GPT Infraprojects Limited (533761) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to GPT Infraprojects Limited Q3 FY '21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Atul Tantia, Executive Director and CFO, GPT Infraprojects Limited. Thank you, and over to you, sir.

Thank you. Good morning, everyone, and welcome to GPT Infraprojects Limited earnings conference call for the third quarter and the 9 months ended December 31, 2020. Our Investor Relations Advisors, Stellar IR, is also on this call. The presentation for this quarter has been uploaded on the websites of the stock exchanges, as well as the website of the company. We hope you have had a chance to go through the same. India's overall business environment has had a lot to cheer about in the past few weeks starting with the rollout of the vaccine for the frontline and the health care workers. And followed by a stellar union budget that is focused on giving impetus to the economy. There is significantly higher outlay for the sectors that we operate in. The proposals include a record allocation of INR 1.1 trillion, out of which INR 1.1 trillion is earmarked for capital expenditure. Within doubling of lines, new rail -- new line addition, gauge conversion, road safety work, ROBs, RUBs, track renewal and bridgeworks have all received higher allocation. Further, it is expected that the Western dedicated corridor and the Eastern dedicated corridor will be commissioned by June 2022. As you might be aware, we are having some contracts in the Eastern dedicated corridor. This is expected to boost the ordering activity further. On the ordering front, in terms of the company, the focus of the government on infrastructure has led to an impact in our order inflows as well. Notwithstanding the pandemic, the company has successfully bagged 8 new orders worth almost INR 820 crores in YTD FY '21. With this addition, the average order size has increased from INR 40 crores to about INR 110 crores over the last 6 years. In addition to the new orders, we had disclosed in our last call that we have bagged 2 orders in Uttar Pradesh for construction of new bridges over river Yamuna in Agra and Jhansi totaling to about INR 245 crores. In West Bengal, we had ordered -- we have bagged an order for repair and rehabilitation of the second Hooghly bridge. In Guwahati, we are constructing superstructure for bridges for NF Railway. Incrementally, we stand at L1 -- in orders worth almost INR 200 crores, which further strengthens our order pipeline for the current fiscal as well as an abysmal order inflow in FY '20. With this, our order book stands at almost INR 1,900 crores, which is almost 3x FY '20 revenues. Now let me take you through the key highlights of the company's operation and financial performance during this quarter. On the execution front, our operations have been improving month-on-month thereafter. And currently, we have achieved normalcy across all our infrastructure project sites with monthly execution rates back to pre-COVID levels. On the concrete sleeper side, too, all our manufacturing facilities in Africa and India are ramping up, and we expect to close the year at the highest ever revenue for this segment. Continuing this trend of increased traction, our consolidated revenues for the past quarter that is F -- Q3 FY '21 posted a growth of approximately 8% year-on-year and approximately 19% quarter-on-quarter to INR 171 crores. In terms of segmental breakup, the proportion of concrete sleeper side increased from 18% to 20% to approximately 25% in the last 9 months ended December 31, 2021 (sic) [ December 31, 2020 ] due to higher deliveries specifically in the DFC contracts. The revenues from the concrete sleeper division in the 9 months ended December 31, 2020 grew by almost 36% year-on-year to almost INR 100 crores. Some of our key projects under execution include the Ghazipur order worth INR 378 crores by RVNL, which is running smoothly with a quarterly run rate of approximately INR 35 crores and its closure is expected over the next 18 months. This would enable us to bid for single contracts up to INR 1,000 crores, underscoring our execution capabilities in the Infrastructure segment. In the concrete sleeper segment the GMR order,worth almost INR 246 crores continues to progress well, and the cash flows from the same are expected to ease the working capital requirements. On our margins and profitability, the company's ongoing cost optimization drive along with improved order execution and better liquidity management has borne fruits and led to a profit increase -- increase in the profit margin with our 9-month EBITDA margin at 16.3% versus 15.6% in the 9 months FY '20. As mentioned in Q2 as well, not all the margin expansion will be sustainable, and our estimated cost savings of roughly INR 5 crores to INR 7 crores per annum is likely to be recurring in nature over the long term. For Q3 FY '21, we -- as we all think you might be aware, steel prices have increased significantly, and which led to a slight softening of our margins to 13.3% which remain within our long-term range of 13% to 14% hurdle rate for EBITDA level. The billing discipline that we maintained, while bidding for new contracts continue to be primary factor for stability in the profit margins. In Q3 FY '21, our EBITDA stood at INR 23 crores as against INR 24 crores at Q3 FY '20 for 9 months. It is INR 65 crores as against INR 68 crores in the same period last year, which is a marginal reduction of 3.5% on account of COVID-19 related disruptions in the initial first quarter of this financial year. Our profit after tax in Q3 FY '21 stood at INR 7 crores on a stand-alone basis, which includes approximately INR 2 crores dividend from our Namibian subsidiaries, hence on our -- our profit after tax stood at INR 5 crores because the African subsidiaries dividend gets knocked off in -- on a consolidation basis. Our leverage and liquidity position has improved over the last year. We have -- as we have mentioned earlier in our calls, we have been optimizing our working capital in addition to pairing some of our long-term debt. We also expect release of some old outstanding from various clients, which was at INR 49 crores in March 2019 and reduced to INR 25 crores in March 2020. And despite COVID has reduced to almost INR 22.5 crores -- has reduced to INR 22.5 crores as of September 2020 and is expected to further reduce by INR 2 crores this year. In addition, outstanding tax refunds are also being processed by various departments and will lead to easing out of the cash flows for the company. Further to strengthen the company's equity portion during these challenging times, we have actively engaged with our working capital bankers to avail a special liquidity scheme announced by the Government of India. We have also applied for the release of proportionate bank guarantees from various clients in partly completed projects as allowed by the Ministry of Finance and approximately INR 50 crores bank guarantees are already been released by various clients. Overall, we do not see any foresee -- we do not foresee any challenges in meeting our debt obligations or liquidity for the business. Going forward, with our strong project execution capabilities, a robust order book, a healthy financial base and an enviable growth prospect driven by the buoyancy 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 any questions and answers. Thank you.

