GPT Infraprojects Limited (533761) Earnings Call Transcript & Summary

Thank you. Good morning, everyone, and a warm welcome to GPT Infraprojects earnings conference call for the quarter and year ended March 31, 2020. I have with me on call Stellar IR Advisors, our Investor Relations Advisors. I hope you all have received the updated investor presentation that we have also uploaded on our website for your reference. In these challenging times, I hope that everyone on the call and their families are safe. We would like to take this opportunity to thank all the corona warriors who are the new heroes of our society and the country at large and who are fighting the coronavirus at the forefront to ensure the safety of the citizens as well as the members of our company that are continuing to work with strict safety measures. We deeply regret the loss of life due to COVID-19 pandemic and are deeply grateful and have immense respect for every person who have risked their life and safety to fight this pandemic. As you are aware, the states of West Bengal and Orissa were impacted severely by the Cyclone Amphan in the last week of May, and with the necessary precautions, all our project locations and factories and our team members are safe and no damage has been reported. Let me start the call by sharing with you some of the key business and financial highlights of the year gone by, coupled with a brief outline of the steps taken by the company to ensure continuity of operations during this challenging period, led by COVID-19 and an outlook on the business. Some of the key highlights of the fiscal 2020 for the company have been increased traction in execution, mainly on the Infrastructure segment, steady profit margins on back of a disciplined bidding process, coupled with cost optimization measures, debt reduction and improvement -- improved generation of cash from operations. Further, we have revenue visibility on the back of a healthy order book of approximately INR 1,500 crores, which is almost 2.5x our FY '20 revenues. And additionally, we stand L1 in orders worth approximately INR 200 crores. In keeping with our practice of rewarding shareholders, the Board has recommended a dividend of INR 1.5 per share, which is 15% of the face value of the share. This is also in line with the company's dividend policy. Let me begin with the key details on each of the above points. On the operations front, despite the COVID-19-led disruption in the last fortnight of financial year 2020, the consolidated revenue from operations for FY '20 grew by 7% year-on-year to INR 618 crores and by 8.3% year-on-year in Q4 FY '20 to INR 187.3 crores. This performance was led by a strong growth of almost 18.2% in the Infrastructure segment in FY '20, the fourth quarter also posting a healthy 15.7% year-on-year growth despite the last fortnight being lost due to the pandemic. The Infrastructure segment formed almost 85% of our total revenues. We continue to build competencies in the Infrastructure segment with our INR 375 crores order from RVNL going on smoothly with a current quarterly run rate of approximately INR 30 crores, as closure is expected over the next 20 months. This would enable us to bid for single orders of INR 1,000 crores, underscoring our execution capabilities in the Infrastructure segment. Further underscoring our execution capabilities, the company has been able to bag an order of INR 115 crores in April 2020 even amidst the lockdown. This order has been awarded by National Highways and Infrastructure Development Corporation for widening of a section of National Highway 102B in the state of Manipur on EPC mode. We are confident that the Infrastructure segment will continue to grow over the coming quarters. On the Sleeper segment, the lockdown in March 2020 has led to a slight dip in the revenue for the last quarter, and the African business has also been weak in the last year. Consequently, the Concrete Sleeper division revenue for Q4 FY '20 and full year FY '20 was lower than the previous quarters. Further, COVID-19-related disruptions have meant that our African facilities as well as our Indian facilities have been operating at lower utilization levels in the first quarter of the current fiscal. The Namibian associate has signed the agreement for extension of the contract with a local buyer. We expect utilization of all our Indian facilities in the next few months to pick up. Our manufacturing facilities in South Africa have also resumed operations in the second week of May 2020, in line with the relaxation of lockdown in the country, while our manufacturing facility in Namibia is yet to assume operations as the province is still not allowing commencement of production and we expect the