GPT Infraprojects Limited (533761) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the GPT Infraprojects Limited Q2 and H1 FY '24 Earnings Conference Call. [Operator Instructions] I will now hand the conference over to Mr. Atul Tantia, Executive Director and CFO.

Thank you. Good afternoon, everyone, and a warm welcome to the GPT Infraprojects Limited Earnings Conference Call for the second quarter and half year ended September 30, 2023. With festivities in the air, I extend my warm wishes to everyone on the call today. The results presentation along with our press release has already been uploaded on the company's website and that of the stock exchanges. We hope you have had a chance to go through the same. Today, on the call, we also have with us Stellar IR, our Investor Relations advisers. I'm glad to announce that the second quarter and the first half of FY 2024 has been a remarkable quarter for the company. Given that generally the second quarter is one of the weakest for any infrastructure company, however, if you compare a quarter-on-quarter basis, we're almost flat, and we have achieved a 53% growth on a year-on-year basis. The strong quarterly performance is on all parameters, that is revenue, EBITDA, PAT and cash flow. This achievement is attributable to our strong execution capabilities and a steady focus on cash flow. Now moving to the financial numbers for the second quarter and half year ended FY 2024. Our revenues for Q2 FY '24 were INR 225 crores on a standalone basis, which compared with INR 151 crores last year, representing a growth of 49% year-on-year. On a consolidated basis, the revenue stood at INR 235 crores compared to INR 153 crores for the last year, representing a growth of 53% year-on-year. On a half year basis, the revenues were INR 464 crores on a stand-alone basis which were higher by 37% on a year-on-year basis as compared to INR 339 crores last year. On a consolidated basis, the revenue stood at INR 474 crores compared to INR 342 crores last year with a growth of 39% year-on-year. In both the standalone and the consolidated numbers, we have set the target of 25% growth this year, and we are very confident of achieving the same. This growth will majorly be driven by a significant execution in Infrastructure segment which accounted for approximately 89% of our total revenues. Our standalone EBITDA for the quarter stood at INR 27 crores compared to INR 20 crores, representing a growth of 39% year-on-year. And EBITDA for the half year was INR 60 crores compared to INR 44 crores last year, that is a growth of 35%. In terms of consolidated EBITDA, the same came in at INR 32 crores for the quarter compared to INR 21 crores last year, representing a growth of 58% and EBITDA for the half year stood at INR 62 crores compared to INR 43 crores on a consolidated basis last year, representing a growth of 44%. We are quite confident of maintaining our long-term EBITDA margin of 12% to 13% from the operations, which we have guided historically. With the improvement in revenue, the operational efficiencies have helped us ensure long-term EBITDA is met, and we expect the same to be maintained going forward as well. The company has declared an interim dividend of INR 1 per share. The record date of the same has been fixed on November 24, 2023, maintaining our dividend policy of rewarding shareholders. In terms of balance sheet, the management continues its strong focus on cash flow and receivables while ensuring the projects achieve the hurdle rate EBITDA of 12% to 13%, which has led us to report strong numbers over the last 3 years. Our cash to EBITDA conversion remains strong and will be one of the highest for the industry, especially this year on account of the receipt of arbitration receivables. We expect it to cross 100% and thus providing comfortable liquidity for the operations. The bank limits continue to be utilized south of 85%, thus enabling the operations to go on smoothly. We have availed facilities for issuing performance surety bonds from insurance companies for the new projects awarded to us being the first company in the country to do so. Furthermore, our balance sheet is becoming more deleveraged with operating cash flow being much, much stronger. Now coming to our segmental performance. Our Infrastructure segment demonstrates strong execution progress with a remarkable 37% increase in revenue compared -- reaching INR 210 crores for the quarter ended September 30, 2023. This segment continues to be the backbone of our business, contributing almost 89% of our total revenues for the quarter. Regarding the Sleeper segment, the same generated revenue of INR 24 crores in second quarter FY '24 despite completion of the contract for the dedicated corridor and we anticipate the increase in momentum in the Sleeper segment will be backed by the commencement of the operations in South Africa. We expect this segment to contribute 10% to 12% of the annual revenues for the full year