days as of 30th September 2020 from 114 days as of 30th June 2020 on account of better collection from debtors and better negotiation with our suppliers. As you know, as informed in the earlier calls also, our effective tax rate for this financial year is on full tax rate basis. The tax rate incidence in first half is 33.25%. The effective rate for 2021 will be in the range of 32% to 35%, mainly because we are not -- we are going to -- and this is under the old tax regime. Now we can open the floor for question and answer. You're all welcome -- invited to ask questions, and we are here to respond. Thank you.

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

Yes. Sir, I have 2 questions. So firstly, on the -- we have 1 very large order in the H1. Is it possible to know -- on an average, can you tell us when you expect the order execution on all this HAM portfolio and [indiscernible] and the [indiscernible], when do you expect you to start from the start? Order execution, yes?

Mohit [Foreign Language] The project has already started. [Foreign Language] that has already started on 20th September and further project [Foreign Language] expected in December in its class. One is the last phase, the [ Telangana ] and Repallewada expected in January or February. And fourth HAM is Narenpur, Purnea in March. And the last is the Dhrol-Bhadra team up in [ March ].

[Foreign Language]

[Foreign Language]

[Foreign Language] compared to, let's say, June, July and improved over last 3 to 4 months? [Foreign Language]

[Foreign Language]

Okay, sir.

The next question is from the line of Shravan Shah from Dolat Capital.

First of all, congrats on relatively much better performance. First question is, sir, Rohanji said that we are targeting another INR 3,000 crore to INR 4,000 crores of order inflow in the remaining part of this year. So is there any sense in terms of the -- now the -- in terms of the NHAI, large order has to be still awarded as per what they are guiding. So are we only looking at the road or any other sector that we are also looking, like the way we have entered into the water related. Is there -- are we expecting anything or entirely would be road? And out of that, also, are we looking only, right now, EPC or even the HAM also, as we are going to finalize the deal for the remaining 7 HAM projects?

Shravanji, we are looking in our -- all sectors. [Foreign Language]

Okay. But now, as we come closer to the finalization of the deal for the remaining HAM project, so can we take up a much higher HAM projects maybe in February, March, if that would be the normal scenario when the large order inflow for is awarded?

[Foreign Language]

Okay. Second, sir, it will be an up margin, relatively, no doubt, because of the COVID also is affecting. But relatively, margin now has came to 16%. So do these -- just wanted to understand, can we come back to the normal 17%, 18% level in the second half? Secondly, are we expecting any early completion bonus in third and fourth quarter?

So I feel the guidance [Foreign Language] to the political challenges [Foreign Language] Yes, we believe -- we think the -- that should not be a problem. But I think it would be early to secure [Foreign Language] And in terms of bonus, in next quarter [Foreign Language] As it comes, you will get to know, but there are some projects that we're expecting to finish in quarter 3 and quarter 4.

Okay. And on the CapEx front, I think, in the first half, we have already done close to INR 142 crores. I think we were previously saying that it depends on the order inflow. We were looking at only INR 100 crores. So now in the second half, how much more are we looking [ that you think ] maybe possible in the next year? Now, already, we know this much order inflow we have already won. So next year, broader, any idea in terms of the CapEx?

[Foreign Language] but we still -- we are on the same guidance. Not more than that.

Okay. And broadly, in terms of the working capital and days, our thought is to keep on reducing. So are we on that track in terms of the working capital, whatever days, 101 days, are there? Can we see the buyer and also in the similar working capital days?

Shravanji, our efforts are driven down to the close to 90 days at the end of the year. And this is the -- I think we will achieve this.

So then in terms of that debt level also, we can see a further reduction from this level also?

Yes. We are trying our level best to, again, bring it to the market [ tenure ].

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

Devendraji, congratulations on a good set of numbers. Well, my question, sir, can we [indiscernible] of the [ tiles ] project. So we have not completed, but I think you were projecting about INR [ 460 ] crores in FY '22. And about 2 years after that, about INR [ 240 ] crores. So if you think, roughly, that's [indiscernible]. So close to INR 680 crores or 700-odd crores [indiscernible]. But as you said you're able to meet your new-financed projects and -- plus your pending requirement of the existing HAM projects. So then the next set of 7 projects, roughly, about INR 1,000 crores of equity. So what are the time lines when you are expecting this money from this [ fund ] to come in? The next 7 HAM assets, I mean, [Foreign Language] And what will you intend to do with that fund? Because that's going to give you a significant leverage to reduce your debt.

Yes. Parikshit, like the 7 projects for which we are into the discussion with the investors. So as you rightly said, the deal will be getting closed. But again, the consideration will be linked to the PAT of each of the projects. And the projects are at various stages because the appointed rates for each of the projects were received and in time. So as and when the PATs are taking place, so typically, the consideration, if I would like to share with you, it will be staggered on a year-on-year basis till FY '24, okay, '24 and '25. So on an average, you can assume the number could be approximately INR 500 crores to INR 600 crores. So that could be realized on a year-on-year basis against the sale of assets.