same to start by the end of -- by the beginning of July 2020. On our margins and profitability, for the full year, our EBITDA posted a 7.7% increase over the previous year to INR 83.8 crores, while posting a margin of 13.5% as compared to 13.1% in FY '19. Consequently, our PAT posted a strong 27.6% growth from INR 11.8 crores last year to INR 15 crores for FY '20. We attribute this steady performance to our bidding discipline of ensuring that our hurdle rate of 13% to 14% is the primary factor in bidding for new projects. Our cost optimization measures are also bearing fruit. For Q4 FY '20, however, the EBITDA margin was impacted primarily due to an onetime expense on account of noncash mark-to-market loss in the South African business due to sharp fluctuations in the foreign exchange rates caused by the downgrade of the sovereign rating of South African bonds by the rating agencies. In local currency terms, our EBITDA in South Africa was positive without considering the mark-to-market loss. In terms of our leverage and liquidity position, as we've mentioned earlier, we have been trying to optimize our working capital in addition to bearing some of our debts. During this year, we have managed an overall reduction of approximately INR 20 crores on both long-term and short-term debt combined. This, coupled with improved profitability, has helped us to increase our cash flow generations. In addition, we have also been able to recover lot of the old outstandings, which were earlier qualified by the auditors, and the amount of qualification has reduced by almost INR 24 crores. Further to strengthen the company's liquidity position during these challenging times, we are actively engaged with our working capital bankers to avail the special liquidity scheme announced by the government of India. We have also applied for the release of proportionate performance guarantees from various clients in partly completed projects as allowed by the Ministry of Finance, which will result in a significant release of our nonfunded limits and thereby, provide liquidity in terms of margin money for these bank guarantees. We do not foresee any challenges in meeting our debt obligations or liquidity for the business in the near and long term. Let me now give you a brief synopsis of how we are operating with the COVID-19-related restrictions. The lockdown, as you all are aware, has been effective from March 24, 2020, and it halted most of the construction activities in the country. And accordingly, our company's operations at all locations were impacted. However, since lockdown 2, that is end of April 2020, when lockdown conditions began relaxing, we have commenced the construction activities gradually at all our project locations wherever the local authorities have permitted resumption of the same with reduced manpower, while ensuring that all the requisite safety measures are being adhered to. As of May 31, 2020, activity in most of our sites have recommenced with up to approximately 60% of our normal monthly run rate in the Infrastructure segment. As mentioned earlier, operations in South Africa have resumed in the second week of May 2020, while Namibia is expected to start in early June. A major concern that has been discussed in the media and society, in general, is labor for the infrastructure companies. As you are aware, the labor for most of our sites are sourced from other states, and we expect some disruptions to the operations on account of their return to their native villages once the transport restrictions have been eased. However, we don't anticipate a major impact on the operations as we are approaching monsoon season wherein construction activities generally become lean. Our corporate office is operating with reduced manpower since [ 15th ] May 2020. The ERP system, which is SAP, implemented by our company, enables our employees to operate remotely from their home and also from the project sites and manufacturing locations, thus ensuring internal control of the management on the operations of the company while ensuring safety of the team members. In terms of our time and cost escalation on ongoing projects and manufacturing activities, the clients in all the contracts have given time extension for up to 6 months with price escalation as allowed by the circular of Ministry of Finance through the invocation of the force majeure conditions. Going forward, with our strong project execution capabilities, a healthy financial base and enviable growth prospects across our areas of operation, we believe that GPT Infraprojects is well positioned to continue its growth trajectory. That is all from my side. I will now request the moderator to open the call for question and answers. Thank you.