[Operator Instructions] Our first question is from the line of Rohit Natarajan, Antique Stock Broking.

Yes. Sir, first of all, congratulations on a good track record on terms of order inflow. As I see, we have INR 19 billion of the order backlog plus INR 2 billion in inbound pipeline, and we even have a very strong outlay for the railway CapEx going ahead. So what is the order pipeline that you think could be the beginning of FY '22? And what could be the execution? Do you think INR 7 billion can be an achievable number in terms of execution in FY '22? And will you sustain that margins or will you see some improvement in margins?

So I think that in terms of net order book as on, say, 1st April FY '21, I think that is your question, we expect that the net order book would be close to INR 2,000 crores. And this INR 7 billion kind of execution that you're talking about in FY '22, I think that we should be able to better that given what we are seeing the traction in terms of new orders, new projects getting awarded and execution happening. You have to keep in mind that this financial year, the first quarter was kind of wiped out due to the lockdown and the effect of that. So despite that, we have almost caught up to the last 9 months of last year, and last year, we did about close to INR 620 crores. So I think that given that background, FY '22, I'm quite confident that we'll be able to surpass the INR 7 billion number that you're talking about.

Good, good. That's great to hear. That's very clearly deserved. My second question is more to do with the margins part. I know historically, we have maintained that we started our threshold of 13 plus kind of EBITDA margin even in the worst case. So my -- in case when you move to a bigger execution track record and for the kind of arbitrations that we have in pipeline, can we work around on the interest cost savings or maybe some operating cost overheads and improve the net profit margin maybe from 3% kind of levels to say 5%. Is that a doable number?

