GPT Infraprojects Limited (533761) Earnings Call Transcript & Summary

Ladies and gentlemen, good day and welcome to the GPT Infraprojects Limited Q4 and 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 a warm welcome to GPT Infraprojects Limited earnings conference call for the fourth quarter and the fiscal year ended 31 March 2021. Our Investor Relations adviser, Stellar IR, is also on the call. The presentation for this quarter has been updated on the website of the stock exchanges as well as the website of the company. We hope that you have had a chance to go through the same. As you are aware, the COVID-19 pandemic has rendered the last fiscal as a challenging and unprecedented year on all accounts. With the overall business environment seeing signs of recovery starting from Q2 onwards, followed by the rollout of the vaccine for the frontline and health care workers, and last year's stellar union budget that is focused on giving impetus to the economy, it appeared that the worst of the pandemic was behind us. However, we find ourselves facing a second wave with several states facing restrictions again, which we hope will combat this successfully and swiftly. For GPT, we have been able to face this challenge head-on and have been able to deliver a robust performance in this year gone by. Our strategic focus on continuity of operations and financial prudence has not only helped us in maintaining the execution run rate with only a miniscule drop in -- of 1.4% in revenue despite a dismal Q1, but it also aided in the enhanced profitability even in a challenging year like FY '21. On the ordering front, too, we have seen a strong revival leading to a healthy order book for the company. The Board has recommended a final dividend of 10% of the face value, that is INR 1 per equity share for FY '21, which brings the total dividend to a total of 25%, that is INR 2.5 per equity share as against INR 1.5 per equity share in FY '20. The government's focus on CapEx has led to a significantly higher outlay for the sectors that we operate in. The proposals to include record allocation of INR 1.1 trillion, out of which INR 1 trillion is earmarked for capital expenditure. Within Railways, doubling of lines, new line addition, gauge conversion, road safety work, ROBs, RUBs, track renewal and bridge works have all received higher allocation. Further, it is expected that the Western Dedicated Freight Corridor and the Eastern Dedicated Freight Corridor will be commissioned fully by June 2022. You might be aware that partly these corridors have been commissioned and the speeds of almost 100 kilometers per hour have been recorded on these lines. This is expected to boost the ordering activity further. As you might be aware, we are having some contracts in the Eastern Dedicated Freight Corridor. Notwithstanding the pandemic, the company has successfully bagged almost 10 new orders worth INR 932 crores in 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. Some of the recently bagged projects include: 2 orders in Uttar Pradesh for construction of new bridges over river Yamuna in Agra and Jhansi totaling to about INR 245 crores; an order for the repair and rehabilitation of second Hooghly Bridge in West Bengal; in Guwahati, we are constructing structure for bridges for NF Railway; and road projects for NHIDCL in Manipur. Incrementally, we stand at L1 in orders worth almost INR 200 crores, further strengthening our order pipeline for the fiscal year ahead, as against an abysmal order inflow in FY '20. With this, our order book stands at INR 1,823 crores, which is almost 3x our FY '21 revenues. Now let me take you through the key highlights about the company's operational and financial performance during the quarter and fiscal gone by. On the execution front, most of our projects are progressing well, and we are closely monitoring the ground situation with respect to second wave of COVID-19 and any impact thereon. The company has undertaken to reimburse the vaccination charges for all its employees and labors, which would lead to our employees feeling safe and their immediate family members are also feeling safe. On the Concrete Sleeper side, too, all our manufacturing facilities are operating normally. And in Africa, international operations in Namibia continues to operate at all-time high capacity utilization, with good cash flow and dividends to its shareholders. Continuing this trend of increased traction, our consolidated revenues for the past quarter, that is Q4 FY '21, posted a growth of approximately 14% year-on-year and approximately 