Ircon International Limited (IRCON) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to the Q3 FY '25 Post Results Earnings Call of Ircon International Limited. I'm Mike, the moderator for this conference call. From the management side, we have with us Ms. Ragini Advani, Director-Finance; Mr. Alin Roy Choudhury, CGM-Finance; and Mr. Ram Kumar Goyal, GM-Finance. Please note that this conference call is being recorded. [Operator Instructions] I would like to remind you that some of the statements that will be made today in today's discussion may be forward-looking in nature. It is subject to several risks and uncertainties, and the actual results could materially differ. I would now like to hand the conference over to Ms. Ragini Advani, Director of Finance, for the opening remarks, after which we'll have the forum open for the interactive Q&A session. Thank you, and over to you, ma'am.

Thank you. Thank you, Myron. Good afternoon, everyone. I'm Ragini Advani, Director of Finance, Ircon. On behalf of my team, I extend a warm welcome to all of you, and thank you for your presence today for the earnings call for Q3 FY '25. Financial results as well as presentations have already been uploaded on the stock exchange, and I'm sure that you have all had the opportunity to review them. Very brief introduction on the financial performance of the company. Q3 results were subdued for the company, primarily due to completion of some major cost-plus jobs. And also, we have had to make a provision for one of our projects in which we are expecting losses. And in our consolidated results, we also have one subsidiary company of ours, where a major maintenance provision had to be created and which was also a one-off item. The company has reported total revenue of INR 2,613 crores in Q3 FY '25, a PAT number of INR 86 crores, which stood parallel to the same period of last year. Core EBITDA has declined to INR 139 crores vis-a-vis INR 296 crores in Q3 last year. Earnings per share stands at INR 0.92 per equity share in this quarter on a face value of INR 2 per share. Order book of the company as at 31st December '24 stands at about INR 22,000 crores, of which 53% is on competitive basis and about 47% on nomination basis. In terms of our domestic international split, 90% of our order book is domestic and 10% international. Ircon has 11 subsidiaries and 7 joint venture companies. Now without taking much time, I would like to open the floor for Q&A session. Thank you.

[Operator Instructions] We have the first question from the line of Shreyans Mehta from Equirus.

Ma'am, possible to quantify the one-off in the stand-alone, which we've taken during the quarter, the provisioning number?

Yes, yes. So we have taken a INR 38 crore loss in one of our projects. And we have taken a major maintenance in consolidated of one-off maintenance provision of INR 45 crores.

INR 45 crores, sure. And so, even if I adjust for this INR 38-odd crores, the margins are much below what we used to be having at, say, closer to 6% plus. So how should one look at the margins going forward?

So if you talk on a stand-alone basis, what has happened is that apart from the Chennai Metro project where we had to book a loss of INR 38 crores, we have also had an overall impact on our numbers because one of our major cost-plus jobs, USBRL, which was the Udhampur-Srinagar line. Now that line has almost completed. And therefore, my revenue and the profit margin from that line has dropped. There has been a strain on my order book. I've not had new orders. And since the overall mix of jobs that I won on competition is contributing to revenue now, there has been a decline in my margins. And going forward, I do expect those declines to continue for some time. My March results will be decent, but overall, my margins will decline by about 1.5% to 2% from a short to midterm perspective. The moment more competitive jobs come in and I start booking revenue out of that. And on a consolidated basis, the dip is extraordinary because, as I mentioned, that apart from this project loss, we have also taken a maintenance loss provision of INR 45 crores. It's not a loss, it's a maintenance provision. And one of our joint venture companies, Chattisgarh, their Phase 1, there's been an OpEx loss, which is also significant. If you were to compare 9-month to 9-month period, it has an adverse impact of INR 37 crores on my consolidated results.

Okay. Sure. Ma'am, coming to the second question, how should one look at the FY '25 in terms of the top line and the core EBITDA margins? And secondly, on FY '26, what's the guidance in terms of revenues? And even in order inflows, we've been guiding that order inflows will be picking up, but at least in 9 months, you've not seen that.

Yes. So first, coming to the fact of your guidance for FY '25. FY '25, we should be in the range of INR 10,000 crores to INR 11,000 crores in turnover. And in terms of my...

On stand-alone or...