So in terms of margin, I kind of alluded to in my opening remarks, we have taken some long-term cost-saving measures, which we assume -- which we think that would be about INR 5 crores to INR 7 crores this year on a sustainable basis going forward. Obviously, with increased revenue and maintaining the hurdle rate of EBITDA, it will lead to lower interest costs and in -- as a percentage and interest also, we are seeing a reduction in the interest rates. So -- and I think that in terms of the PAT margin, we obviously, in 1 year, cannot jump from a 3% to a 5%. But obviously, we will be kind of on that trajectory over the next 2 to 3 years. We will not achieve 5% in a year, but I think over the next 2 to 3 years, we should be on that number.

I appreciate that part. Sir, you said something on the COVID-19 special MOF loans that you have availed. What is the interest rate on that loan in comparison to your conventional loans?

It's about 200 basis points lower. We have not availed, sanction that is in place, documentation is going on. So once we avail that we will pair off -- we will reduce the higher cost debt and take an interest arbitrage of 200 or 200 to 300 basis points.

Okay. Okay. And finally, on the non-fund based limits, if I recollect the numbers, INR 350 crore was what the existing limits are, but we are already working something to improve on it. And INR 200-odd crore is kind of the number that you must have utilized it. Is my understanding right?

Yes. You're absolutely correct.

So this INR 150 crore, that unutilized limit that you have, can probably help you garner even more orders in case if you want. I'm just don't...

We are wanting and I'm sure -- we are wanting and I'm and -- yes, that kind of headroom the management hires in terms of comfort in terms of getting new orders. And obviously, this year, the order inflow has been good and we expect further orders that we L1 into -- convert to net of acceptances to the company.

Sure, sure. And finally, amidst of this, you have made any remarks on the Delhi, that highway project's arbitrations situation?

No, I did not.

What exactly is the position?

No, I did not speak in terms of the arbitration in -- for the Jogbani highway. So as you're aware, the courts are right now not functioning. So we have a next scheduled date of hearing in the last week of March. So -- in the Delhi High Court. So yes, our lawyers are quite confident that it should come in our favor.

Sure. So let's assume that it comes in your favor. So what exactly is the kind of -- in terms of income statement impact that we can highly can see?

Income statement impact would here -- would be INR 25 crores to INR 30 crores, maybe INR 20 crores, INR 25 crores close to INR 25 crores.

This is pretax number that you will see some sort of an exceptional gain or a provision that you must have against some assets in the past.

Correct, so I mean it's exceptional or not, that is a -- it's not a sustainable. It may not be exceptional because it is exceptional means that it is not part of the operating income or normal income for the company, but this is from the existing revenue segments only, it is not from any other exceptional line of business that we are doing. So it may not be exceptional, but it may be a once off. So it is...

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

Yes. Sir, my first question would be on working capital requirements, sir. So on -- sir, as we see our order book, the order book number is increasing. So if we see our working capital days, do you see any increase in these days? Because the -- my question I asked is because we have some government projects. So do we see any payment delays from those projects? Or what is your view?

First of all, all our contracts are government-based contracts. We don't have any private contracts. So it's not some, all of them are government contracts. In terms of payment delays, I think that it is ongoing thing. We don't foresee any large payment delay, but means -- and especially with the -- given government's focus on infrastructure and capital expenditure, I'm sure that, that will not happen in terms of payment delay. That's the expectation of the management.

Okay. So sir, on an average, if you want to take an estimate on our working capital days, how much should we assume on that?

I think for this year, we would be at 125, 130 close to that.

Okay. Okay. Sure, sir. And sir, going forward, the margins which we are looking at, at current levels, which is 13%, 13.5%, so sir, how we should foresee these margins? So should this expand from these level for next, say, FY '22 and '23?

At EBITDA level, we would be at 14-odd percent, 14% to 15%.