25% quarter-on-quarter to INR 214 crores, one of the highest quarterly run rates in the history of the company. For the full year FY '21, the consolidated revenue dropped by a marginal 1.4% year-on-year to INR 609 crores due to the impact of COVID-19-related restrictions in the first quarter of FY '21. In terms of segmental breakup, the proportion of Concrete Sleeper segment increased from 15% in FY '20 to 21% in FY '21 due to higher deliveries, specifically in the DFCC and South African contracts. The revenues from the Concrete Sleeper division in FY '21 grew by almost 37% year-on-year to INR 131 crores. On our margins and profitability, the company's ongoing cost optimization and profitability measures have benefited a lot. This has led to higher operating leverage bearing fruit and increased profitability over the year, and EBITDA margin standing at 14.85% versus 13.48% in the year gone by. The bidding discipline that we maintain while bidding for new contracts continues to be the primary factor for stability in the EBITDA margins for the company. Our consolidated EBITDA grew by 62% to INR 26 crores in Q4 FY '21 and by 9% year-on-year to INR 91 crores in FY '21. We are happy to announce that the company has reported its highest-ever quarterly and yearly profit after tax on the background of improved execution, bringing in operating leverage, lower depreciation and interest costs. In Q4 FY '21, PAT came in at INR 8.4 crores versus INR 1 crore in Q4 FY '20, and INR 20.2 crores in FY '21 versus INR 15 crores in FY '20, up 35% year-on-year. Our profit after tax in Q4 FY '21 stood at INR 9.3 crores, on a stand-alone basis the highest ever, which includes a INR 2.7 crore dividend from our Namibian operations. And hence, on a consolidated basis, our PAT stood at almost INR 8.4 crores. Our leverage and liquidity position has improved over the last year. As we have mentioned earlier in our call, we have been optimizing our working capital and -- in addition to paring some of our long-term debt. We expect release of some old outstanding from various clients, which was at INR 49 crores in March 2019, reduced to INR 25 crores in March 2020, and despite COVID, has reduced to INR 20.79 crores this year 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 in these challenging times, we have engaged actively with our working capital bankers to avail the Special Liquidity Scheme announced by the government of India. We have also applied for a release of proportionate bank guarantees from various clients in partly completed projects that is allowed by the Ministry of Finance, and approximately INR 75 crores bank guarantees has been already released by various clients. Overall, we do not foresee any challenges in meeting our debt obligations or liquidity for the business. This has led to improvement in the current ratio from 1.05 to 1.2 this year. With regards to the arbitration with NHAI, Jogbani Highway Private Limited, the subsidiary of the company, NHAI has approached the company to conciliate the matter as per the guidelines of NHAI since as you might be aware, the cases are long outstanding in Delhi High Court, and due to COVID the hearings are not happening. Therefore, the management has opted to -- for the same in order to fast track the dues from NHAI against the arbitration award of INR 61 crores plus interest. The company expects to conclude -- this process to conclude in this calendar year as per the consideration process, thus providing further liquidity to the operations of the company. Lastly, let me share with you some of the highlights of the key projects under execution for the current fiscal year. Some of our key projects under execution include the Ghazipur order worth INR 378 crores by RVNL, which is running smoothly at a quarterly run rate of approximately INR 30 crores, and its closure is expected over the next 20 months. This will 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 250 crores, continues to progress well and the cash flows from the same are expected to further ease the working capital requirements. Going forward, with our strong project execution capabilities and a robust order book, a healthy financial base and enviable growth prospects, driven by buoyancy across our operations -- areas of operation, we believe that GPT Infraprojects is well positioned to continue its growth trajectory. I hope that all of you are safe and your families are safe and have been vaccinated by now. That is all from my side. I will request the moderator to now open the floor for any question and answers. Thank you.

