Hindustan Construction Company Limited (500185) Earnings Call Transcript & Summary

Good evening, everybody. We'll be starting the analyst investor call in a few minutes. Rahul, sir, are you ready?

Yes, yes, Sandeep.

Okay. Mr. Rahul Shukla, our CFO, will start with the presentation, please. Over to you, Rahul.

Good evening, everyone. Sorry for the delay because of some technical issues. And we start with the presentation. Next, please. Just a quick refresher. We are a 100-year-old company. This year on 27th of January, we have just now celebrated our centenary year. And with our very strong credentials, we are now geared up to take forward this infrastructure and nation-building of India. We thank you all for your continued support. We have been receiving good support from all our stakeholders. And with this, we'll just play a small video to take you through our journey. [Presentation]

Moving forward, a quick snapshot of our diversified order book. As of now, we have INR 13,000 crores of order book, well diversified across sectors and across geographies. Key highlights of this quarter. In this quarter, we have achieved INR 921 crores of turnover with standalone profit of almost INR 86 crores. We have continued to maintain very strong EBITDA margins of over 15%, and that's what we will continue to do. I mean, we have been discussing in the past also that while our order book and revenue take some time to pick up, we will continue to improve our operational efficiencies and demonstrate good amount of EBITDA margin as well as improving PAT. Quality of our PAT will continue to improve. In this quarter, we have secured 2 orders aggregating to almost INR 1,500 crores in joint venture with NFR. And in addition to that, we are also lowest bidder in INR 2,700 crores of projects. We have submitted bids of almost INR 36,000 crores, which are under evaluation. And we have got very strong pipeline of almost INR 54,000 crores where we will be submitting bids in coming quarters. We have successfully completed INR 1,000 crores of rights issue, which got 200% subscribed. We have also received INR 84 crores from our Steiner subsidiary, H56, with the total receivables of INR 89 crores, balance will come in due course. In our journey towards accelerated deleveraging, we have prepaid INR 680 crores to lenders in this entire financial year. And we are also in the process of paying INR 876 crores during this quarter by March. And we are hoping that with this payment, our substantial debt reduction will happen. Our debt will come down to INR 1,950 crores, which was our target for this financial year. We have also achieved a reduction of corporate guarantee of HCC to Prolific debt. So we have talked about it earlier also. Now everything has been completed and documents have been signed. So this process is completed. On the operations update, things are moving quite well. And Patna Metro Rail project, we had taken 2 projects, 2 packages, packages 5 and 6. They have been inaugurated by Chief Minister of Bihar, Mr. Nitish Kumar, and projects are progressing well. Indore Metro Rail project also, piling works are underway. You will see some photographs going forward. And work is well underway in all 5 stations and excavation work in progress in Airport station as well as Rajwada station. In Vishnugad-Pipalkoti Hydro Electric Project, which is a large 1,000-megawatt project that we are doing, which is a large project which we are doing, we have achieved significant progress in tunnel excavation. And out of 12 kilometers of HRT, we have completed 8.5 kilometers. Work is progressing swiftly on other projects also, Agardanda Creek cable-stayed project, Tehri Pumped Storage project, Bhivpuri Pumped Storage project, all are progressing well. Now we will go to details of these projects. In Indore Metro, certain photographs, Trial Ring Assembly photo, as well as BSF Kalaninagar Station excavation work, piling work going on. Patna Metro inauguration photo as well as Casting Yard development picture. In Agardanda, significant amount of marine work is going on. You can see photographs of piling happening as well as segment casting work going on. This is the picture of Tehri Pumped Storage project, wherein out of 1000 megawatt, 750 megawatt is already generating electricity. And the last unit out to 250 megawatt is also expected to be completed soon. Next. This is the picture of Bhivpuri Pumped Storage project. You can see excavation work going on in lower reservoir. On Vishnughad-PipalKoti, dam concreting work progressing quite well. HRT, we already spoke about, we have completed 8.5 kilometers out of 12 kilometer of HRT. On Tapovan-Vishnughad project, which is another hydro project in Uttarakhand, work in both Phase 4 and Phase 5 is moving on quite well. These are tunnels that we are doing there. And FRFCF nuclear power project -- nuclear project, again, Block 6 and 7 photographs are here and work is progressing well. These are the financials. So in this, I have already given key numbers and other numbers are here, which are also uploaded in the exchange. And these are the consolidated numbers. Now we will just take you through another video of our Centenary Year celebration before we open for questions and answers. [Presentation]

Now we are open for questions and answers. You can raise your hands and ask your questions.

[Operator Instructions] Ajay Desai, you may please start.

Yes, the question is majorly to understand how this SHANTI bill, which has come, is going to impact us and how quickly we will be able to get business and orders.