I'm talking about stand-alone, another INR 400 crores, INR 500 crores is what you add for consolidated. Yes. In terms of my margins, I see my PAT margin was about 7.12% or a little more, 7.2% last year. I see about 0.5% dip there. And going forward, FY '26, currently, my order book is on a strain. I will come back to the question on order book later. But having said that, my revenue numbers, again, should be in the range of INR 10,000 crores as of now based on the orders that I see right now or which I'm expected or I'm very confident that I'll get. However, my PAT margins will go down further because, as I mentioned, right now, my scenario has become very, very different. The market is going on an extremely competitive basis. So one, the projects that are coming out are of a small size. Two, I see that there are bidders as many as 20 to 25. And three, they are all quoting below the estimate in many of the jobs. So given all this, my margins, when I get volumes or when I try to get an order, definitely, I will not get them on losses. But yes, I will have to take a hit on my margins. That's why I'm saying that going forward, we will have about 1.5% to 2% dip from a midterm perspective on our PAT numbers.

Got it. Sure. And ma'am on order inflows?

Order inflow, see, right now in this financial year for 9 months or till date, I think we've had an order inflow of about INR 1,700 crores. And given the reality that I've just mentioned, I am hopeful of getting another INR 1,000 crores to INR 1,200 crores by the year-end. But I don't see a very significant order book or I cannot commit at this stage that we will have some major order book before March end. But we are making all our efforts. We are trying to continue to get some orders in this kind of a difficult market scenario. And let us see how it proceeds. But yes, another INR 1,000 crores is what I would like to say right now.

Got it. Got it. Ma'am, just one clarification. So as far as F '25 is concerned, revenues, we are guiding for INR 10,000 crores and a PAT margin of closer to 6% and '26 again, top line of INR 10,000 crores and another 100 basis points, so which is closer to 5% PAT margin. Is the understanding right?

Yes, that's right.

Got it. I have a couple of more.

You can have 6.5% this year and about 5% to 5.5% next year.

[Operator Instructions]. We have the next question from the line of [ Debojit ] from REP Investment.

Ma'am, I would like to understand if the scenario you are saying there will be hit as there are competition, high competition, which is going on. So are you planning to take more and more orders in volumes where the margin will be low? Or how is it you are planning? Because if you see the condition right now, as you are saying -- firstly, today, if you check the market capitalization of our company has gone down. It has eroded more than 50% of the market capitalization. And if you're further saying that there will be a margin hit going forward, I don't understand where exactly will be the thing like. So as an investor, as a shareholder point of view, what steps the company or the Board of Directors are taking to make the things better for the investor, shareholder for the company? And secondly, going forward, how the order inflow you are planning, ma'am, for the coming financial year? That is more and more orders as a volume part will be going ahead with less margin? And my second question will be any plan for any further bonus share issue or any split in the share to reward the shareholders or any high dividend payout?

I think I will start addressing your questions one by one. The first thing is that the company has given excellent results till now. And we are pretty much a company which is very hardworking, has the requisite experience, has the requisite credentials and a very, very professional management. So there are no doubts of how the company is performing or what its management is looking at. We are definitely wanting to do our best, but there are certain circumstances which are beyond us. Right now, the market is such that even if we want, we cannot get the projects at the kind of interest rates that we want or the kind of complexities and the value addition that we want to put into those projects. So we have no option but to play with the market rules currently. And there, I don't think I will be deciding whether I'm looking at a volume game or a margin game because that period has lapsed. In fact, last time, I thought we could play that game and we were saying we will not compromise on our margins. But now that situation has also gone. So I have no option but to take volumes to continue surviving and having some minimum profits in our company. And in those volumes, when I take the margins will be hit because that is how the market is right now. So that is where I am. And obviously, given the situation of the company right now, it will not be possible for us to look at any kind of dividend increase. Yes. So it is a long-term company. There are cycles which come. This is a cyclical area where we will need to survive, but growth may not be possible in this time.

So this kind of period you are saying will be for this particular year or going forward for the next financial year also?

I've already mentioned that it will continue for FY '26 because see, whatever orders I take, it doesn't get converted in the same year. Many of those orders by the time I'm given a letter for award, then I start working on it and then I start booking turnover on it. So typically, the impact comes over a period of anywhere between 6 months minimum to a period of about 2.5, 3 years. So I see this going on for some time. And therefore, I have lowered my projections even for FY '26.

