H.G. Infra Engineering Limited (HGINFRA) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the H.G. Infra Engineering Q3 FY '23 Earnings Conference Call hosted by Go India Advisors. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Priya Sen from Go India Advisors. Thank you, and over to you, Ms. Priya Sen.

Thank you, Vivian. Good afternoon, everybody, and welcome to H.G. Infra Engineering Limited Earnings Call to discuss the Q3 and 9 months FY '23 results. We have on the call Mr. Harendra Singh, Chairman and Managing Director; Mr. Arvind Khandelwal, President, Strategy; and Mr. Rajeev Mishra, Chief Financial Officer. We must remind you that the discussion under today's call may include certain forward-looking statements and must be, therefore, viewed in conjunction with business that the company faces. May I now request Mr. Harendra Singh to take us through the company's business outlook and performance subsequent to which we will open the floor for Q&A. Thank you, and over to you, sir.

Yes. Thank you, Priya. Good afternoon, ladies and gentlemen. Thank you all for joining us on the Q3 and 9 months FY '23 earnings call today. I hope you are all doing well. Since our inception, we have placed a strong emphasis on our bottom line by selecting high-quality projects. We are a symbol of trust for all our marque clients. To build a sizable order book, we are relentlessly working to think beyond the road segment and diversify our business by showcasing our strengths. With the addition of the new DMRC project to our order book, we are boasting our presence in other segments in order to maximize value creation for all our stakeholders. As you can see from our earnings presentation, which have all been uploaded on the website and the stock exchange, our company has yet another strong quarter demonstrating exceptional results. Before I talk about the quarter results, let me give you some updates on the infrastructure first. This year's union budget prioritized infrastructure, boasting overall CapEx outlay by 33% to INR 10 lakh crores from INR 7.5 lakh crores. Talking about the roads, more [indiscernible] allocated some INR 2.7 lakh crores in the union budget, which is up 35% from INR 1.99 lakh crores. The budget envisaged an expansion of 25,000 kilometers in the highway network in the current fiscal year. Significant opportunities is offered by the NHAI robust pipeline of 4,500 kilometers of project, totaling INR 1,144 billion as a tender. Given our strong pipeline execution is scaled and our healthy balance sheet, we are confident that the center pipelines will result in significant order inflows for the company in the coming months, followed by railways, which has received the highest ever capital outlay till date of INR 2.4 lakh crores. The capital expenditure is expected to be spent on a variety of critical projects, including multi-model stations and high-speed networks. Also water segment is a focus area of this budget under the Jal Jeevan Mission. In various states, this flagship project of center has been allocated INR 69,684 crores, and that is again an increase of 27% over the last year. This year, airport in the union budget includes 50 more airports, heliports, water aerodromes and advanced landing fields that could be reactivated in order to increase the regional aviation connectivity. With such a great impetus on infrastructure, we foresee tremendous growth opportunities, enabling us in diversifying our order book and entering into new segments. Now let me start with the quarterly financial performance of the company. Quarter 3 instated on a positive note with a strong economic activity. During the quarter, we touched highest ever quarter's top line of INR 1,131 crores, that is at stand-alone level, as compared to the revenue of the corresponding period of last year last quarter at about INR 922 crores. The EBITDA during the quarter was INR 189 crores and EBITDA margin stood at 16.7% in Q3 FY '23. There is an upward trend seen in the EBITDA margin due to the reduction of the cost of material consumed by 25.2% and the receipt of bonus of INR 15.95 crores. The profit before tax for Q3 FY '23 was INR 151 crores versus that of Q3 FY '22 at INR 120 crores. PAT grew to INR 111 crores in Q3 FY '23 versus INR 89 crores in Q3 FY '22, showing a growth of 25.3% on a year-on-year basis. Coming to 9 months financial performance. That is on a stand-alone basis, our overall revenue of 9 months FY '23 was INR 2,949 crores, an increase of 13.9% year-on-year from INR 2,589 crores in 9 months FY -- of FY '22. EBITDA was INR 473 crores in comparison to INR 428 crores during the same period last year, showing a growth of 10.4% on a year-on-year basis. In 9 months FY '23, the EBITDA margin was 16%. PAT margins for 9 months FY '23 was 9.3%, while the profit after tax for the 9 months was INR 274 crores as opposed to INR 247 crores for the same period last year. On a stand-alone basis, our gross debt as on 31st December 2022 was INR 471.47 crores. This includes our capital debt with credit limit of INR 81.9 crores, term loans and current maturities of INR 389.48 crores and including the NCD of INR 97 crores. At the consolidated level, our gross debt was INR 1,589.75 crores, which comprises project debt of INR 1,118.29 