as well, especially with the Ghana operations also contributing revenues in the fourth quarter once the production is approved by local railways. The key contracts for the Infrastructure segment continue to be perform well with contracts like Prayagraj, Ghazipur, Mathura Jhansi, Nimitita, Byculla driving a major part of the revenues. In terms of the order book, for the second quarter, we have achieved the highest order book of INR 2,877 crores which is the unexecuted order book due to the order inflows of INR 1,017 crores during the year, which represents almost 3.6x our FY '23 revenues, providing strong visibility to the management. Recently, we have bagged the largest order -- largest single order in the history of the company for INR 739 crores from NHAI for construction of a new 4-lane Prayagraj Southern bypass on NH17 in the state of Uttar Pradesh under the Bharatmala contract on an EPC basis. This is -- a major part of the contract is for the construction of bridge over the Sangam in Allahabad. It is worth mentioning that this order book represents one of the highest in the company's history. To enhance profitability, we have implemented key measures such as optimizing working capital and reducing outstanding with various customers. We continue to be positive driven by our strong outstanding order book, improving financial conditions, including stronger cash flows and lower debt position as a result of a reduction in the receivables. We have already mentioned to you about the setting up of the factory in Ghana with a capacity of 240,000 sleepers. The factory has already been commissioned, and the product is awaiting the final approval from the railways, post which the revenues will start to be booked. The South African business is back on track. Its revenues are increasing by 138% on a year-on-year basis. As we have indicated in the previous call as well, we are glad to inform you that our company has settled a long pending arbitration disputes with 2 customers under the Vivad Se Vishwas scheme, contractual dispute scheme of the Government of India, which were in -- which we applied during the previous quarter and the pending disposals have been mutually settled between the customer and the company subsidiary, the joint venture. The customers have also withdrawn the cases from the courts. We expect to receive the cash from these customers by December 31, 2023. We are very thankful to the government for bringing out such a scheme which will ensure that the old disputes across the industry are settled and will provide much required cash flow for all the companies. Industrial updates. As we navigate the challenges presented globally, we are continuing discovering our sources of strength and resilience, to boost trade flow and add passenger trains, the Indian Railways have suggested a massive plan to invest INR 4 lakh crores on multi-track 7 high-density corridors. The program has been spread over a period of 10 years from 2024, '25 to 2033, '34 in addition to doubling and brining third and fourth lines on many sections throughout the course of the next 10 years. The main objectives is to make these corridors currently carrying 41% of the Indian Railways' total railway traffic, more capable of having additional trains, especially with the advent of the Vande Bharat passenger and the Vande Bharat sleeper trains as well. I would like to reiterate that in Q2 FY '24, we secured orders of INR 1,017 crores for the first half, including incremental orders from existing contracts. As of Q2 FY 2024, our unexecuted order book remains at INR 2,877 crores, which is approximately 3.6x our FY '23 earnings, providing excellent growth with a belief for the management. With strong execution on the back of the largest order book in the history of the company, we are on track to cross INR 1,000 crores of revenues this year and expect to maintain the growth momentum going forward as well. We remain positive for the future prospects of the company and improving financials led by improving cash flows and reduction in debt position due to better operating cash flows, which we believe will position us for the higher growth trajectory in the coming quarters. As I've already mentioned earlier, we are bidding for orders up to INR 1,000 crores single order, and we are expanding our potential opportunities for the growing Infrastructure segment in India. Testimony of the same lies in the receipt of the largest single order received by the company of INR 739 crores in the last month. As we have started our fiscal year 2024 with a strong performance, we expect to maintain the same going forward as well with a guidance of 25% growth in revenues and 50% growth in profit for the full year. Thank you, everyone, and we look forward to addressing any questions or concerns you might be having with respect to our financial performance and future prospects. I will now request the moderator to kindly open the floor to any questions and answers.