As you said, in this particular quarter, there were certain provision which has taken place. So any kind of scenario where you are -- any kind of assumptions or any kind of scenarios there where going forward in next quarter also this kind of provision will take place?

No, because whatever we were aware of, we have already taken them back.

We have the next question from the line of Parimal Mithani from Credential Investments. The participant has dropped off from the call. We move on to the next question from the line of Shreyans Mehta from Equirus.

So ma'am, if I just back calculate your guidance in terms of PAT margins, if you are assuming 5% at PAT level, so are we trying to indicate at the EBITDA -- core EBITDA level will be closer to, say, 2%, 3% because largely other income forms closer to 3%, 4%?

No, I think my core EBITDA was in the region of about -- if I'm not wrong, FY '24, it was in the region of 9.2%.

You're talking about stand-alone or...

Consolidated.

No, no, I'm referring to the stand-alone margins. Assuming the guidance which you've given on a stand-alone 9% -- sorry, 6% PAT margin. And if I remove other income, which is closer to 2.5%, 3%.

So yes. So 6.39% is what I had last year, my core EBITDA. It should take a dip of about 1%, 1.5% going forward. 1.5%, you can say, yes.

Got it. And at the same time, the other income too would be on increasing side because the coal SPVs would be started generating some amount of revenues or throwing some profits from there.

So Shreyans, what has happened is that we still have some investments which are happening, construction. So the income wouldn't come from there. And as far as coal JVs are concerned, my Chattisgarh Phase 1 project is continuously giving me losses and is expected to do so for another 2 to 3 years at least. So to that extent, other income may not improve as you are thinking because some of this money that I'm sitting with, I would be putting in investment. And the rest, as I mentioned to you, some of my coal JV projects will be a problem for me for some time.

Got it. Sure. And ma'am, 2 bookkeeping questions. One, what is our own cash and bank? And what are the investments till date we have done? And what is the amount pending?

So our cash and bank balance is about INR 820 crores, our own cash and bank balance. And as far as investments are concerned, we've done an investment of INR 230 crores right now in this financial year, 9 months period in our equity projects, PPP projects. And going forward, we will have another INR 900 crores to do, out of which you can say about INR 200 crores in the balance period of this year. And the rest would be spread over next year and next to next year.

Got it. So basically, our investments would be, say, closer to INR 2,300 crores plus INR 230 crores, which is INR 2,500-odd crores as on date?

That's right.

And INR 900-odd crores is what we have to incrementally infuse.

Yes, so you can say another INR 700 crores after this INR 200 crores, so INR 2,500 crores plus INR 700 crores. Yes. So it should go around in the range of INR 3,000 crores plus.

Got it. And ma'am, anything on the BD or in terms of order inflows, which are the segments we are targeting and where we could potentially be getting some orders? If you can throw some light on that?

So our core segments remain railway and road. But in roads, what has happened is I'm focusing more on EPC projects right now. And in railways, what I've done is, one, I had decided earlier that I will not go below an order value of INR 500 crores, but we have started pitching in for smaller -- big values also. The reason being that, that is what is coming. So we decided we'll have to be a part of that game. And within that, earlier, I used to take mostly jobs on consolidated basis, which means I would be in charge for civil plus electrical plus S&T. Now what I'm doing is I'm even getting into where I feel it's a pure electrical job or a pure S&T job as well. So I started pitching in for all those also because the expertise is there, the experience is there. So that is where we have decided to get into as well.

Got it. And any guidance which you would like to give for FY '26 in terms of order inflows, what are we targeting?

Very difficult because there are certain orders which I thought should be coming this year, but they haven't come. And the market is so, so very competitive that it would be very difficult to even predict how many of those will be able to become L1. So we will guide you as and when we are more confident about it.

We have the next question from the line of [ Gaurav ] an individual investor.

My first question is with regards to the order book. What is the total order book and till what time period is it executable?

So we have an order book right now of INR 22,000 crores. And out of that INR 22,000 crores, I mean, if you were to do a simple mathematical thing, then it's for about a little more than 2 years. But what happens is that the order book that we have, some of our projects will continue beyond '27, '28 also. So to that extent, I will have to get more orders to get the revenue line of about INR 10,000 crores every year.

