Engineers India Limited (ENGINERSIN) Earnings Call Transcript & Summary

It is a mix. somewhere it is project management services, some where we get those assignments as an OB under the OB somewhere on the depository mode. So it's always a -- but last couple of years, more of them are coming on the -- major ones are coming on the LSB basis on the deposit rate. There are PMC assignments also. Those are smaller in size.

The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.

Congratulations on good set of numbers. A couple of questions from my side. I want to understand the progress on the domestic order in Nigeria. If I'm not wrong, revenue recognition there is going to be on percentage of completion moderate?

It's a profit percentage, cost profits.

Okay. And since the project is like 3 to 4 years I mean revenue recognition, I mean revenue will be recognized. I mean it would be like frontloaded or backloaded. If you can give any picture on that.

It is never on the front 1 backward progress.

Basically not will be recognized based on the cost progress achieved during the quarter. FIT is 10%, then turnout will be 10% of the contract value, if cost progress 20%, turnout will be on a cumulative basis, 20% of the on. So this is the message. So how terminal will be booked within I think, 4 years.

Got it. And sir, do we see any opportunity in this deepwater drilling the project which government has recently announced?

Sir, we are not into the drilling part of it. We get involved in the offshore segment. We are involved when the oil is out in the processing of the oil. So we are not into deep drilling green water drilling and all in that segment.

Got it. And 1 last question is since currently, the order mix is more tilted towards consultancy. Do you think this is going to be -- I mean, related to the strategy of the management to keep uncertainty in the mix higher? Or it's going to be as the orders we there's no are service, whatever order income will take it.

Definitely, it is the strategy of the company to keep consultancy business -- on our side, since we are having margin -- strong margin in the consultancy segment. So management, the first arise to grab the consultancy business.

The next question is from the line of Kunal Bhatia from Dalal Brokers.

Yes, congrats on a good set of numbers. Sir, I just had 1 or 2 clarifications. Sir, in case of consultancy, you did mention that the growth targeted for the year is approximately 10-odd percentage. Sir, but however, looking at our, say, first quarter sort of a run rate we could do approximately around INR 200-odd crores on a full year basis. That, in fact, is a higher growth rate vis-a-vis what you have been talking about. So sir, just wanted to get a sense, like even if we consider INR 10,000 crore order book, which we have in case of consultancy, and we take a 20% kind of an execution in the current year out of that, we would be almost at around INR 2,000-odd crores of total top line in consultancy. So is that the right number or a directional right number to work with? Just wanted to get your thoughts on that, sir.

Yes, we have already given a target of more than 10% in the increase in the turnoff, which is in the total turnover, which sets around INR 4,200 crores and we are expecting more than 50% turnover from the consultancy segment, as I have already said, it may be around 55% also -- so definitely, our consultancy segment or not will be more than INR 2,000 crores. It will be around INR 2,300 crores and INR 2,400 crores. So you are on the right path, sir.

Okay. Okay. So meaning consultancy could have a higher growth rate?

Definitely consultancy be higher. Higher than [indiscernible].

Okay. Okay. And sir, secondly, you did talk about coal gasification as a new segment opening up. And from our previous conference call, what we understand is normally a coal gasification coal gasification kind of an order could be anywhere close to around INR 10,000 to INR 30,000 crores in terms of the overall order size out of that, EIL could get what percentage for our consultancy turnkey or any other order?

It is like this. It depends on the kind of service we are going to. Many of these coal classification projects are at the feasibility stage at this point of time. Submitting the study to get the VGF funding from the government and then able towards the end of it, they will be live and they will go for the implementation -- the typical competency for us remains in the same zone on the which we get it from any hydrocarbon doesn't matter to us hydrocarbon. So we target the same kind of business from them, whether it is on the PMC or EPCM or more of execution of these projects remains the same.

Okay. So probably our average has been around 3% to 5%. So 1 could work approximately with that?

So you can get estimate from the past progress for the past just in the consultancy, it's almost.

Okay. Okay. And sir, the INR 5,000 crores revenue target FY '28, we maintain that or we would be escalating on that?

We are still maintaining that. And definitely, we will try to improve it.

Yes. Okay, okay. And sir, final question from my side. So you did give some glimpse on the areas of business, such as hydrocarbon nuclear environmental coal gasification. Sir, if ballpark as to understand what would be your pipeline in terms of the bidding you have currently in terms of an approximate ballpark number, how much would that be, sir?