crores. Some of the significant operational highlights on our prominent projects are as follows. I'm pleased to share that we have been declared L1 bidder and receipt of LOA by NHAI HAM project worth INR 997 crores. It is a 6 Lane Greenfield Karnal Ring Road project in the state of Haryana. The company has also diversified its order book in the railway and metro segment. Having projects awarded by Delhi Metro, we have received one of the -- one of our first metro project worth INR 412 crores, including of GST, which is in line with the company's objective to diversify its order book portfolio. As of December 31, our entire pipeline of unexecuted orders totaled INR 11,064 crores. We are present in 9 different states, and our order book is well diversified including 61% of our EPC projects and 39% HAM projects. Coming to the progress of the major EPC projects. Our progress is as follows. With regard to the DV packages, that is package #8, we have made a significant progress in this and almost completed around 93.6% financially. The project is anticipated to be finished this February, and we have already applied for the COD. For Delhi Vadodara Package 9, our completion status stands at 86% financially, which is in line with our completion target in this quarter. In the Mancherial project of Adani, the completion status is 81.7% that is financial. We have received PCOD for this project in December 2022, and the entire project is expected to be completed in Q4 except for certain sewage works. In the Urban Expansion Road of Delhi project, Delhi-Karala-Kanjhawala, we have finished 39.9% of the job, which is progressing according to our scheduled time lines. In Ganga Expressway project of Adani, we have executed 4.9% of the work and the execution is fulfilling in this project. In the Neelmangala-Tumkur project, the completion status is at 4.8%. Moving on to the HAM projects, which are under execution, which are also progressing well as per the scheduled time line. In the Rewari Bypass HAM project, about 89.7% of the project is completed. We expect to get the provision completion by this financial year. In Raipur-Visakhapatnam Corridor project of AP 1, the completion status stands at 24.3%, which is right on schedule time. Further to the 2 HAM projects of Raipur-Visakhapatnam, that is Odisha OD Package 5 and 6, we have accomplished about 19.1% and 23.7% of the project, respectively, and they are again moving right on track. In Khammam-Devarapalle Package 1 and 2, which we have started recently, project execution stands at 6% and 9%, respectively. For all 10 HAM projects, the total liquidity requirement anticipated till FY '25 stood at INR 1,273 crores. That includes the equity requirement of recently awarded Karnal Ring Road project. Out of this, an investment of INR 720.3 crores as of December '22 has already been made and a projection to invest INR 38.4 crores is estimated in this remaining financial year, that is FY '23. We would like to update the forum that on monetization of 4 HAM projects, it is at an advanced stage with the technical due diligence of these projects is under progress, we are hopeful that we should be able to sign the document formally to conclude this deal shortly, subject to our expected valuation and the satisfactory conduct of due diligence. Other significant developments at the organization level are as follows. We received a bonus of INR 15.95 crores in December '22 from NHAI, that is for Rewari Ateli Mandi Narnaul project and another INR 4 crores bonus is in the approval stage. We are also anticipating to receive a bonus of about INR 4.5 crores for the Rewari Ateli Mandi project during quarter 4. Now guidance on the bidding outlook at the business opportunities. We are highly optimistic about the sector's outlook and the opportunities for the forthcoming year. The government's focus on infrastructure is evident from the current budget. Given that we will be entering the election year soon, we expect the focus on ordering to fix strong reach. At H.G., we have laid the groundwork for our pace of expansion. The three main areas of our focus are operational efficiency and effectiveness, cost optimization and timely completion of the project. We are anticipating INR 3,000 crores to INR 4,000 crores orders before March to maintain the order book, which will result in 2.5x revenue. Furthermore, we have submitted bids for projects totaling INR 80,000 (sic) [ INR 80,000 crores. ] We will be submitting -- sorry, we will be submitting the bids for projects totaling INR 80,000 crores, of which INR 4,000 crores pertaining to railway, INR 2,000 crores from water projects, INR 1,500 crores of metro and some INR 73,000 crores in the highway projects. The opening of some of the tenders is still pending, which are in the tune of about INR 15,000 crores. Together, the diversification of company's portfolio is well underway. As we have reached the top line of INR 2,950 crores till December 2022, we are hopeful that we will be achieving the growth of 22% to 25% in comparison to the last year revenue to endorse our guided numbers. Now I would like the moderator to open the floor for the question-and-answer. Thank you.

[Operator Instructions] The first question is from the line of Mohit Kumar from DAM Capital.