[Operator Instructions] The first question is from the line of Niraj Shah from Prabhudas Lilladher.

I hope I'm audible now?

Yes. You're audible.

Yes. To begin with, sir, how has been the scenario post lifting up of lockdown partially? I know you had highlighted part of it in your opening remarks. In terms of labor availability, what was the labor count before pre-COVID and what we are now? And how reinforcements have been adding in the month of June? So the clarity on that would be something which is very helpful. That is my first question, sir.

Yes. I think -- as I said, everyone at -- every other team member of GPT is safe, and we have ensured that our SOPs are in place so that they are working in a safer environment. In terms of your question with respect to labors, so we are -- like I said in my opening remarks, we are operating at almost 60% to 70% of the workforce strength currently. So we are -- June, we have seen some labors return to their native places once the transport restrictions have been eased. And -- however, new labors are also coming back. So that gives us comfort that the labors are -- will come back. And we've also taken the medical insurance for the workers, which is giving them comfort.

Fair enough, sir. In terms of ordering pipeline, when you look at from railways, what do you feel going forward? What will be the order pipeline in terms of new orders which can come in? And what can be our market share in that? I mean what can be the big pipeline as far as what we are looking at?

So like I said, we are L1 in INR 200 crores worth of orders. And we are constantly bidding for new orders -- for new projects. We are -- as we speak, we are also bidding for 1 large project in Uttar Pradesh. So our ticket size of contracts is around INR 150 crores plus right now. So we feel that there is a healthy demand for these kind of contracts. And now with the new policy, wherein global tenders are no longer allowed for contracts up to INR 200 crores, the competition would tend to be slightly less.

Just to take it forward. In terms of competition, you will be competing at this sub INR 200 crores range?

We don't do only sub INR 200 crores, we do INR 150 crore plus. So like I said, we are also doing a contract of INR 375 crores. We have multiple -- we have 2 or 3 contracts of INR 250 crores plus. It depends on the region we do compete with some listed companies, some unlisted companies as well. So something likes of SP Singla or -- there are a number of companies that we compete with. It depends on the region in which we bid.

And lastly, last question from my end. Any new verticals or geographies which you would like to expand given the situation that prefers locals since a lot of contracts are contracts from China, contractors from China are not allowed in most of the states and regions. So would you like to capitalize on this opportunity and so on, and which apparently will be regions as well as new verticals if you would like to highlight?

We do contracts for governments, wherein you need the credentials. We obviously would like to -- we can only work with our core competencies in terms of verticals. So our core competencies being construction of railway tracks, bridges and the likes. And in terms of regions, we are agnostic to the region that we do operate in, other than the fact that the safety of the key members and the assets the company. So we are -- like I said in my opening remarks, we recently got a contract in Manipur in April. So we are bidding for contracts in eastern and northern part of the country, some order also in the central part of the country currently.

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

So my question is more on the -- just to take the previous question on the order inflow part. You hinted that there is an L1 of INR 2 billion order. But sir, if I have to step back and look at your order backlog position, it has come down from INR 2,000-odd crore kind of number that we had in FY '18 to all the way to INR 1,500 crores. So are we really looking to ramp this up in a big way in this fiscal? Or is there any opportunity -- addressable opportunity you would want to quantify?

So I think that to answer the question, this year, we have a target of almost INR 800 crores to INR 1,000 crores of new order. So that would -- that includes the L1 order that we have of about INR 200 crores, that is kind of the minimum that the management has set a benchmark for this year. Hopefully, we will be able to achieve that in this calendar year itself, so that some work can start on it by March.

Okay. And among the close to 60% of infrastructure exposure that you have within your order backlog, how much will be roads as such, pure road play?

Pure, road, I think the only contract that we received in April, there is only a pure road contract. Other than that, we don't have road contracts.

So would you be focusing more on road as well? I mean is that under consideration?

We typically like the Railway segment, and we would like to focus on a segment that we do operate in. We are a focused railway company in terms of both infrastructure as well as concrete sleepers. Road is something that we feel that doesn't give the same kind of EBITDA hurdle rates that we do look at. So about 13% EBITDA growth typically doesn't give you that kind of EBITDA margins.

Okay. Sir, now let me touch upon the individual projects. In my previous conversations with you, we were probably targeting for Ghazipur, that RVNL project, close to INR 25 crores per quarter. Now with this scenario, what could be that revised outlook looking like? Are you planning to build somewhere between INR 1 billion kind of number in this fiscal? Or is that something lower than that?

So like I said in my opening remarks, I think you have missed it. But Ghazipur contract, we are currently doing a run rate of INR 30 crores per quarter. So it is about INR 120 crores a year.

Okay. And in Mathura-Jhansi RVNL, I'm sorry, if I missed it as well, that number?

The Mathura-Jhansi, I did not say in my opening remarks. Mathura-Jhansi, this year, we'll do about close to INR 80 crores, INR 85 crores.

Okay. So in a way these are 2 big projects within your order backlog. But when I see that these were actually the pretty-COVID targets and you are maintaining that. Is that what I understand?