So these projects are multimillion dollar, at crores are very difficult to tell, which segment, how much we are going to bid. We want to bid for everything, whatever we can. Because when you bid for 10 projects, you can get one. It all depends on the competition in segments. So if it to tell you what is the total business for which we'll be bidding.

Okay. Okay. And sir, finally, sir, in terms of competition, like for us, the competitive intensity will be quite low vis-a-vis any other industry. So with that in mind, what would be say a success ratio we could work with?

But who says the competitive intensity is less competitive and competition intensity is very high in all the segments, wherever we are working on the entertainment, which we are getting is mostly on the competitive business, including the public sector. There are there some certain are there in those segments, and we have been able to get the assignments from the competition.

The next question is from the line of Amit Anwani from PL Capital.

Sir, first question on the Aramco agreement, which you spoke about last time. Any development on that front? And second, because of the Middle East, probably we have some 12%, 15% exposure there, you were kind of cautious in last quarter in terms of guidance. And this time, you have suggested that probably the guidance can upgrade. So just wanted to understand since the waris still continuing, what is your thoughts on that as a company, are we on track? Or still there are some concerns on the execution? And second or first was on the Aramco agreement here.

On the Aramco side, we are still to get something from them. We are still in the initial stages. We have not got any major inquiry from that because I know many of the projects have been slowed there. They have been -- there is a slowdown on the new project. which they're not issuing. So if something starts, then it will come under those inquiries. And with respect to the general guidance ultimately Middle East, you have a situation which is a little bit grim, but our teams are already stationed there. Our full flesh team, which was there earlier, it's still there in Abu Dhabi. And we have little indicated that we have got the business for INR 500 crores in the first quarter itself from the Middle East side. So at the same time, there is a cautiousness, businesses, new projects are less, but still we are continuing to target the projects and have been successful in doing so.

Right. So you have highlighted the consultancy revenue contribution can be more than 50% and probably 55%, and that's the segment where we really earn very good margins. So can we assume last time you highlighted operating margin with other income, probably you can hit 18%, 19%. Can that number now since consulting is -- will be more be revised to probably 20%, 21%, including other income? What is your thought on that?

Last year, our operating margin was 16%. And definitely, we will try to hit that target in the current financial year also.

Can it be better because consultancy now you're guiding that could be...

Yes, definitely. We are finalizing some change orders with our traffic also -- if it is metalizer operating margin may be even more than the previous year.

Right. So I think you said somewhere probably 18% to 19%. So that's the guidance for the year including other income, I'm saying, yes.

This year, we are targeting the operating margin of 16%, which we have achieved the last year also. There may be a possibility if we settle the gene order with our clients, we may achieve more. But definitely, -- right now, we are seeing since it is the first quarter of the financial year, we are maintaining the figure of 16% operating comp.

Okay. And lastly, sir, on the intake, you did explain that you're still maintaining 8,000. So does that mean that the lumpy orders and you saw the execution delays of what is the YTD order if I might have missed in order inflow? And for the remaining of the year, what are the orders we are looking for conversion? Is it more exports or consultancy or turnkey, if you could highlight that?

It could be in the consultancy or we could be in the overseas, it could be more towards our consultancy and overseas. -- let's see ARPUs.

So probably the lumpy order?

We will see how it goes. The number of [indiscernible].

Right. What is the YTD order inflow?

Say during the current year also means we don't know that we have already at the INR 2,750 crores.

The next question is from the line of Suraj from Simple.

A couple of questions. See, when we talk about the new non-elective -- can you give some color in terms of what is our right to win here -- because see in oil and gas, we have a quite sizable quantum of credence and build over the years. But when it comes to the non-oli and gas coal gas application or other segments, what is the right to win you are? And what is the communication to the customers? So that is one. And what kind of -- sorry, just what kind of -- what initiatives or what steps we have been taking capabilities of skill sets and these out?