[Operator Instructions] The first question is from the line of Rohit Natarajan from Antique Stockbroking.

Congratulations on a very good set of numbers. As I see, these numbers is basically a function of the pre second lockdown and second COVID wave, what is the current situation, especially that you have seen during the Q1, the impact would have been much more n[ stocker ]? And going forward, what could be the outlook in FY '22 in terms of revenue guidance, margin guidance even?

So thank you for the question. As I said in my opening remarks, the second lockdown has not had much effect on the operations because we have been able to vaccinate most of our employees and their family members. The company has encouraged everyone to get themselves vaccinated. And the operations, as we speak, are on track and are normal. However, having said this, everyone -- some people are expecting a third wave in the country and in the world. And if that does happen, there could be some impact on the operations. For FY '22, we expect a growth in terms of our top line as well as to maintain our margins. So over the next 2 to 3 years, we expect to achieve a revenue of close to INR 900 crores to INR 1,000 crores for the company.

Okay. But you don't want to stress anything on this immediate guidance for FY '22, as such?

Like you said, -- like I said, a third wave can also impact so I [ just don't want to comment ] for this year because it is quite uncertain. But I don't think that we -- like I said, we'll grow the business. We probably will -- but you cannot pinpoint a number.

True. I got it. I got it. My second question is more confined to the order inflow part. You said in the opening remarks about some residual works in DFCC is expected to trickle down as an order inflow for you. Are you referring to the Concrete Sleeper opportunities? Or are you looking at some EPC opportunities as well over there?

We're looking at both in terms of DFCC, whether EPC as well as Concrete Sleepers. So as you are -- as you may be aware, the Eastern Freight Corridor is not fully bidded out by the DFCC, they are still wanting to tender out for the EPC part as well. So we will look at both the opportunities, whether it is Concrete Sleepers as well as the EPC portion.

Okay. Okay. In terms of any guidance that you have, any ballpark number in terms of what will be the order inflow for this fiscal? I mean is there any target that you are having in mind at this point in time?

So like I said, the residual order book is about INR 1,823 crores as on today. We typically like to have a residual order book of 2.5x to 3x of the revenues. So we would like to keep that trend.

Okay. That means on an average, you may clock at least INR 600-odd crore kind of order inflow for this fiscal?

INR 600 crores is what we have executed this fiscal. So last fiscal also, we had order inflows of almost INR 900 crores -- INR 900-plus crores. So I think we would be close to INR 1,000-odd crores this year.

Okay. Okay. That's great. That's encouraging to hear. And so finally on -- in terms of any CapEx that are you planning to incur either in terms of the EPC opportunities or the Concrete Sleeper segment?

Sorry to interrupt Mr. Natarajan. Sir, there is some disturbance coming from your line, I request you to mute your line when the management answers your question.

So in terms of CapEx, we don't anticipate a very large CapEx. It will be CapEx that does happen part of any construction company for a project. It will be very project-specific in terms of the type of contracts that we do get. We don't anticipate a very large CapEx to happen over the next 1 or 2 years.

[Operator Instructions] The next question is from the line of [ Sadanand Shetty ] from [ True Equity Advisors ].

What has lifted the operating margin in a quarter that has seen unprecedented increase in commodity prices, especially you have steel bridges to execute also? And the second question is, when you're talking about sustaining margins, your overall consolidated EBITDA at around 14.85%, you are referring that to be sustained? Yes, I'll ask a follow-up question later.

So in terms of steel prices, like we've said earlier also in our previous conference calls as well, all our contracts, whether it is EPC or Infrastructure, as well as Concrete Sleeper segment, have a price variation formula, wherein we are compensated for the increase or the decrease in the steel prices. So in that sense, we are protected by the increase in the steel prices due to -- because they all pass through to the respective customers. In terms of a sustainable EBITDA margin, we've always guided our hurdle rate for EBITDA to be 13%. So we expect, on a consol level, our EBITDA to be close to 14% to 15%. So we are in that ballpark this year as well, 14.85%, like you pointed out.

What are the cost optimization measures you have taken that has aided you on the operating margin side?

So in terms of cost optimization, we have been able to reduce our interest cost. We have been able to reduce certain overheads. And we have been able to -- well, since we are getting more larger contracts, that leads to lesser overhead on the contract execution front as well, which leads to better cost optimization for the company.

[Operator Instructions] The next question is from the line of [ Deepesh Shah ], an individual investor.