Congratulations on another good quarter. So my first question is on the revenue guidance. You said 25% for FY '23, given that the last year base was INR 10 billion, this implies around 50% growth. Is that achievable in the Q4?

Since we are looking at about, say, 25%, which comes at around INR 4,500 crores. So this quarter 4 has to be where we need to run at about, say, 1.5x of the earlier quarter last year. Yes, sure. With all the projects under execution and whatever you can see about the monsoon times and any of the winter times, they are now gone. And we are running at about, say, almost INR 20 crores a day in many of the projects yielding that particular number. So we believe that 100%, we would be achieving the target.

Sir, on the bid pipeline, especially for NHAI, I think that is a very muted last 9 months. Do you think the Q4, they will use it, that part should pick up based on the -- based on whatever you have...

Yes, for sure. I think for the first half of this year, nothing much has happened as for the bidding and many of the contractual say, agreement correction modification was going on. Now you see in December and now in this current 3 months, so around INR 78,000 crores, which we have looked into, to bid up. But they are more than INR 1 lakh crores of projects at the tender stage.

And how the execution, especially in FY '24. There is the partial part will happen in FY '24 to sense 50% of this order book to get executed in the fiscal year?

Sorry, I couldn't get your question clarity.

My question was on the Ganga Expressway. Will that 50% of the execution happen in FY '24, is that a fair assumption?

Yes, for sure, because the 27 months duration project, and we started in November. So with that, we need to complete by March sometime by February 2025. So 50% of the execution would be coming in FY '24 from Ganga Expressway.

[Operator Instructions] The next question is from the line of Shravan Shah from Dolat Capital.

Congratulations for the good set of numbers and the highest ever revenue, EBITDA and PAT in a single quarter. Sir, just wanted to understand slightly more in detail in the sense that now we are seeing slightly reduce our revenue guidance for this year to INR 4,500 crores from last of INR 4,600 crores. So is it possible that by year end we may see even INR 4,400 crores. So ideally from the original INR 5,000 crores to now coming to INR 4,600 crores and then now we are saying INR 4,500 crores and also in terms of the FY '24 last time we said INR 5,800 crores to INR 6,000 crores. So how are now the new guidance?

Look, I think for this year, the correction has been because of the few delays in the appointed date and the -- majorly because of the Ganga Expressway, which earlier was anticipated to be started by July, and where the shortfall is clearly visible because of that for INR 5,000 crores to 4,600 crores. We still are in that -- confidence that we would be reaching that number of earlier being guided with INR 4,600 crores, but we are keeping it say, well within the achievable target that 100% is what INR 4,500 crores. So the reason behind that was for INR 4,300 crores to INR 4,400 crores was the big reason for those 3 projects. we already discussed last quarter. Now coming to the FY '24, if you see the total orders, which we need to deliver or execute into FY '24, whatever is -- was not possible during this year, would be added to the next year. So we are keeping our guidance of about 22% to 25% which earlier was not that number on year-over-year, so which always INR 5,600 crores, INR 5,500 crores always is achievable.

Okay. Okay. And in terms of the margin, more than 16% even if there is no bonus. So that is achievable.

Yes. Say, we are having all our projects, which are having bearing this margins on every delivery way. So we're not seeing much of the challenge as far as getting the 15% margin.

Okay. So -- and in terms of a couple of things, just to clarify. The total equity with the new Karnal Ring Road, you said INR 1,237 crores, what's the requirement?

See the total equity requirement is now INR 1200 crores, earlier it was INR 1,100 crores and now it's been -- INR 150 crores is added to that.

Okay. And for fourth quarter, you mentioned INR 38.4 crores. So in '24 and '25, how much to be added?

It's cutting around say INR 325 crores and INR 170 crores in FY '24 and FY '25 respectively.

INR 325 crores and?

INR 170 crores.

INR 170 crores.

If you took into that INR 720 crores already invested till December '22. So the balance number is of INR 170 crores is being splitted into say INR 8.5 crores here then coming followed by INR 327 crores or rather INR 327 crores in '24 and '25 INR 171 crores.

Shravan, to answer your question, INR 1,270 crores was total investment. Out of that, INR 720 crores has already been invested. So balance INR 550 crores is only to be invested in the next 27 months.

Yes, I got the point. Sir, need a couple of balance sheet data points. So before that, just in terms of the data, though it has increased by INR 79 crores by year-end, will it come back to again INR 430 crores, INR 440 crores?