Yes, Ajay. So look, SHANTI bill, I think what it does is definitely paves way for the private sector to participate in nuclear power development and operation. This definitely is a big step and we are clearly seeing lot of entities showing interest in collaborating, first of all, with HCC given our nuclear grade safety and quality performance, which we have done over the years. As you might be aware, we have already delivered more than 65% of country's nuclear power plants, main plant construction, other related works. So this -- definitely what we are seeing is not only the Indian technology, but also some of the other technologies like light-water or maybe EPR, these are going to come into line. And next, in line with the government's plan of adding almost 100 gigawatt of nuclear power by 2047 is very close to reality. I mean, even if we say 50% of that, it's a huge program, which will unfold itself over next 10 to 12 years. And HCC being one of the front runners is well poised to participate in that. At the same time, we are also expanding our footprint into the allied sectors of mechanical and electrical and instrumentation works. So by this strategy, we are going to be present in this market.

So like earliest, the revenue we can start seeing from FY '27?

No. I think this program to -- I mean, as a result of this, what we foresee that we'll see actions on the ground starting somewhere in 2027, '28, actual contracts getting placed, because this will take some time for development of identification of sites, acquiring land, agreeing on the technology. And post that only, we can see these works actually coming to the ground. So you can see something coming from this maybe from early '28.

Mr. Kunal Tokas, you may please start.

My first question is an accounting question. As I see on the balance sheet for FY '25, because those are the details that I have, your advances from contractees stand at around INR 1,000 crores. And please correct me wherever I'm wrong. But your interest due on these advances stood at INR 345 crores for FY '25. So just wanted to understand why it was so high in relation to the amount of advances. And what is the interest rate that you pay on advances from contractees?

So we pay very nominal interest on contractee advances, which generally goes around bank rate plus 2% kind of thing. And not every advance is interest-bearing, now though most of them are interest-bearing. So what interest accrual you are seeing are in 1 or 2 projects where the repayment has not been due or necessary at that point in time. However, we are also working towards settling those advances with clients, because there are certain receivables also in those projects. So once those settlements complete, you will see significant reduction in these client advances in comparison to FY '25. However, in continuity of our business, we'll keep on acquiring new orders, and there will be more client advances which will be coming as a virtue of contract. So that number may not be comparable. But yes, as far as historical advances are concerned, they will reduce very significantly. And when they will reduce, they will reduce along with their accrued interest. So that will get settled once those things are.

So if I understand correct, there were some advances which are sort of on limbo, but continue to accrue interest. And first of all, also, are my numbers correct, INR 345 crores for interest and INR 1,000 crores of advances for FY '25? INR 345 crores for the period and INR 1,000 crores as on 31st March.

Kunal, our team is checking the numbers as you are speaking. And what I think -- Ravi, is it -- so I think your numbers are correct. And I think maybe Ravi Jain, our Deputy CFO, or Rahul can take this up with you offline if required, if you need some further reconciliation. But I will add one perspective. Typically, client advances over the life of the project will be recovered through the cash flows of the project, and the project will basically close with no liabilities. What happens when project delays take place is where sometimes the client also basically allows for further ad hoc advances until such a time certain bills and certain claims are settled. That has happened in the case of 1 or 2 of our larger projects that are now, probably in the next year, 1.5 years, closing. So in fact, we have large independent engineer-related awards and receivables against which those client advances will be squared off. Typically, there is a process and there's a lag within which period these things do happen. And the expectation that we have is that these projects will get closed with those. In fact, there were certain projects, certain hydro projects that actually went through a period, even during COVID, when certain large unusual delays took place. And so as we close a couple of these large hydro projects over the next 1.5 years, you will see a substantial amount of this debt basically come off our balance sheet, which is actually today flowing through our P&L in terms of our finance charges as well. So that will be a substantial increase in the bottom line on our PAT when that happens, because this, in addition to our bank debt, is another reason why our finance charges are actually a little on the higher side.

Yes, that is exactly what I saw. Now that you're mentioning the hydropower project, in the last con call, you had said that one was stuck in Maharashtra. You removed it from L1, which...

No, that was a project that was not even awarded, for which we didn't even begin any work. So that's not relevant to this discussion. There are projects that we have, hydro projects that we have in Uttarakhand. That because of some various issues that we had in Uttarakhand, including COVID, and we had certain landslides that took place. There was court orders that prevented work from basically continuing. So there are 1 or 2 projects that we have that have faced an unusual delay. In fact, there's only really one. And I think when that basically closes out about 18 months from today, you'll see a substantial amount of this go off our balance sheet.

My question was concerning the hydropower project that was related to your L1 position. Last quarter, you had said that...

Correct. We have a project in New Ganderbal, which is basically an L1 project, which has been L1 for a while, and we expect for that to actually now be converted quite soon. So please stay tuned for that in the coming months.