Sir, I had a slightly broader question. If I look at the revenue sheet or the revenues for the company over the last 5 to 7 years, we had a revenue of about INR 500-odd crores in March 2016. We are at around INR 600 crores today. So we have actually grown by 20% over the last 5 years. And now we are looking at almost a 50% growth in the next 2 to 3 years. Could you just let us know what has changed? And what gives you the confidence that you should be able to raise your growth rates over the next 2 to 3 years? And the second question is that in terms of profitability, over the last 10 years, you have -- your margins are in between 13% to 15%, and that's been pretty stable. One of the reasons is because the raw material prices are a passthrough. But would you say that there is a potential for the margins to grow beyond 15% once when you reach about INR 900 crores to INR 1,000 crores in revenue? Or should we look at the margins to be in the range of 14% to 15% despite the revenue growth?

Sorry to interrupt, [ Mr. Shah ], there's a disturbance coming from your line, sir, I request you to mute your phone while the management answers your question.

Sure.

So in terms of comparison of 2016 revenue to 2021 revenue, over the last 5 years, like you said, revenue has grown by 20%. So I'd like to remind you that in 2017, the GST was implemented in the country. So revenues post 2017 are net of GST. So that has an impact of almost 15% to 18% on the revenues. So over the last 5 years, revenue, if you normalize for the GST, have grown by almost 40%, not 20%, like you pointed out. Obviously, the last couple of years, there was a pressure on the liquidity because of the general economy being not favorable in terms of infrastructure companies. However, with the turnaround in the economy, we expect that infrastructure will again be a huge focus for the government. This is why we are very optimistic that over the next 2 to 3 years, we'll be able to grow by almost 40%, like you pointed out. In terms of the margins, we expect the margin to remain in the 14% to 15%, like you pointed out. The higher -- the growth in the revenue will not lead to an improvement in the margins. But for EPC company, we believe that this is a good EBITDA level that an EPC company can achieve. And -- because at the end of the day, we do get contracts through public tenders. And if we were to bid higher rates for our contracts, we will not be able to get the orders.

Okay. And sir, in terms of our clientele, we have mentioned IRCON and RITES as our clients. So is it some kind of a subcontracting work which we do for these companies? If you can just explain it in a bit?

So we don't do subcontract per se. IRCON and RITES are also railway PSUs. So we do contract for them. It's not technically a subcontract because they bid out even to large companies like L&T or Tata projects as well. And so they do bid out to -- so it's not a subcontract of IRCON and RITES. The government does mandate that some contracts are built through IRCON and RITES.

Sure. And sir, lastly, the question is you spoke about receiving cash from various quarters in the next 1 quarter and the next 1 year. So if you can just give us a number as to whether we should consider debt to reduce in the next 1 year by about INR 40 crores, INR 50 crores, INR 60 crores because of the amount which we have received and because of the bank guarantees which are released? So how should we see the debt figure over the next 1 to 2 years, sir?

So over the next 1 year from the operations, I would say, that the debt would reduce by almost INR 10 crores to INR 15 crores. If, like I said in my opening remarks, we have gone into -- where companies operate for the conciliation with NHAI. If the conciliation with NHAI does happen, then obviously, that money will be largely used to pay down the debt.

And that amount is about INR 60 crores, sir, and you will receive as part of it, right?

Well, conciliation is about to start, so I don't -- I can't comment on a number that we'll receive. But our arbitration of order is INR 61 crores plus interest.

[Operator Instructions] The next question is from the line of [ Rahul Jain ], an individual investor.

So my question is could you quantify the total old dues that are outstanding?

See, old dues that are outstanding is already qualified by the auditors of INR 20.8 crores.

And how much do you expect it to be by the end of this year?

Like I said in my opening remarks, we expect INR 2 crores to INR 3 crores to further come down this year.

Okay. My second question is, what is the execution period of the current order book of INR 1,823 crores?

2, 2.5 years.

The next question is from the line of [ Mohit Bansal ] from [ Ajinkya NPL ].

Congratulations for the good set of numbers. All my questions have been answered. I'm sorry. Thanks a lot.

Okay. Thank you, [ Mohit ].

[Operator Instructions] The next question is from the line of [ Sadanand Shetty ] from [ True Equity Advisors ].