Yes. We are maintaining that. But Q1 has been -- obviously, as it is for across the economy, Q1 has been quite a large dip. So it won't be that we will be able to -- the increased target would not mean much enhanced revenue for the year. It's too premature, I think, to give a revenue target for the year.

Okay. Sir, on the level-crossing part, how much would you be, INR 40 crores, somewhere around that was the number that we were talking about in the past. Is there any number that you want to talk about?

Pardon?

The level-crossing project, you had one INR 40 crore kind of number that you were talking in FY'21 for this year?

Yes. So we -- so that ROB contract, we will do about INR 40 crores, INR 45 crores this year as well.

Okay. And the DFC part, the concrete sleeper, these are looking at INR 8 crores to INR 9 crores per month. Is that number intact as of now?

So that depends on the offtake for that project. So this year, we anticipate that the offtake would be slightly higher because the project has -- the initial bottlenecks have been streamlined. So this year, we anticipate INR 100-odd crores of revenue from DFCC.

[Operator Instructions] The next question is from the line of [ Mohan Bansal from Ajinkya MTL. ]

Atul, can you please give us an outlook on the NHAI arbitration?

So there's not much of movement in the NHAI arbitration because the courts are closed. And the next date is on 20th of August. So the Delhi High Court is closed. So there's no movement as such. The last couple of days have been extended earlier pre-COVID because of the NHAI lawyer not being present and now because of the courts being closed.

Okay. So you mentioned in your brief that because of the regulation changes now by the government because of COVID, you will be able to release some nonfund limits, will that help you to get this money from the arbitration by giving some kind of guarantees there? So what is the strategy on that?

So we already applied to the banks for the release of the INR 30 crores, which is as per the court order, but the banks want some clarification from the court, which unfortunately will happen post the courts' opening in August.

Okay. But do you think that the limits which are going to be free can be utilized to give the guarantee in the court?

Yes. Yes. So we are already -- so we are -- we expect almost INR 55 crores to INR 60 crores of bank guarantee to be released, out of which almost INR 40 crores has already been released. The balance INR 15 crores, INR 20 crores will be released in the coming time.

Okay. Great. That's good news. Atul, one more clarity. What is the repayment -- what are the scenario on payments and recoveries of past due from some certain contracts which are mentioned in the [indiscernible]?

So like I said in my opening remarks, in March 2019, the qualification in terms of the old past dues was INR 49 crores, which is now at INR 25-odd crores. So INR 24 crores from those have been recovered, fortunately, and we expect another INR 67 crores to get recovered in the next -- in this calendar year itself. In terms of debt repayment, I think that's your question, we don't have much of long-term debt. So this year, in terms of the liquidity, that would not affect us much.

Okay. Great. And can you please help us with the working capital limits that are sanctioned for us?

Yes. We have approximately INR 220 crores of working capital limits sanctioned to us by a consortium led by State Bank of India.

Okay. And now how much of that has been utilized?

So this is cash rate limit, this cash rate changes every day, but currently about 90% -- 90%, 92%.

Okay. Okay. Atul, one last question from my side. Can you please help us with the competitive outlook in the industry right now?

I think the competition is going to be -- we feel the competition is going to be slightly less because there are many companies who are facing issues with respect to their contracts. Thankfully, most of our contracts are working well. And so we expect that the competition would be slightly less compared to what it was pre-COVID. This will enable us to maintain our hurdle rate of EBITDA of 13%.

[Operator Instructions] The next question is from the line of [ Mihir Desai from Desai Investments. ]

My quick question would be on the Sleeper business, sir. Like I just wanted to know in the facilities of Africa and Namibia, sir, what would be the order book status and a little bit of outlook over there for this year, sir?

Namibia, like I said, the associate has signed a contract for the concrete sleepers. The contract will be valid for almost 24 months. That would enable revenue of almost INR 25 crores for the Namibian entity, although they are associates, so the revenue doesn't get consolidated in the consolidated financials for the group. For South Africa, we have right now a contract up to December. And there's constant manufacturing and delivery also to the customer. We expect that -- the tender was supposed to happen in April, but unfortunately, due to COVID, it got extended. So that will happen sometime in July, August, which will enable us to ensure that the contract is in place before the earlier one gets expired.