Okay. And what would be the split ma'am between domestic and exports, international orders?

47% is domestic and -- 47 -- in domestic and international is 90%-10%. 47-55 is nomination and competition.

Okay. My second question was that why has the employee cost gone down both on a quarterly and 9-month basis?

They have not gone down.

They've gone down.

They've gone down.

Gone down. Why have they gone down?

Okay. So they've gone down because there are certain things. One, there have been some retirements. We have not taken more people because at the end of it, it has to be a game of revenue versus cost. Two, we have also done some PF provisioning last year, which has now not been required to be done again. So that is the reason my employee cost has gone down.

Okay. And what would be the total employee count?

Our employee count is about -- regular is about 800 and total is about 1,000 plus.

Okay. If I may just squeeze in one more question, my last one. Why is the other income negative in the International segment?

That is because of some foreign exchange loss that we had to book. It is a book entry. It is not an actual loss because of the closing balances of some currencies.

We have the next question from the line of Periwal from Antique Stockbroking.

So regarding this Chennai Metro, pending order book that we have like [Technical Difficulty].

I'm sorry, I could not understand your question. Your voice was breaking.

So, you mentioned that Chennai Metro had to [Technical Difficulty] what is the pending [Technical Difficulty].

I'm not able to get your question. I think your voice is breaking. If you could come back to it. I know you're asking something about Chennai Metro, but I'm not able to understand the full question. Pending order book of Chennai Metro. Pending order book of Chennai Metro is about INR 200-plus crores. But we've taken the total hit right now.

Okay. And second, have we started executing [Technical Difficulty].

Sorry to interrupt Mr. Periwal, your audio is not clear. [Operator Instructions]. Since there is no response, we move on to the next question. We have the next question from the line of [ Jai Prakash ] an individual investor.

The recent budget allocation for the PSU compared to FY '25 and FY '26, they have reduced INR 5,000 crores, which is there -- for railways.

If you can speak a little slowly because I'm not able to understand your question, please.

For the railways, the government's recent budget PSU allocation CapEx, they have compared to FY '25 to '26, they have reduced 5% INR 127 crores.

Who has reduced 5%.

CapEx -- government CapEx allocation.

CapEx allocation by Government of India?

Yes.

Okay. So...

How do you foresee that for the next 4 quarters, how we are going to get orders if the government itself is not increasing the CapEx allocation for the PSU, which is your direct top line growth?

PSU does not get any project on nomination basis. We have to compete in the market. And whatever is the CapEx that's being planned by Government of India in infrastructure projects, railways or roadways, we are like any other private player. So as and when they bring out the tenders, we plan to bid for them and go ahead and see how many of them we can win.

The government [indiscernible] willing to spend more on the CapEx, how you're going to increase your top line growth if you don't get opportunities, more opportunities, how do you foresee that, how it is going to effect your margins?

5% decline is not making too much of a difference to my top line because it's a huge number that government is spending. So it's about INR 2.65 lakh crores is the budget for railways, and I think almost a similar amount or more for roadways. So there is a huge amount still of CapEx that government plans to spend on projects. Not all projects is what I am interested in. I don't bid for rolling stock and those kind of projects. But whatever are the projects relating to my area, there are enough opportunities that will come. That is not an issue. And -- but the point is how many of them I am able to bid in this competitive environment.

Because you're optimistic about your next 4 quarters, you are going to get more orders.

I haven't said that. I have only said that next 4 quarters, we will continue to target getting more jobs, but I haven't quantified the number that we'll be getting.

Okay. Fine. My second question is, have you completely exit the Chennai Metro or still you are invested with Chennai Metro because you said that you have booked loss in this quarter?

We are not investing in Chennai Metro. We are doing an EPC project for them. In that project, I'm going to have losses, which is what I have booked. So out of this [indiscernible] projects that I'm doing, one of my project is going into losses, and therefore, I booked a loss on that project.

Okay, fine. My third question in your investor presentation Page 22 that is in your order book, you have said you have INR 89 crores of orders, right?

INR 89 crores of Others order book?

