GPT Infraprojects Limited (533761) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the GPT Infraprojects Limited Q2 FY '22 Conference Call. [Operator Instructions] I now hand the conference over to Mr. Atul Tantia, Executive Director and CFO. 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 second quarter and half year ended September 2021. We wish you a very happy Diwali and a Happy New Year. The result presentations have been uploaded on the company's website and also on the stock exchanges, and I hope that you have received the same. We hope that you have had a chance to go through the same in detail. Today, on the call I have with me Stellar IR, our investor relation advisers. Let me begin by saying that all of us are thankful that the pandemic has given signs of showing that it is heading towards an endemic. And hopefully, we can all put this challenging period behind us. In the quarter gone by, we not only saw normalcy appear in most parts of the country, but also saw a significant increase in consumer confidence across sectors. At GPT too, we have seen positive movement in our operations and financial performance on the back of a less disrupted quarter. With the momentum that our operations have gained, we have not only crossed our performance of the previous year that was related to disruptions but have managed cross pre-COVID levels and expect to carry forward this momentum for the next few quarters as well. Now let me come to the financial performance for this quarter and the half year gone by. During H1 FY '22, the stand-alone total income grossed INR 248 crores, which was 17% growth Y-o-Y. The stand-alone EBITDA for the same period stood at INR 39.1 crores witnessing a growth of 7% year-on-year and EBITDA margin stood at 15.9%. The operational profitability had an impact because of input costs. The reported stand-alone PAT was at INR 8.7 crores, a robust growth of 88.8% year-on-year. On a consolidated basis, our African operations continue to see some COVID-related disruptions, and we will need to wait for another quarter for results to normalize there. Overall, though, the growth in our domestic business continues to be heartening. If you look at our segmental performance, the Infrastructure segment, which contributed 74% of the total revenues increased by 16.9% to INR 197.3 crores in H1 FY '22 on the back of strong execution during the period. In H1 FY '22, our EBIT for this segment stood at INR 33.7 crores, a growth of 21% year-on-year on the back of certain long-term cost-cutting measures that were instituted during the COVID-19 pandemic. The Infrastructure segment, which comprises 92% of the overall order book with new orders bagged during H1 FY '22 of approximately INR 159 crores. On the Concrete Sleeper front to -- all our manufacturing facilities in India and Namibia are running at capacity utilizations, which stand at approximately 75% levels. Our revenues for the H1 FY '22 posted a growth of 21% year-on-year to INR 48 crores. In terms of segmental breakup, the portion of Concrete Sleeper has a marginal increase in Q2 FY '22 on account of higher revenue in Indian market. The order intake has been muted in the first half of the year due to COVID-19 related containment measures as well as civil unrest in South African region, which has now subsided. We are carefully monitoring the situation and hope this will be resolved soon. Namibia is operating at an all-time high capacity utilization. And in the current quarter of FY '22, we have also received dividends from the associates in Namibia. The cash flows and dividend in the Namibian operations are quite healthy, and we hope that they will contribute profitably to the parent balance sheet. The order book as on September 2021 stood at INR 17.3 billion, forming approximately 3x of FY '21 revenue. We envisage the order pipeline to improve during the second half of the financial year. Now let me share with you some key highlights of the key contracts and variation for the current fiscal. Some of our key projects under execution include the Ghazipur order worth almost INR 378 crores from RVNL, which is earnings in the quarterly run rate of approximately INR 30 crores to INR 35 crores. This project is expected over the next 15 months. In addition, the Mathura-Jhansi contract with RVNL, saw a similar order inflow in H1, is also running very smoothly. Both these contracts, once completed, will allow us to bid for single contracts up to INR 1,000 crores, underscoring our execution capabilities in the industrial segment. In the Concrete Sleeper segment, with GMR order worth almost INR 250 crores continues to progress well, and cash flows from the same are expected to ease the working capital cycle further. We have calibrated our operations to ensure that any disruptions are not only temporary, but also, we resumed and as a result, we believe we are in a strong position. Lastly, we are pleased to report that our operating and liquidity position continues to improve. As we had mentioned in our earlier calls, we have been optimizing our working capital in relation to pairing some long-term debt. On our old receivables, that's at INR 20 crores approximately at the beginning of the year, we have managed a reduction of about INR 2 crores, and we expect to further reduce it by another INR 6 crores to INR 7 crores in the second half of the year. With that, the old receivables should come down to about INR 12 crores at the end of the fiscal. This has been made possible by our improved cost management reduction in old debtors and a strong increase in overall operations resulting in positive free cash flow generation. In addition, the various departments are processing outstanding refunds, and that will ease out the cash flow for the company. This is all from my side, and I would refer to the moderator now to open the floor for any questions and answers. Thank you.