[Foreign Language] So roughly, even if I assume as of now, just very conservatively onetime, so 700-plus thousand, so roughly about INR 700 crores, INR 800 crores will come over until FY '24, not from FY '22 onwards till FY '24 [Foreign Language]

Yes, yes. That's what I said.

Okay. And that should -- and then, it will mean a lot of significant pressure on your debt levels, and despite your new orders and working capital investments in that. So that should provide growth capital [ carry ] without putting too much stuff on the balance sheet, right?

Yes, yes. So that is the reason why we are not seeking any kind of [ announcements ] also in our working capital debt. So for the last 2 years, we have not asked any kind of announcement in the fund, if you look also.

And on the debt guidance, again, [Foreign Language] for year-end and for the year after that. So how do you look at the big debt levels? Or is it already you're at peak levels? Or -- I'm talking about absolute debt?

So it is already at the peak level. So now like, as Devendra also had mentioned, the debt level will come down. And we are targeting by the end of this financial year, we'll be at par with what we had at 31st March 2020.

[Foreign Language]

This year, this was an exception because there was unprecedented challenge because of COVID for so to resort to some of this COVID-19 in emergency line of credit. So because of this, this was the interim increase. But that debt, as you know, we, again, this will be getting repaid over 18 months of time. And we do not envisage any additional borrowing. And similarly, as I told you, the fund-based limits also. So those are adequate enough with the company. So I think with the consideration money also flowing in, in the next 3 to 4 years, the plan that we have. So that will definitely help the company to rationalize and basically trim down the debt level.

[Foreign Language] 10%, 15% rate of growth. So what kind of debt levels -- I mean can we look at -- I mean it will be closer to 2,000, less than 3,000? Or is that range only 2,500, 2,600?

So if you look at the near future to March '21, we will be at the March '20 level, and then we will bring it downwards. If it would not have been the exceptional year, the reduction would not have happened in this year itself. So we are exerting all our best to reduce the debt level in the absolute term as well as in the ratio -- from the equity ratio. So just let see. We are here trying our best.

Okay. Just on dividend...

Parikshit, this is a very challenging year. [Foreign Language] Definitely, priority is to reduce the debt. But at this point in time, it is difficult to say, but definitely, all our efforts are in reducing.

The only thing is, sir, I mean, talking to Devendraji also that some of the competitors, I mean, though we have been very good in execution, we have been doing projects in 1 year, 1.5 years ahead of schedule. But somehow, you're not getting it captured in the balance sheet in terms of cash flows and reduction in debt. While some of our competitors are maybe at slightly lower margin, but at very much better place in terms of debt. I mean they are doing almost at 1/3 or 1/4 level of debt, and they are delivering similar kind or a better ROE with that kind of order book. So my question was only that we are building up the order book, we'll have to invest in working capital, and we are also monetizing on the equity side. So that should -- the only thing which looks now and that the missing piece is that with these cash flows coming, INR 600 crores every year for next year, that should come down substantially. So this is what I was coming because now we are taking more of EPC also. So HAM, we have like a largest thing we have limited with the new HAM projects in this year. And we have added on new EPC projects. So I think it is like that your intent is also to reduce the debt. So I was just trying to cross-check or question you on that one.

Yes. So Parikshit, to answer your question in a [ civilized ] manner, okay, we have started reducing debt from the March '19 to March '20, and we have achieved that target also. And again, we are targeting at the same level and then we further reduce our debt. Now question to -- answer to your question on the ROE, actually, our competitors are using the different business models and we are focusing on a different model. And even the last 4, 5 years, we were growing at more than 25% CAGR. So, so far that level, we were requiring the debt now, but we are -- we are coming at a normal growth level. So now there will be, of course, there will be a reduction in the debt level. So your concern will be met -- we will [indiscernible] on that one. But our ROE numbers also will increase in the fee.

And just lastly, sir, if I may to Devendraji. Sir, you have taken some really big-ticket projects and against some of the very light, very, very big competitor. And there has been concerns that whether you have diluted our margins. So just wanted your view and comfort on these like -- except for the projects, which you have taken. So what do you think the margin levels have been? Have you guys diluted our margin threshold in this new order win?

[Foreign Language]

Okay. [Foreign Language] margin is in line with our [indiscernible] margin, correct?

Yes, sir. Absolutely. Yes.

The next question is from the line of Rohit Natarajan from Antique Stock Broking.

Sir, may I question the strategic level [ Karachi ] The account differ like a road, cut your exposure, that has come down in the order backlog from 87% to almost like 50% over the last 2 years. Will this ratio be at this level? Or could it go even further? And second question, I like to this more on your interest in commercial coal mining. If you could elaborate on what exactly the strategy is, how you want to take that particular space ahead?

[Foreign Language]