Yes. With respect to the to and we are not saying that we are leading heparin. We are going beyond hydrocarbon. Hydrocarbon is going to be is always a core. But there is always a time lag when the project is not there. we not -- we have not seen in this financial as of now, there's a mega project, which is there. We are still in initial stages and all. So you have to target other businesses outside the hydrocarbon. So that's how we are focusing on the other segments, which we have explained in the easement you already note that infrastructure is 1 of the major parts of our business today. Today, in this financial year itself, it is around 45%, which is contributing to infrastructure in such as contributing to our business in with respect to the nuclear and the other area like cold basic, we have the strengths available within the company. To hang those kind of projects, which we have people who have worked in the nuclear segment. We have people who are working the hydrocarbon. -- hydrocarbon and coal classification is not much of a difference because the using the same skill set and saying technology a little bit is different, but the skill sets are available to handle all this kind of trend. We have been involved in coal gasification for quite some time, many years in this segment. However, there was not much of a project. There are smaller projects were there. We have been doing some R&D work in-house also on this. So there's no problem of sale. We keep on upgrading the skills of our people, like we keep on sending them on the training for the relevant areas wherein they have to strengthen their skills in that new area, which we are we are also open and we are recruiting people from the -- at the mid-level also wherever it is required, the specialization is required. So that's all kind of strategies we adopt to develop the skill sets within the company.

But see, to understand outside of hydrocarbon, what kind of guardrails you have increased because you have real new segments for you and even from the customer, they will have a set of vendors coming as a good execution track record, right, which for us, we are just starting out. So in that sense, when it comes to communication or putting back value proposition to the customer, what is that based on? And internally, what kind of guardrails you have in place to make sure that you hit the internal profitability or the return targets?

Whenever you go into the new segment, you always lose your existing capabilities to emphasize all the clients. You know that we are a 60-year-old company and handled all kind of complex projects. So if you talk about the infrastructure, it's not a very complex project. We have the skill set available for project management everywhere. And we have done a lot of projects in infrastructure. So we -- nobody questions the capability of EIL in those segments. In fact, we will choose in the infrastructure, we go into the specific segments only. We don't go into the regular building substruction and any kind of road construction and all. We go into the petri like data centers. You go into the work like research and development facilities of the client. We go into the projects, which are related to the IMI construction we are building and all, are going into the -- it's some kind of conventional centers, wherein you have skill sets available and many of these projects are from the oil and gas companies also, like we have been associated with ONGC in development of the convention center. We are also engaged with NTPC for development of the township. So we are targeting the clients which are in the hydrocarbon segment only and outside segment also, who needs the infrastructure support. And they know our capabilities, so there is no de of that issue. Going into the new segments like old [indiscernible] all, we have people, we have people trained with us. And there is nobody like El in the hydrocarbon segment again was because you do high-dosage segment is much more complex than any other segment, like full gasification or maybe other segments clear, it's a new area. So we are and we are developing our skills and we're gradually entering into the area wherein primarily we focus on the balance of plant, which balance of plant is it's a noncore nuclear, which is almost similar to what we do in the hydrocarbon. So those skills are available and the client understands all the relevant client understands that they can do it, and that's how we get the [indiscernible].

Just 1 follow-up on this. See, if you look at our own journey in the fertilizer space, especially in India, just to make a very strong point in terms of building that credential, we also co-invested in the project, right? So when it comes to these new centers, especially, say, coal gasification or clean energy, be it green hydrogen or green ammonia or nuclear projects. Would we be also co-investing in those projects to build those credentials or the approach would still largely be more on the execution side and not participate financial?

It's not like that. depending on the kind of opportunity and the profitability in that segment, which is established. -- fertilizer, we have seen Plaza, we had the experience we have implemented it. In noncore, you can see that we are setting up a CVG plant. We're investing our own money to set up that plant. So those non-hydrocarbon investments we are also taking. But you know that's a public sector company, we have to take guidance and work under the guidance and kind of money available with us. Those decisions and number of proposals are always under consideration. So we'll see what fits best and whether the project is of our interest and where we can have the -- like the way we utilize our capability and fertilize and we became the partner in that if this kind of opportunity pose are open to thinking about it.

Okay. I just have 3 more questions. Can I ask?

Yes, please go ahead.

So we see in domestic market also, you have this new urea policy being rolled out by the government recently. And -- so in that sense, you have a multiple sectors outside of core hydrocarbon for you to clean. Where will the larger focus of the management like? Would it be more on consultancy? Would it be more on LSTK projects? Or -- I mean, since there's so much of -- correct me, but there's so much of inquiry or opportunities available for you, what is typically our approach because you have a steady -- only a limited base of scale manpower for you to deploy. So how are you going about with that project selection and sector selection?