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

Sir, my question has more to do with the railway policy as such. We have heard there are some changes planned which would mean both private and public sector companies can participate on the same platform. Can you throw some color on this? Have you heard something on about?

So the policy change the railway is planning to announce is already in the pipeline is that earlier the railway PSUs like our and the likes would get the contracts on a nomination basis. They would not be subject to public tender. Now they are being leveled on the same platform. So the contract that was given for us to RVNL, IRCON rights and the other PSUs would now be on a public tender basis and the private companies can -- like us can also participate. I think this will increase the contract that we can -- number of contracts that we can bid for, and it's better for the railways per se in reducing their costs.

Okay. But do you see revised tenders coming through?

Pardon?

A revised -- revision in the tender norms that you see through?

The railway has already got its own tendering policy in terms of e-tendering and all that. So any revision in the tendering norms per se I don't see that.

No. There is one more news that we have heard, which is about incorporating some nonfinancial parameters in bidding. Is this something...

That is for nonstandard contracts. So what we will bid for almost standard contracts, so those are mostly for nonstandard contracts, but they are saying that up to 30% can be for nonfinancial criteria. So it will not be to L1 per se, 30% weightage would be given to nonfinancial softer criteria, as I would say. So that -- I think that the policy -- or the draft of the policy only says it is for nonstandard contracts. It is not for BOQ-based contracts that we are typically addressing.

Okay Great. My second question has more to do with your company itself. Could you talk about the order inflow part for the remaining part of the fiscal? Would you see any prospect orders? How big is that kitty looking like? What is the plan of conversion in the time lines ahead?

So we have got in this fiscal about INR 160 crores of new orders. We are at almost 3x of our FY '21 revenues in terms of our net order book. At the end of the year, we aim to be almost at 3x of the FY '22 revenues as well. So I think that our order book will grow to that extent. And we are participating in contracts almost on a weekly basis. So we have this.

So if I understand it correctly, we have 3x book bill right now, which we will end up at 3x, which means we will roughly replace the execution of order inflow.

No, not only that there will be some incremental as well because our -- the 3x is on FY '21. And in FY '22, the 3x will also incrementally add on.

Okay. Okay. And my second question is on the NHAI numbers that you had some reconciliation that was through main. Is it -- what is the progress over there? Is there any outstanding amount to that?

So Rohit, as we have also said in our earnings, the standard release, that reconciliation process has not gone through. So it is now back in Delhi High Court. So we expect that the process will go on slightly slower than we anticipated.

Okay. Just to summarize, if I have to understand. We do not face any working capital blockages or we do not have any nonfund-based limit thresholds. It is basically this COVID-led disruption that has impacted our execution as such, right, largely?

Yes. So I don't know what you mean by working capital blockages...

In case, because -- let's assume if there are -- if you are confined your fund-based limits or nonfund-based limits, you may not be in a position to execute to a large extent. So I don't see that kind of issues surfacing up.

No, we don't have a similar challenge there, which I will...

So this means you stick to that 20% guidance -- growth guidance over the next 2 to 3 years, which you have said in the last call as well.

Yes. I think that we are on that path, because we have been -- we are on the path of our disciplined growth. We have a very disciplined strategy in terms of our margins as well. So you see our margins have always been preserved at 30% to 40% EBITDA level. And I think that going forward also, we should be able to preserve our margin to reduce the debt, reduce our -- some of these old debtors as well as increase the execution cycle as well, which will obviously have an impact on the cash flow as well.

Sure. So just to conclude that margin pressure will be somewhere between 13% to 14% as against what you reported a 16% or 17% in the base year or maybe even the last part.

Our annual, even last year, if you see our annual margin is around the threshold that I'm talking about. So our annual margin last year, I mean if you see the full year last year was around that level.

The next question is from the line of Mohit Kumar from DAM Capital.

Am I audible now?

Yes.

Congratulations on a decent set of numbers. My first question is primarily on the order inflow outlook for -- especially for the Railways segment. And with the high-speed rail, I understand that you're participating in metro and high-speed rail. Is my understanding correct, first of all? And how big is the opportunity for you to bid for some portion of high-speed rail and metro? And also, if you can comment on the order inflow outlook for the second half for Railways.