Okay. Understood. And the other question is regarding PRPL. You have reduced your BG guarantee and the payments start from September '26. So how is progress towards that resolution of awards sitting in PRPL?

So PRPL, September '26 is already prepaid.

Okay. Understood. And then it will progress on a semiannual basis or...

No, it's annual.

Annual. Okay. And also in the consolidated segmental accounts, if we look at this segment called others, which contributed just INR 83 lakhs to top line, but there's an INR 84 crores charge in the EBIT against this others segment. Can you explain that a little bit, please?

Okay. You are in consol? You are talking about consol numbers?

Consol segmental numbers.

Okay. So you are talking about INR 83 crore number that is charged there?

Yes, against the others line item.

These specific items, we can discuss offline.

I think Kunal, if we can just limit everybody's questions to 2 per participant. If you can maybe get back in the queue, we'd appreciate it. There's a lot of people basically...

Okay.

Rajesh Bhandari, you may please start. Rajesh is not responding. Any more hands? I can't see any more hands raised. Please raise your hand. Okay. Ken, you may please start.

Sir, difference in consolidated and standalone numbers in profit side. [indiscernible].

I'm sorry, Ken, there's a lot of ambient noise. You need to please be clear with your question or we'll have to go to somebody else.

Difference in consolidated and standalone numbers in profit side.

Yes.

So I wanted to know what was the reason for our consolidated profit being down compared to standalone as Steiner has been sold out [indiscernible].

I'm sorry, your question is not clear. And so maybe if you can -- I'll request my CFO to touch base with you offline, and we can have this question answered later. If your question is relating to why there's a difference between the standalone and the consol numbers, in fact, this is probably something I should...

[indiscernible].

Yes. I was basically pointing out that we've actually had a very positive development in the settlement of a substantial erstwhile Steiner-related receivable. In fact, these were matters that we were expecting -- receivables that we were expecting to have come in, in the next 2 to 3 years, but we managed to close one well in advance. And we have taken a minor write-off on that in trade-off for the substantial cash flow that comes as a result of that. So that's perhaps maybe where you see that particular write-off, because we've got a number of receivables associated with a few counterparties.

Hardik Chheda, you may please start.

Sir, I just want to ask, other expenses have gone up substantially Y-o-Y and quarter-on-quarter. The reason for the jump in the other expenses. And secondly, the -- first, you can answer that, then I'll ask my second question.

So other expenses has gone up by almost INR 20 crores quarter-on-quarter. And that is essentially, we have settled one large tax-related dispute. So wherein it was a very positive outcome, INR 157 crores has got settled. So that has resulted into INR 20 crores of book losses. That's why you are seeing that number. But that is onetime.

But sir, in the consolidated, it has gone up even more. On the consolidated basis, it is up even more sharply. So the reason is only tax or something else?

So we just now explained with regard to our settlements wherein cash has been...

Yes, that I understood. So it is because of that only, right?

Yes, both put together, yes.

Okay. Perfect. And sir, just wanted to understand a little more on the nuclear power side opportunity apart from the SHANTI which was launched, apart from that, any other -- in the near term, any other opportunities in the nuclear power space which you can expect in this year? Any orders, any L1 or anything?

When you say this year, I'm treating till December, right? Yes. We are clearly seeing that NPCIL will come out with some tenders for their PHWR program, specifically Mahi Banswara and Chutka. These 2 bids are going to come out in the next 4 to 5 months. And we can expect that those orders will get decided.

Okay. And how large will be those orders, roughly, sir, the bid size?

Mahi Banswara and this, if they're going on fleet mode, it will be like, each order would be close to INR 8,000 crores, INR 9,000 crores.

Okay. Okay. And will you be bidding for the whole part, how much will be -- in terms of percentage, can you just say?

So look, the civil constitutes almost 40% to 50% of this value, the civil works.

Okay. Great. That's very helpful. INR 8,000 crores to INR 9,000 crores each you said, right?

Yes.

Both INR 8,000 crores to INR 9,000 crores, and 40% will be the civil and that part.

Lokesh Kashikar, you may please start.

A couple of questions from my side basically. So I just wanted to understand, out of this INR 13,000 crores of orders you have, so how much is basically slow moving or yet to start work on those projects?

Look, I think, in fact, there is none is slow moving here in this entire INR 13,000 crores. We have secured almost INR 2,500 crores of Patna Metro, which has just started. And even Indore Metro is in the initial takeoff stage. So that's another INR 1,200 crores. All other jobs are -- and of course, we have also secured some orders in the railway sector recently, around INR 600 crores, INR 700 crores. So these are in the offtake stage. Everything else is ongoing works.