Okay. Sure. And sir, regarding the Indian business, sir, what would be the utilization levels in our Concrete Sleeper segment, sir, currently?

Right now, it's less because of the labor issues in -- especially in UP. So it's about 50%, 55%.

Okay. And sir, do we see -- I know that it's not a good question to ask, but do we see this picking up or scenario being normal in H2, sir?

Pardon?

Okay. Sir, do we see the scenario which is currently the COVID scenario, which is there, do you see it improving in H2 of this year, sir?

There are a lot of epidemiologists who are predicting a lot of things. So this is something that I think it is out of my bandwidth.

Correct. Sure, sir. I agree. Sir, specifically, just needed a update on DFCC concrete sleeper, sir, especially on the GMR orders that we are executing, sir?

Yes. As I said, we're operating at 55%, 60% capacity due to the labor issues.

Okay. Okay. Sure, sir. And sir, lastly, just wanted to know that what is the current average debt cost for the company, sir?

It's about 11% -- 11.5%.

[Operator Instructions] The next question is from the line of [ Shruti Sharma ], an investor.

Sir, actually, I have 2 broad questions to ask. Firstly, I just wanted to understand seeing the current condition in the country, a lot of funds, which government has actually given, have been pushed towards the welfare for the medical facilities and all. So in this situation, what kind of expenditure do we expect on the infrastructure in the current year? And what kind of order inflow do we expect in this year?

So in terms of government spending, I think that to revive the economic infrastructure is one of the best tools because it generates lot of employment and it also generates demand for steel, cement and other ancillary products. So we feel that the government will not reduce its focus on infrastructure, especially because of the focus also on the national infrastructure pipeline that was announced by the finance minister. In terms of labor issues also, it allows the employment to be generated, so that is also a focus area for the government. For the order inflow for the year, like I had said in one of my previous remarks, we expect this year to have order inflows of almost INR 800 crores to INR 1,000 crores in this financial year.

So sir, which segment do you expect the order inflow? Any particular...

So it's going to be from Railways and Infrastructure, mostly sleepers. Like I said earlier, the South African contracts will get renewed, so that would be order inflow. But other than that, we don't anticipate much of order inflows in the Sleeper segment.

Okay, sir. And sir, one more thing I wanted to understand, as you said in your opening remarks, that currently, we are working at 60% operating capacities, so I mean, when do we expect the normalcy in the business?

It totally depends on the pandemic and when all these restrictions in terms of social distancing and all that are reduced. However, we have implemented the necessary SOPs, which have allowed us to operate at almost 70% capacity. So we -- and right now, it's also the monsoon season. So anyways it becomes lean for construction activities. The post monsoon, I think the pandemic will also subside and the work will also be ongoing full stream.

So we can expect that in H2, the situation will...

Q3 onwards, I would say.

Q3 onwards.

The next question is from the line of Anurag Patil from Roha Asset Managers.

So sir, are we facing any payment-related issues currently? Or do you expect any improvement in the current year?

Pardon, I could not hear you, the first part of the question.

So are we facing any pressure on the receivables side?

No, there's no issue with respect to receivables. So we are -- like I said earlier, the liquidity cushion is quite decent. And our cash flow from operations has also been good last year, and we expect it to be healthy this year as well.

Okay. Second question, sir, is regarding this current year's COVID impact, what kind of target growth rate you are targeting over next 3 to 5 years in terms of revenue growth?

I think we will grow at 15% to 20% over the next 3 years. We have to factor in the COVID, obviously, we cannot ignore it. So at 15% to 20% CAGR would be a decent target.

[Operator Instructions] As there are no further questions, I now hand the conference over to Mr. Atul Tantia for his closing comments.

Thank you, everyone, for your participation in our Q4 and FY '20 earnings call. I hope that everyone stays safe. And in case you have any further queries, you may get in touch with us or with Stellar Investor Relations. Thank you. Have a good day.

Thank you. Ladies and gentlemen, on behalf of GPT Infraprojects, that concludes this conference call. Thank you for joining us, and you may now disconnect your lines.