Sure. So as I said in my previous reply that our order inflow for this financial year, we intend to close the year also at 3x of FY '22 revenues. So our order inflow, which is about INR 160 crores already in the first half, we expect to have incremental order inflows to ensure that we are at 3x of FY '22 revenues. And I think that we are on track to achieve the same. In terms of high-speed and metro contracts, you're right that we are bidding for high-speed contracts as well. And metro contracts, obviously, we are already executing. We have executed the past as well. This is an area where the opportunities are increasing month-on-month, year-on-year. And I think that it is a large market that is addressable, and we do bid for contracts, especially bridges and viaducts for this segment. And we will be able to address this market given our bidding capacity as our credentials from now bidding for up to INR 1,000 crore contracts.

And all the tenders in high-speed rail or metro, do you participate on your own? Or do you participate in a JV?

Metro is generally in our own name. High speed, we have participated earlier in a joint venture, because high speed has certain other requirements that you need to have a joint venture partner.

Okay. And sir, coming back to the first question on the order inflow outlook from the railway, have you seen the railway standing pipeline increasing for the second half? And why H1 was so muted for the entire industry?

I think H1 was muted because the first quarter was almost a wash out due to the COVID. And secondly, I think that there has been right now more of a -- some changes in policy which the government was anticipating back in to what I addressed in the previous question as well. And the government intends to implement those policies before they tender on these contracts. Since they are -- some of the policies they have already changed, and they are in the process of changing further policies, I think they will start building out aggressively once these policies have been changed so that everyone is on the same line.

Okay. And lastly on this, on the revenue guidance. I'm attending your call after a long time. Have you given any revenue guidance for FY '22? And what is the expectation of growth FY '23 based on the current outlook?

So we expect...

And something on the EBITDA margin, are you seeing any pressure of input raw material inflation, which can reduce your EBITDA margin going forward?

So in terms of revenue guidance, we expect to grow almost 20% CAGR over the next 3 years. To give a guidance for FY '22 is kind of difficult due to COVID. But having said that, COVID is slightly behind us. So I think that in the third quarter, we'll be able to give a better guidance for FY '22. In terms of margin pressures due to the increase in raw material prices, I think that, as we have said earlier in our previous conversations as well that all our contracts have price variation formula, which is linked to steel prices, cement prices, et cetera. So we are adequately compensated in terms of the increase in the raw material prices, or rather I would say, even decrease. So I think our margins are in that way preserved. We bid for contracts in a very disciplined manner and expect our EBITDA margins to be 14% or north of that, slightly north of that.

So this price variation clause applicable to high-speed rail and metro also? Or you...

Yes, it is applicable across -- it is applicable for most of -- all our contracts, even the Concrete Sleeper contracts, even high-speed metro contracts as well, which we are executing.

[Operator Instructions] The next question is from the line of [ Monica Arora ] from Sharegiants Wealth.

Can you please throw some light on the subdued performance like on the consolidated business?

Yes. So like I've said in my opening remarks, our subsidiary in South Africa continues to experience some disruptions in terms of COVID-19 impact in South Africa as well as some civil disruptions in South Africa, which have now subsided. We expect that the same will normalize by December, and the operations will pick up from January onwards. So that is the only reason why the operations on a consolidated basis were subdued because of fixed costs in the South African subsidiary, which did not contribute any revenue per se.

Okay. And if I could just ask a little bit further, like how much was the impact of input prices increase on EBITDA per se? And going ahead, will you be able to pass it on?

So the input prices do not have a large impact on the EBITDA because all our contracts, whether it is the Concrete Sleeper contracts or the Infrastructure contracts, all have a price variation formula wherein the input prices in terms of cement, steel, et cetera, are linked to various indices of steel, cement, labor, et cetera. And they do change our contract value, whether on a positive or negative side depending on the increase or decrease of the prices. And this will -- this has been historically done over the last so many years. And I would say going forward also to be the same.

Okay. And what kind of order book expectation you have for FY '22 from the sleeper business?

From the sleeper business, I think that for FY '22, we should see the inflow of orders in South Africa and b, some incremental orders in India, so I think that we should see an incremental order inflow of almost INR 300-odd crores.

The next question is from the line of Alok Bajaj, an individual investor.

The question is simple that there are some rumors that parent company is under NCLT. Is it -- can you put the light on this thing?

No. No one is under NCLT.

Sorry, I could not hear you.

No, it's not.

The next question is from the line of Shruti Sharma, an individual investor.

I have just one quick question. I just wanted to understand that in EPC business, are we exploring other segments to enter in because as we see in infra sector, all the sectors are -- segments are really performing very well, and there's like a lot of opportunities. So are we looking to enter into any other segment or planning to explore any such opportunity?