Okay. Okay. And sir, we are basically targeting around INR 10,000 crores of projects in this year. I understand that we have got around INR 3,500 crores, INR 3,600 crores kind of numbers at YTD levels. So where do you see that the order inflows basically settled down for FY '26? And what is your expectation for FY '27 as well?

So Lokesh, I think I'll not be able to help you with numbers specific, because these are forward projections and we would not like to do that. But I can give you some sense. Look, we already have a position where our order intake, as on date, if I speak, will be around INR 3,800 crores. We are holding L1 position of another INR 2,000 crores. And there are bids almost worth INR 9,000 crores which are under evaluation. We expect to be successful somewhere. So you can consider some percentage around that, let's say, 20%, 25%. We think somewhere around that we should be able to close that.

And one thing I want to add, I think that there's -- most of the jobs that we are looking at now are in that sort of INR 1,000 crores to INR 3,000 crore range. And so there will be some lumpiness. And so certainly the shortfall that we basically have on a quarterly, on a fiscal year basis, we certainly look to make up within the next basically 3 to 5 months, right? And I certainly expect that while there might be a little bit of shortfall year-to-date, I think that it's highly likely that we should be able to make that up in the coming months.

Okay. Okay. And sir, on revenues, if you can -- just qualitatively, if you can say.

Sorry, just one more point I'd like to make on that subject without giving sort of forward guidance is that there are a number of jobs in which we are in discussions with clients and we are in negotiated discussions with clients, right? So where we have a certain positivity with regard to how some of those discussions will actually unfold in the coming months.

Okay. Okay. And sir, just last one from my side. We have basically declined on the top line front, understandably because we have got lower inflows as well. So contribution was lower. But I just wanted to know, for -- our long-term target is around 15% to 20% CAGR, we want it to grow. So do you think that will basically start with FY '27?

Yes. And I think we should certainly try to exceed that. I mean, certainly, our order backlog growth should be substantially basically higher than that in terms of growth. And the turnover from that will obviously flow depending on when the projects mobilize and get moving. But at least from our investment community, you would have a very, very good visibility of what the earnings will look like for the next 3 to 5 years as we start to build this up. So one thing that Rahul did mention in his initial remarks, which I wanted to just reemphasize, we are entirely basically along with top line, because that will drive ultimately the exponential growth that everybody has been patiently waiting to see. But effectively, we will continue to generate strong margins as, one, our operational efficiency has increased. But at the same time, the quality of the work that we're doing is continuing to improve along with some of the major settlements that we expect to conclude with our clients for closing projects. So a combination of these 3 factors, along with our deleveraging should actually see our profit margins actually in the short run be higher than normal. So while our top line may continue to be constrained until the order book flows into sort of a top line, our expectation is that our margins will actually, relatively speaking, be stronger in the short run.

Harish Shiyad, you may please start.

I went through earlier, during the presentation, there was no mention about the BKC bullet train update, and there were some media reports that the work has been stopped due to pollution problems. So can you just give an update on that, sir?

Harish, see, bullet train project is ongoing at a good pace, I will say. Definitely, there are some slowdowns due to issues mainly with respect to the restricted working hours, and that is why the progress has not been able to be achieved to the desired pace. Also, there are some interface issues with the adjoining contractors, how -- there are some planning-related issues with that. But it's not -- I mean, I think that's not a correct news that the work has stopped there.

It came in the media that municipality has stopped the work over there.

That was long back, and that happens for 1 or 2 days when the AQI goes very high and all those things.

Okay. So what is the expected date of completion of this project?

Right now, it is '29, almost April 2029.

Okay. Okay. Any more package from this project, bullet train, you are expecting?

See, the Mumbai-Ahmedabad line is almost awarded for every package. But now you might have read in the newspaper that there are 7 more bullet train projects which government will...

That is long way to go.

Exactly. So whenever that's there, we will focus on that.

But here also, there are some underground tunneling work to be done. So that is already awarded?

Yes, to Afcons.

Ajay Desai, you may please start. You have more questions?

Yes. Sir, I just wanted to understand this Mahi Banswara and the other project which you talked about saying INR 8,000 crores, INR 9,000 crores each. If you can give me a little bit more understanding about these 2 projects?

So Ajay, these projects are basically, they are PHWR program. They're all 700 megawatt reactors. What the government is going to do, in line with -- you might have seen the bids of Kaiga NPP beforehand. There are going to be 6 units which will be tendered together with all the ancillary equipments, MEP, main plant and equipment, that's going to be the package. And that's why this package size will be bigger in nature, what you have traditionally seen.

And this will -- like bidding will start. So effectively, the execution will start when, whatever we get contract?

[Foreign Language] execution will start in August or October 2027.

Okay. August or October 2027. So it will start at that time, correct?