Yes, for sure. This has been an uprate increase because you see we initially had given that the CapEx addition, which was a key trigger for this particular financial year, which earlier, 5 years back, we all invested around INR 250 crores in '17, '18. So this year, the major CapEx has been added. So because of that, it is INR 108 crores of debt being added during this quarter, this quarter only. So the selling plants or the key segments which are about to be sold. So they are all on cards, and we would be, say, at least INR 21 crores of equipment would be sold in this particular -- we will be selling in this particular quarter. And then again, if you see to the number, which would be coming down to about INR 24 crores, INR 25 crores by the end of this year.

Okay. So the data part I need is inventory, trade receivables, trade payables, return some money, unbilled revenue, mobilization advance.

So the borrowing base you have already [ seen ], that is total INR 471 crores out of the major is a term debt that is INR 292 crores. [indiscernible].

So I need an inventory number, trade receivable number, trade payable number, unbilled revenue, mobile [ addition ] advance and detention money.

Unbilled revenue no, sorry, what you hear on is the debtor balance.

Yes. debt, inventory, trade payable.

Okay. So debtor balance is INR 638 crores. And then the mobile [indiscernible] advance INR 412 crores. and Trade payables is INR 638 crores. Inventory is INR 226 crores. Rather than the FDRs and GST deposits and et cetera, the FDR is [ 170 ]. So likewise, it is coming at about INR 653 crores other assets.

Yes. Retention money and unbilled revenue.

That is all included and receivable is included and unbilled revenue is about say INR 582 crores, I would like to add here this unbilled revenue has gone high in this particular quarter because there has been what we have executed in Ganga Expressway and one of the projects of the Khammam-Devarapalli. So there, whatever has been executed it could not be built because of the -- some GST issues were there but the invoicing was done in January month. So we have not taken that particular revenue in the quarter, revenue means recognized revenue, it's remained unbilled because of [indiscernible].

Sir, you said the unbilled revenue is INR 512 crores.

INR 582 crores.

Sorry, INR 562?

82, 82.

582 and retention money. So last quarter, it was INR 175 crores. What is the number?

It's around same. INR 190 crores, potentially.

INR 190 crores, okay. Lastly, in terms of the -- you mentioned that how much orders that we have bidded in terms of to be bidded INR 80,000 crores that you mentioned, how much we have already bidded and [indiscernible]?

There is INR 15,000 of the orders already been, but we are -- yes, they are not open -- expected to be open within say, next 15, 20 days.

[Operator Instructions] The next question is from the line of Ashish Shah from Centrum Broking Limited.

So my question is on the -- some of the newer segments that we are planning to get into like railways, water and metro we've recently got into. So what are the margin expectations from these segments? Because typically, when we see the other construction companies engaged in some of these segments, their margins tend to be in probably maybe 11% to 13% range, and they do not kind of manage 15% margin or 16% margin. So how do we would like to guide on our future margins?

A project which we are looking into, had it be Metro or railway. So there, we are keeping. So that's why you can see because we are putting our entire trust with the last 1.5 years or so, but we cannot succeed getting one, say, many projects are out of the water or metro or railways. But then again, we are keeping very, say, clear eye on that, that the margin should be there at least, which are -- we are keeping, we are 14% to 15%, not less than 14% margins in other sectors where we can add the entry level -- at the entry level. And HAM project has already we have given you that last 3 years, we have seen the margins at about, say, 18% to 20% that are coming from HAM and the mix of EPC, which we are seeing in -- even in the EPC of NHAI, we are making margins of about, say, 13% to 15% in that range. So there's an averaging out, it is coming at around 16%.

Okay. So even on a blended basis, if these segments become like maybe 20%, 25%, we will still be broadly like 15-plus margins, 15% to 15.5% closer to 16%.

Correct. Correct.

Right. Sir, also more in terms of the asset monetization that you touched upon earlier. If you can just elaborate a little exactly, I mean, at what stage we are? You mentioned something about technical due diligence. So what is the kind of timeframe that you are expecting? And any expectation of how much we expect to get from monetization.

No. See, as of now, the number is not very clear on it. So you already in the last call also, we have discussed on it, but our expected valuation is about 1.4 to [ 1x ] of the equity, which we have invested into these 4 projects. That is one part. it is clear almost is the one of the clarity has come, thereupon, the technical diligence has been started because unless the [indiscernible] is being principally agreed. So nothing of that nature can be taken up. So we are already into that phase where most of the things are all aligned. Now post that, anything like SBA and binding agreement to be signed. So within the shortest period we expect, so while everything is over. So within next -- within a month or so, we can conclude upon our deal closure. And therefore, I think the productions and everything of [indiscernible] the NOC from the lenders and NHAI, it will take another 3 to 5 months. So probably by September end, we believe that we would be able to monetize those assets and then actually cash can come in the accounts.