[Operator Instructions] The first question is from the line of Sudhir Bheda from Bheda Family Offices.

Yes. And heartiest congratulations for the outstanding set of numbers. With the kind of margin and growth you have done, it's amazing, sir. So congratulations on that. Sir, my question is, as we have grown by almost 35% in first half, so the same momentum is likely to continue for the second half as well?

So just to correct you, we have grown -- this momentum is expected to be 25% for the full year, which I have said in my opening remarks as well, and we expect to maintain or cross INR 1,000 crores for the full year.

So that means second half would be muted kind of growth, 15% -- 25% we have already grown. So to get the average of 25%, our growth would be like muted in the second half. Is it the right understanding?

It's not muted per se. I think on an average, we would be -- second half, we will achieve almost close to INR 600 crores of revenue. So I think last year, we achieved about INR 500 odd crores, almost 20%. Close to 20% -- 18% to 20% growth.

And second factory at Ghana which is going to be started in the second half, maybe in the last quarter or so. So what kind of revenue that can generate for the full year if we project it for the next year?

So that will generate a revenue of almost INR 60 crores, INR 65 crores for the full year.

Great. And sir, order pipeline, if you can throw light on the bidding pipeline or order pipeline which you are...

We are on unexecuted order book of almost INR 2,877 crores and the L1 in further almost INR 200 crores of order.

[Operator Instructions] The next question is from the line of Parth Kotak from Alpha Plus Capital.

Congratulations on a splendid set of numbers. I don't mean to pry, but as my previous participation, probably with all infra companies, probably second half is slightly stronger than the first half. By that means, do we not see our revenues coming in slightly stronger and more than what we are guiding for?

So we had earlier guided for a 20% growth for the full year, which we have bumped up to 25% for the full year. So I think that we might exceed that revenue, honestly -- that number, honestly. But we will be anywhere between 25% to 30% for the full year. But like I said, we expect to be in the range of about INR 1,000 plus crores. So it would be almost INR 1,050 crores for the full year. INR 1,050 crores does mean almost close to 29% growth. But 25% is something that we think that is quite -- will be done and we have a target set internally for almost 30%. So if it's -- if we do achieve 30%, then still for the second half, it will be growing at 22% to 25%.

Perfect sir, that helps a lot. Sir, secondly, I think the arbitration receipt was supposed to be received in October. Has there been a slight delay? And if that's the case, do -- would there be a chance that there would be further delay in receipt of this arbitrage?

So the arbitration, receivable was not expected to be received in October. It was expected to be received by December 2023. We have already settled the arbitration award and the agreements have been signed. The cases on the court have been withdrawn by NHAI and IRCON, respectively, and by us as well. The expectation is that one of them will be received in this month itself, that is November. The second one could be November end or early December.

Okay. Perfect, sir. Sir, just one last question, probably not so much on the fundamentals. I think the market realizes our pricing and market cap is slightly out of sync with our fundamental performance which is sort of being hindered by the ESM mechanism, which is being implemented by the exchanges. Any view on when we would be out of the ESM mechanism?

I think someone in the exchange can only answer, I have no idea, and we do not honestly can help it to get out. The exchanges have their own criteria and filters to put companies in and out of the ESM mechanism. I hope that it is done earlier rather than later. So that's the only thing I can say now.

[Operator Instructions] The next question is from the line of Anish Mehta from Donga & Associates.

Congratulations on the excellent numbers. My question is related to arbitration award, which is declared -- settled and declared in the name of the company. So how is it been reflected in the P&L for the quarter ended '23 -- September '23? It has on the balance sheet as on September 30, '23.

So the arbitration receivable has been reflected in the P&L of the quarter ended September 30, 2023, and the assets that we were carrying in terms of the work in progress, inventories, et cetera, they have accordingly been also expensed out. So they have been -- the P&L has been adjusted towards the arbitration receivable.

Okay, sir. And this revenue has been recognized as of now or it was earlier recorded?

Revenue -- so as per the accounting policy, revenue is recognized net of the, what you call, the arbitration -- the carrying value of the investment -- or carrying value of the inventory and the work in progress and the revenue for the contract assets. So it has been netted off. The revenue recognized is not significant amount, it is quite a small amount, about INR 5-odd crores for the subsidiary. So again, to clarify, the arbitration has been settled not by the company, but the company's subsidiary and joint operation. The company has not done it.

Okay. So in the balance sheet which has been provided for the March 31, '23, there was disputed trade receivables considered. It was -- this amount was -- have been impacted here, INR 438.04 crores, right?

No, no. The disputed trade receivables is not INR 438 crores. I don't know where you're getting that number from. Disputed trade receivables is much, much lower. INR 438 crores is not our total receivable as well.

In the annual report, which has been provided, it is INR 438.04 crores, disputed trade receivables considered good, standalone numbers, INR 4.38 crores sorry.

Say that. You're saying INR 438 crores, that's why I'm getting confused. So out of -- so that -- part of that has been realized and one more from the Kanpur Development Authority is still pending, that is there in the audit report as well.

Okay. So this INR 70 crores, which is the number which we have settled, when it was and how much it has been write off as of now?