14% to 15%. Okay, sir. And sir, lastly, on the union budget, I just wanted to ask a broad macro question, sir. Like government is very much focused on railway projects. So do you foresee like a big amount of order inflow which we can receive in, say, 2 to 3 years down the line?

I actually do not understand your question because we are actually doing only railway contracts. So railways continues to be a focus and there a lot of new, what do you call it, ROB. This trade corridor is also planned by the government. So we will continue to focus, so most of the contracts will come from railways.

And we'll be able to, like participate in almost all the projects, right?

Yes. So we are right now are executing a contract, which is close to INR 400-odd crores. Like I said in my opening remarks, once this gets completed over the next 18 months, we may bid for contracts up to INR 1,000 crores. Having said that, we will be able to, I'm sure, garner new projects as and when required. So in terms of credentials, it should not be a challenge.

[Operator Instructions] Our next question is from the line of [ Dipen Vohra ], an individual investor.

It seems like a very good set of numbers once again, so congratulations. I have 2 questions, sir. One around your India business and 1 around your international business. It may seem a little basic, but I was just trying to understand how does the international business work, and what are you seeing in terms of traction in those international markets? And on the Indian business, I just heard you say that you are now eligible to bid for orders up to INR 1,000 crores. Do you see anything in the pipeline, given the fact that this union budget, there was a lot of focus on infrastructure and a lot of outlay for DFCs. So do you see any large orders that are going to come out in the future? And how are you placed to bid and win those?

Sure. In terms of the INR 1,000 crore number that you spoke about, what I said in my opening remarks and just a minute or 2 back is that once we complete this Ghazipur contract, which is expected in the next 18 months, then we will be able to bid for INR 1,000 crore contracts singly in our name. So today, as of today, we cannot bid for INR 1,000 crore order in our name. Just want to clarify that. In terms of order pipeline in the Indian business, Obviously, like I said, railway continues to be the focus for the company, and that's where our core competence has been. The budget also gives a lot of emphasis in -- on, like you said, 4 dedicated corridors, 3 more corridors that has been announced. And new contracts are always -- we are on the watch for new contracts that are being announced by the railways and other departments of the government. And that will continue to be the focus of the company. And I'm sure that we will be able to bag new orders, a good number of new orders in the next 1 to 2 years. In terms of the Africa business, we have 2 factories in Africa, 1 in South Africa, 1 in Namibia. They are supplying to the local railways in those 2 geographies. Namibia currently has an order backlog of almost 2.5 years in terms of contracts from the local railways and local companies there. South Africa has an -- because of the COVID, there was supposed to be a tender, which was supposed to happen by December, but because of -- I'm sure you are aware, South Africa, the COVID situation is pretty grim. So South Africa, the tender has been delayed, but we have orders up to July right now, and we expect by March, hopefully, there should be some movement on the order front if the COVID situation eases out. Having said that, we -- the safety of our team members and our assets is of primary concern to us. So we are operating under very strict protocols to ensure that no one is infected and everyone is safe and secure.

Okay. And sir, just to check, is there anything moving there in terms -- say, for example, in India, we're seeing a lot of opening up. So...

South Africa and Namibia, both -- in both the geographies, our factories are operational. It's not that our factories are shut down, our factories are operational, and they are working.

[Operator Instructions] As there are no further questions from the participants, I now hand the floor back to Mr. Atul Tantia for closing comments. Over to you, sir.

Thank you. Thank you, everyone, for participating in our Q3 FY '21 earnings call. Just as a reminder, I think that 1 point that was missed in my opening remarks and probably, hopefully everyone has seen, we have also declared an interim dividend of rupees -- of 15%, that is INR 1.5 per share with a record date of 17th February 2021. This is as per the dividend policy of the company. Further, if you have any other queries, you may get in touch with our IR teams, Stellar Investor Relations, or feel free to get in touch with us directly. I hope that all of you take care and stay safe. Thank you, and have a good day.

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