We have extensive manpower available with us. Thus, we take people from outside. We have been recruiting people from outside. We take the support of the specialized agencies for the noncritical or -- so those manpower is not a deal for us. And with respect to going for the EPC or [indiscernible] choose depending on what kind of project, which -- where the risk is minimized, we try to choose that kind of segment. But you know that most of the EPC projects, we do it on Ob basis, an open book estimate basis. Our perfect choice is that and most of the contracts which have been entering into segment are -- so we chose -- if we get an opportunity on this basis, OP basis or in such an area where we have the scale and we know that we don't need any -- we have minimum dependence on other agencies, other execution agencies, then we also bid for the EPC. It's all choice depending on the type of the project, depending on the skills that's available within the company choose.

But do you think it's a problem where -- I mean, it's a good problem to have, but is it a scenario where you're seeing many inquiries or pipeline being very strong across existing core and noncore segments based on what are you seeing right now?

There are inquiries in the core and noncore in definitely. That's how we are getting the business.

Okay. So this annual flow of INR 8,000 crores kind of order book, this should be able to sustain it for the next few years?

Yes. We will, what we are working towards.

Okay. Last 2 questions. One is on the investment book. we invested in the fertilizer project and there's another investment as well. Any thoughts under the monetization because it has served as utility in terms of the credential building. Incrementally, how do you look at it?

No, it is not the per part of credential building. It is our investment also. We are getting money out of it. It's an investment to investment for us. We're getting dividends from the NRS times to come will be getting good dividends from RCL as soon as the plant has started working and process the capacity. So this is an investment is not only for the PTR. We [indiscernible] the PCR for getting into the fertilizer Liese already had the PTR earlier. And NRL, we have the extensive experience. It's all strategic investments -- so we will not -- I don't think we are at this point of thing thinking about it.

But sir, in the cash position, we would just keep on building up outside of these investments, we have a sizable surplus cash. And given the nature of the business, this will only further increase. So is there any concrete thinking around sharing this cash with shareholders?

No. Definitely, we are having cash reserves, but certain other investment plans are also under consideration with management. whenever these plans will be completed, definitely, we will let you know. As of now, there is no such plans to distribute the entire results to the [indiscernible].

Okay. Last question was on the overseas book.

We are already in good dividend to our shareholders. It is in the range of 10% recurrent fine.

No, that is really appreciative. But as I said, given the nature of the business, this will only further keep building up. So -- and as minority shareholders, we would also prefer instead of, say, investments and some of the -- we're looking for the for investment.

Definitely, we are forgoing the expectation of our minor shareholders also by way of division.

Okay. Sir, last question was on the overseas book. See, traditional in Middle East as region, we have had very little penetration, right? We have been making efforts to further penetrate and get approved with most of the noble players. Can you give some color, more elaborate color in terms of what exactly -- so what initiatives we have been taking? Where are we in that whole journey right now? And how do we see this scaling up over the next 3, 5 years?

You must have seen that in the last few years where we have grown in the international market and specifically in the Middle East, we have already declared how much business we have received from Middle East, specifically from Abu Dhabi last year, we have grown in some INR 30 crores, INR 2,000 crores 3, 4 years itself. So you can understand from the kind of business initiatives and a lot of payment agreement, which we have entered with all the clients. We are not struggling for it, but we have already signed all those agreements in mega projects, Megamedcontracts we have signed. So we are on a good path and we are on a progressive path. This Hermuz thing would not have happened, the business scenario would have been different. Everybody knows about what is happening there.

Are we now empaneled approved with all the major players?

We [indiscernible] with all the content, all the major national oil companies, we are impacted.

Okay. And then the discussion on projects, is it more based on pricing or there's a lot of hard sell, you have to do in terms of capability shortly?

No, no, no. Wait a minute. We don't have to hard sell are in talented you don't have to hard. It's a competition. Again, when you get impacted, it's a competition, there are the trend part to competition. That's true everywhere, whether it's in India or outside India. It's a competitive world.

That was the last question for today. I now hand the conference over to the management for closing remarks.

Thank you, everyone. Thank you so much for your participation, and let's hope the current financial year will be much more profitable and better than the last financial year. So we -- all our company's efforts are in that production. Jindal sir, you will take?

No. Thank you.

On behalf of DAM Capital, concludes this conference. Thank you for joining us, and you may now disconnect your lines.

Thank you.