So INR 70 crores is not the number that we will get, the subsidiary and the joint operation will get. Our share is 74% in terms of the contract with NHAI and 57% in terms of the contract with IRCON. So if I were to total both of them, we would get close to INR 50 crores. Out of the INR 50 crores, this number is there in terms of the consolidated balance sheet on the trade receivables at the moment for the supplement -- balance sheet.

So it means since we have not received the money, it has not been impacted in the balance sheet. We have not written off, right?

That INR 50 crores is coming as a balance sheet number from the receivable from the customer. It is in the current assets and the corresponding inventories and all that have been written off in the P&L.

Okay. So do you have exact numbers, how much of this INR 70 crores is recognized as revenue in the current quarter? And how much has been write-off?

There is no write-off per se of any of the receivables. The earlier receivable was -- the earlier -- we were carrying it as an inventory. So revenue that is described net of the inventories. That's one thing. The revenue for the subsidiary that has been recognized is about INR 4.8 crores.

INR 4.8 crores revenue, okay.

That is net of the carrying value of the subsidiaries, inventory and other expenses.

Okay. So INR 70 crores is total which we will receive, right?

No, no, no, INR 70 crores is not total we will receive. INR 50 crores, like I said. INR 70 crores is not our share. INR 70 crores is the total amount of money, our share is INR 50 crores which is 74% of the NHAI receivable of INR 59 crores and 57% of the IRCON receivable, which is INR 11.77 crores. So total our share is about INR 50 crores, INR 70 crores is overall received from the customer.

So out of the INR 50 crores -- INR 4.8 crores out of the INR 50 crores, right?

Correct.

And the net will be adjusted against the inventory and all, right?

Net of the carrying value of the inventory and other contract assets, which includes the work in progress, et cetera, the revenue recognized in subsidiaries is INR 4.85 crores, close to that, yes.

So INR 4.8 crores is our share, right? Or total?

It is our share.

[Operator Instructions] The next question is from the line of Sudhir Bheda from Bheda Family Office.

Just wanted to ask, sir, about the margin trajectory. As a long term, you have already stated 12% to 13% is a range where we can expect a long-term margin, sustainable margin. But if you see really we have clocked around 13.75% margin for the first half. So this kind of margin, at least in a year or so, it will continue or how it is? Or it was some -- it will taper off in the second half?

No, for a year or so, it will continue because the Ghana operations will have a higher margin. So I think this kind of margin will continue for a year or so. But the long term, that I'm sure it will be in the 12%, 13% range. And for a year, especially with EPC contracts, with larger EPC contracts, that's the range in the industry. But for the next year to 2 years, because of the Ghana operations and what we call, the margins for that [indiscernible], we should get that 13.5% to 14% range.

And sir, one more question. If I emphatically listen to your commentary, you have stated that for the entire year, cash conversion to EBITDA would be around 100%. So is it the right understanding?

Cash from operations to EBITDA will be north of 100%, especially because of the receipt of these arbitration receivables.

The next question is from the line of Aditya Sen from RoboCapital.

Sir, in earlier calls and press releases, you have mentioned that we'll be expecting INR 1,600 crores of order inflows this year and we have already done more than INR 1,000 crores. So in H2, are we still expecting around roughly INR 600 crores of inflows? Or it should be more than that?

So like I said in one of the earlier questions, the L2 -- sorry L1 almost INR 200 crores of new orders. So H2, we should get -- especially with elections around the corner, we should get close to INR 800 crores to INR 1,000 crores of new orders. We will, I think, cross the INR 1,600 crores target that we have set for the year.

All right. That's great. And we are growing 25% this year in terms of revenue. So same trajectory for FY '25-'26?

On FY '25, yes. But I think FY '26, again it depends on how the order book plays out. Obviously, there is a major event, that is the elections. But I think that we should grow around the 20% to 25% mark in the next 5 years as well.

[Operator Instructions] The next question is from the line of Dhiraj Sachdev from Roha Asset Manager.

I just wanted to know what is the margin, the difference between Ghana and the EPC contracts that you're doing domestically and also since our NHAI mix is also increasing a bit, are you confident of maintaining these margins and cash flows on the working capital side?