So how the EPC segment does operate or Infrastructure segment has operated that you have to bid for contracts wherein you are having credentials. We do bid for contracts wherein we have had the necessary credentials. We have entered into various other segments, like we discussed earlier about high speed and metro and others. So as and when our credentials are also building up, we are entering into other -- whether it is a, segments; b, other geographies as well. And we are addressing the market as and when the opportunities do present to us.

[Operator Instructions] The next question is from the line of [ Rikesh ] from Barclays.

Can you just highlight how much will be the revenue impact we had because of the South Africa operation be disrupted, impact in the first half?

So last full year, the South African operations contributed almost INR 40 crores. This first half, it has contributed only INR 4.5 crores.

So it could have be in the region of around INR 15 crores, INR 16 crores, right?

Almost INR 20-odd crores, I would say.

INR 20-odd crores, okay. And now the operation is stabilized or from December as you indicated...

Like I said, from January, we expect it to resume the normal operations.

Okay. And can you just throw more light on the order book side. I mean, how many -- like how much order we are bidding because till now we have got around [ INR 1,732 crores ] worth of order in the first half. So what kind of number of orders we are bidding for and we are expecting to close it?

We expect to close the year at almost INR 2,000 crores of order book. And like I said, we are bidding for orders almost on a weekly basis, so I cannot give you the exact number, I mean how many orders we are bidding. But that -- if you want to be -- I mean send us the question and we can always answer it offline.

Okay. And then just last query on this NHAI, so how much amount receivable from NHAI will be lying in the debtors or something?

Almost INR 18 crores.

Okay. So almost INR 18 crores. And in our presentation, we have indicated around this INR 5 crores, INR 6 crores reduction in the debtor days. So are we building in anything from this NHAI or it is from the others, we are frankly looking to reduce?

So this does not reflect the receivables from NHAI. This is other old debtors, which is -- this is ex-NHAI, without NHAI.

[Operator Instructions] The next question is from the line of Jiten Rushi from Axis Capital.

Sir, my question is on the competition. So like we have seen high competitive intensity in the segment in which we bid for like project size of around INR 200 crores or INR 300 crores or even lower. Sir, how do we see this competition or we face low competition as of now? Can you just throw some light on this, sir?

No. Obviously, you're right. Competition is intensified, which also reflects in the low order inflow for this financial year. However, a, I think that's why we are addressing other geographies as well, like I said earlier, we are addressing other segments as well. We are also, I think, that hopeful that this policy of having a low earnest money deposit, which is up to December will not be extended and the unhealthy competition, which is right now there will subside post that.

And sir, you said rightly so, how many bidders do we feel like? Do we see like 10, 12 bidders or is it like...

7 to 8 bidders typically.

So these are all unorganized players? Or these are all organized players like GPT?

Most of them nowadays are unorganized because they are -- there's no earnest money deposit requirement. So that has led to this unhealthy competition. But I think that the policymakers are also realizing it, and I think that this policy hopefully should not be extended beyond December.

December. That should be good for the company because otherwise, execution again is a challenge even we get awarded the project.

Yes, because I think the unorganized players will not be able to execute. This I should not say, they will not be able to execute. I think that's clear.

I understand it. But you have seen, like in last 1 year, probably we saw COVID, last year first half we saw ordering picking up. So have you seen any loss in the order wins because of unmanaged players coming in and high competition where we have a benchmarking margin, do we see...

We are very disciplined in our order inflow and our bidding, so we don't anticipate any losses in terms of the orders that we have bagged.

Got it. So now I think, sir, Q4 onwards we can expect strong order inflows, as you have said, we are targeting more than INR 2,000 crores this year. Sir, can you just throw some light in terms of next year in '23 and '24, like what kind of top line we are targeting? I would not...

So that we will -- we expect to grow almost 20% CAGR. So that would anticipate our growth in the top line. However, like I said, this obviously has to be in sync with the order inflow as well. We expect that, like I said, in terms of the competition, once it subsides -- unhealthy competition subsides, the order inflows will also grow.

Sir, going forward, do we expect our receivables should be smooth? Like what we have seen in the past that they are stuck. I think the working capital requirement and other things should be normalized.

The working capital cycle is quite better compared to what it was even 2 years ago. Even this first half, if you see our cash flow from operations was quite healthy. And I think that should -- that does speak on our operations as well.

Sir, any CapEx required for this growth of 30% CAGR, like...

First of all, I did not say 30%, I said 20%. And CapEx is -- obviously, there will be some CapEx required, which is factored into our projections as well, our business plan as well.

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

Thank you, everyone, for your participation in today's Q2 FY '22 earnings conference call. In case you have any further queries, you may get in touch with us or with our IR team, Stellar Investor Relations. I wish that you all take care of yourself and your families and stay safe. Thank you, and have a good day.

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