Atul, what is the trend in average ticket size of your projects in last 2, 3 years? And where do you see that is trending up next 2 years? That is the first question. And the second one is, when would you be eligible for INR 1,000 crores bid of the tender?

Sure. So like I said in my opening remarks, the -- our average ticket size has increased from INR 40 crores to almost INR 110 crores now. In terms of -- so we now are bidding for mostly contracts, INR 100 crores-plus each. In terms of our capacity to bid for INR 1,000 crores orders, the Ghazipur contract should get closed in the next 20 months. So then we can even bid for INR 1,000 crores single order in our own name.

What is the eligibility criteria for INR 1,000 crores?

It's normally 35% similar contract you should have executed in the past 3 years.

Okay. It means the INR 350-odd crores type?

Single order you should have executed in the last 3 years.

Okay. Okay. Okay. Your industrial contribution is very minimal. What kind of work you do for NTPC, POWERGRID, KVIP and EPIs?

So NTPC, we do mostly the railway sidings for their plants. POWERGRID also we've done some foundation works for the transmission towers in [ hilly ] areas. EPI, we've done an industrial shed in Bihar for them. KEIP, again, we're doing some work for the city in terms of sewerage and water treatment.

Do you expect more business? Some of these customers have a very good CapEx pipelines.

So we are always in discussions with potential customers who are bidding out new contracts. We obviously bid for them. We have a hurdle rate of EBITDA. If we do get contracts in our hurdle rate, we are quite happy to take them.

Okay. Okay. One more question. What is the contribution of mega bridges currently?

So we are doing 2 to 3 mega bridges. Like I said, we are doing 1 for Ghazipur. We're also bidding for some of the new mega bridges that have been announced by the government. So we have done earlier, the double-decker bridge over Ganga in Patna for IRCON and East Central Railway. We've done the bridge over Kosi in North Bihar again for Railways. They are the 2 mega bridges that we have already done in the recent past.

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

Congratulations on good set of numbers, sir. Sir, my one question was on the -- follow-up question on the arbitration amount which you had mentioned that you'll receive. So sir, that will go completely, like you said, for the debt repayment. So how much working capital cycle will improve because of that?

You mean -- so obviously, this -- if the debt repayment happens, it will lead to better ratios in terms of return ratios, ROCE as well as ROE. Working capital cycle will also improve by almost 30-odd days.

Okay. By 30-odd days?

Yes.

Sure, sir. And by what time, sir, do you believe that or envisage that we should receive this amount? Any ballpark...

As per the SOP guidelines of NHAI, they generally want to conclude such conciliation process in 6 months.

Okay. Okay. Sure, sir. And sir, on the debt cost front, sir. Sir, is our debt cost reduced? And what would be our debt cost on a current basis, sir?

Obviously, debt cost has reduced and it is on -- current debt is just sub of 10% average cost of debt.

Okay. It's 10%. And do you see any further improvement in this debt cost? Or this is the average cost, which we...

I think that we should see almost a 50 basis points improvement in this.

Okay, understood. And sir, my last question would be like apart from COVID, sir, what kind of opportunity are you seeing currently from our business, sir, meaning on the order front? And what currently excites you from your end, sir, running the business?

See, like I said that due to the turnaround in the economy, this is a sector wherein the government focus is there in terms of orders and in terms of growing the economy because this is one of the largest employers in the -- sector employers in the country. And this will obviously lead to a lot of investments, so the national infrastructure pipeline that has been announced by the government. And we feel that we are well poised to capture this growth phase for the company.

[Operator Instructions] As there are no further questions, I would now like to hand the conference over to Mr. Atul Tantia, Executive Director and CFO, for closing comments.

Thank you. Thank you, everyone, for your participation in our Q4 FY '21 earnings conference call. I hope that everyone does stay safe and their families are safe. And if not vaccinated, they do get themselves and their immediate family vaccinated because this is the only way we can prevent a third wave in the country. In case of any other further queries, you may get in touch with our IR teams, Stellar Investor Relations, or feel free to get in touch with us directly. I wish that all of you do take care and stay safe. Thank you. Have a good day.

Thank you. On behalf of GPT Infraprojects Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.