Sure. So the Ghana, the margin is close to 27%, 28%. And that is also -- we have also achieved that earlier in Namibia as well. In the African market, generally, it's north of 20% for us, South Africa also. In terms of whether we can maintain this long-term EBITDA of 12%, 13% due do NHAI and other larger contracts. So like I said, again to the previous caller, because of the Ghana operations next year, we would be around the 13.5% to 13.75% margin. But long term, we see it in the 12% to 13% range. So we were earlier doing maybe around 13%. Now we are saying because of the larger contracts, we will do about 12% to 13% range. But having said that, with the reduction in interest expense and the PAT margin will be higher than what it was historically.

Yes. But then since the mix is also changing and you have seen a lot of EPC players with larger contract sizes having success in the past, what is the threshold for accepting an order? What is the due diligence and risk management practices internally that you adopt for taking or not taking the order because at the end of the day, it's a tender business, competitive business, but it can dilute your cash flows, it can dilute your ROC. So if you can elaborate on the management strategy on the order quality intakes rather than just building up the order book?

No, no. We are never interested in just building up the order book. We are -- we don't like to do that ever. So one of the key filters is, a, we like to see the line of funding, and we do mostly central government contracts. And I say mostly, almost 90% to 95% is central government funded contracts or multilateral funded contracts. These contracts are generally with the railways or this NHAI or MORTH. We are -- our railway [indiscernible] and others. And these contracts generally have the land available so that those contracts can go on smoothly. And we are very, very disciplined in terms of our bidding strategy that we want to maintain that kind of EBITDA margin. So we do build in some contingencies as well so that when we are able to execute the contracts, we are able to deliver the 12% to 13% EBITDA range. And if you see our decadal EBITDA, it has been always north of 13% which shows the discipline of the management. We have a strong audit committee as well as a -- fully independent audit committee, which monitors the margins on a quarterly basis and has discussed the same with the strategy order, which is BDO that is MSKA & Associates. And they do review the budgeted margins for the provider management and how we are tracking against the actual margins. And we have seen that we have tracked quite close to the budgeted margin, which is 12% to 13% historically.

Again, my question is only partly answered on the margins. You mentioned about committing due diligence on margins of 12%, 13% on the new orders. My question is extended not only to margins but also on the working capital and cash flow side. So ROCs, how do you intend to maintain beyond 14%, 15%, 16%. So ROC should be valued at -- it should be valued not just the margin part, but also on the orders and the milestone payments and the ROCs effectively speaking rather than just taken on profits. Can you elaborate that part?

Yes, sorry. In terms of ROC, we have always been targeting that our cash flows would be -- cash flow to EBITDA will be north of 90%. So if our cash flow to EBITDA is north of 90%, which I don't think many people in the industry can claim, that really speaks on the return ratios that we can deliver. Our long-term target for ROC is 18% to 20%, and we expect to maintain that as well. We are -- and we have a good dividend policy as well. So ROE might seem a little depressed in terms of the -- optically, but I think because if you adjust for dividend, it will be slightly higher.

Okay. That's good. So we are evaluating beyond these margins only?

Yes, yes. So we see -- so we always believe cash flow is king and cash flow is something that we should always factor in when we are bidding for contracts. We do a full cash flow analysis, and then only we do this for contracts.

So just an example, this Prayagraj order of INR 739 crores will reach your criteria of 90% EBITDA to cash flow conversion?

So it can be, what you call -- on a quarter-on-quarter basis, it can be slightly skewed because initially, there would be lot of investment that will happen towards the contract. And it might be due to like the milestone payments et cetera, it might not deliver the 90% mark. But I think that after the second or the third quarter, we'll start achieving that 90% mark.

Yes, that is understandable. That's given. So what is the execution time cycle for this project, let's say?

30 months.

So over a period of 30 months is when you're saying EBITDA to cash flow can become 90% even for this project?

Correct.

[Operator Instructions] The next question is from the line of Anish Mehta from Donga & Associates.

Yes, my question is you said you have around 74% holding in Jogbani Highway Private Limited. So sir, can you tell me who is the other party? Balance of 26%.

So there are other party called RDS Project Limited, that was the qualification criteria.

RDX?

Not RDX, RDS. That was a qualification criteria when we bid for the contract in 2010, '11. So they are the other parties to the subsidiary.

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

Thank you, everyone, for your questions, which I hope I've been able to suitably address. In case you have any other further questions, please get in touch with Stellar IR or directly with us. I wish you a very Shubh Deepavali and hope that the coming year will be prosperous and successful for you and your family. Thank you, and have a good day.

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