Sure, sir. Sir, lastly, can you just tell us in terms of this new HAM asset we've got. So what is the rate at which the financial closure can happen? I mean what is the kind of ask rate of the banks at this point of time?

It's very early to say [indiscernible]. We are initially getting the offer about 8.3%, 8.5%, so but it's very early to say.

Sure. And the equity debt portion, et cetera, will remain the same. There's no change from the historical?

Almost will be same.

[Operator Instructions] The next question is from the line of Nikhil Abhyankar from DAM Capital.

So just to clarify once, the bonus income has been around INR 16 crores in this quarter, right?

Yes, it is INR 15.95 crores to be very precise, and that is at the SPV level. At the company level, it has been 90% of that, it is [ INR 13.7 ] crores.

Sir, if you access that against the revenue, so the margin is coming out to be around 15.6%, 15.7%...

It is 15.73 to be very correct.

Right. So sir, are we still seeing some margin pressures?

I will explain a few reasons that margins definitely at 16 are much visible. The employee cost, which has gone high in this particular stage because the projects which we have recently mobilized and even the CapEx cost of the CAM construction, et cetera, has been done in those projects, which is giving a higher number of that particular expense and [indiscernible]. So it is coming at because 1% to 1.5% is going into those numbers. So that will be, again, being -- gradually being spread in the coming quarter revenue.

Understood, sir. Sir, about the DMRC project, this is our first non-road project. So what are the kind of margins that you are targeting there?

Already, I have given the guidance that is a bidded at about same margin, 14%.

Okay. Sir, and any guidance as to -- like you have mentioned a huge bid pipeline of INR 73,000 crores for routes. So what -- can you just give a flavor as to what will be the competitive intensity right now?

That we cannot just guarantee, but definitely, it has been cooled down. We have seen the number of projects we are -- like in Karnal Ring Road, there are only 2 bidders were there. In one of the projects of Haryana, there were only 6 bidders. So in many of the projects, they are coming at as high as 9 to 10 or 12 bidders, but many projects are now getting, say, the less number of bidders. So which I believe that good amount of opportunities, good amount of bids are there. So when that gives us a fair chance that we would be say, able to at least 3,000 to 4,000 three projects from HAM or another -- say, another one from railways or so, we would be able to get in this year.

Understood, sir. And sir, earlier, there was talks of the grant being reduced to 20%. So any news around that?

No, no, nothing of very [ concrete ] outcome is there. It's only a proposal, which was discussed -- as of now, there is no [ concrete ] outcome is there.

Okay. Just a final question. What is the total equity invested in all the assets that we have identified for monetization?

Already has given that the INR 722 crores is the exactly equity, which we have funded, say, INR 120 crores till December '22.

[indiscernible] which is totally is close to INR [ 343 crores. ]

We are talking of the projects which are going to be monetized more numbers, this is for INR [ 343 crores.]

[Operator Instructions] The next question is from the line of Sarvesh Gupta from Maximal Capital.

Congratulations on a good set of numbers. Sir, first question on order inflow. So I think till date, we are at INR 6,000 crores. But I guess, net of price variation, it might be somewhat closer to INR 5,000-odd crores...

Sorry, sorry, sorry. I will just correct. Net of price variation means these are net of GST numbers, which we have added this year. And the price variation is all there, whatever price [ expiration ] [indiscernible] it is going to be paid over and above these numbers.

Okay. So INR 6,000 crores net inflow till December from March, then if you add the price variation, then what is that number, sir?

Exactly, we cannot presume any price variation on a percentage basis. But as a normal trend we have seen. Like in this particular quarter, we have received some INR 87 crores of price variation. So it is going as high as 8% as of now. But usually, the trend is 6% to 8% is the trend which we have seen in the past -- historical past.

Okay. So on top of this INR 6,000 crores, we are guiding for INR 3,000 crores to INR 4,000 crores in this current quarter. So it will make it INR 9,000 crores to INR 10,000 crores order inflow for this quarter. Is that right, sir?

Yes.

And then for the coming year, what is the expectation?

See, we are keeping our guidance on that basis that whatever we will be doing in a particular year, on basis that we would be like to add to maintain a ratio of 2.5 to 3x the bill -- say, order to [ day ] bill.

Okay. So let's say, next year, you are planning to do around...

It would be coming roughly in the range of about [ 8,000 ] to 9,000 again.