Yes. You primarily you're in the railways and highways. In that Others, you have -- you're willing to explore any other areas like airport construction that UDAN project government is more interesting about because...

In airport, we have right now only 1 or 2 jobs which are PMC. And other than that, we are doing some setup, civil building setup for MSME industry. These are technical centers that we are going to be setting up for them. So that is where INR 89 crores order book is coming.

Okay, fine. I wish that you -- next 4 quarters, you must complete -- you try to keep on growth trajectory.

Sure, sure. We need wishes from you all. Thank you.

[Operator Instructions]. We have the next question from the line of Dheeraj Kripalani from Avendus Spark.

I was just showing one question. What is the current bid pipeline is looking like in the railways and the highways projects?

I mean if I was to talk about the bid pipeline, it is very, very good. It is about INR 60,000 crores, but then that by itself has no meaning when you have something like 25 to 30 people bidding for it and they are bidding less than estimate and also there is a reverse auction in it.

INR 60,000 crores overall, including railways and highways both or in the highways only?

Both. In highways, I'm only looking at EPC..

We have the next question from the line of Parimal Mithani from Credential Investments.

Yes, ma'am, I just wanted to know, you had monetization of certain board assets. Have they happened or they are not yet in the pipeline?

So they're still in the process of approval within Government of India systems.

It's almost been a long time and why are we -- what is the reason for that, ma'am?

Well, the reason is that -- I mean, it will not be -- but I presume there are multiple people from whom approvals are required within Government of India. And because this is something that we are monetizing at our level and not at the level of Government of India. So the file goes to and fro. There are questions that are asked. There are times when they are asked to make the presentation. So it's taking its own time.

Okay. And ma'am, in terms of margins that you alluded, there will be some pressure for next 2 years. How do you see in terms of it improving post that [indiscernible] right now, you see it's still a lot of pressure for the...

I didn't get your question.

Regarding the margin pressure that you mentioned, ma'am, in terms of the competitive bidding also getting extensive. So how do you plan to basically get orders that according that work to your margin profile basically, ma'am?

We won't get it according to our margin profile, which is what I've been saying that we will be taking a hit on our margins.

We have the next question from the line of [ Jitesh Kothari ] from Elara Capital.

Yes. I only had one question regarding the MSRDC project. So we stood L1 almost a year back now. So how are you looking at like receiving the LoAs from the government since the elections are also over? And can we expect the projects to be included soon to our order book?

We also wish, as you wish that it comes up to us as soon as possible. But as of now, we have no news from there in terms of their expediting it or how or when are they planning to do it. Even when we've been asking them, we've been told that they'll take some more time, and that is the last news that we have.

So ma'am, is there any renegotiation with respect to the pricing of the contracts or that has been the case?

No, no, they haven't called us for that.

[Operator Instructions] We have the next question from the line of [ Prayag Bansal ] an individual investor.

I joined this call a little late. I just have a couple of questions. Firstly, relating to margins the revenue -- we see revenue which we are booking is relating to an initial order book and this must have been planned at to 8% to 10% of margins. Then why we are getting a margin as of now on this order book, not in the upcoming order books? And what will be the order type flow we are not getting any of the orders and within a couple of years, we might lose the current order book completely?

So I think you've joined late, so I will explain again. We have had a problem in terms of getting more orders. I mentioned that the market scenario is such that there are small value packages which are being taken out or being bidded. And there are some multiple competitors in the range of about 20 to 25. And many of these competitors are actually quoting much below the estimate. And if we were to -- in all kind of bids, there are all kind of players, but if some of them we were to match, we will never ever get margins out of those jobs. So while we understand the market and we are continuing to put our efforts. But at the end of it, whatever orders we will get in future, one, there will be lesser inflow of orders. Two, whatever orders we get in future, we will have bit of margins therein. So I hope that answers your question.

Ma'am, basically, others must also be doing something to get the margins. They will not be executing those contracts at losses. So what is that which we are not even doing so that we are not being able to execute those kinds of orders?

Actually, that's a very, very complex topic for discussion. And all I can say or assure you from management perspective is that it is a mix and match. Not all players are serious. And a lot of them are doing as a market entry or a credential game. Having said that, we know what our costs are. Your company, this company is one of the efficient companies when it comes to our total fixed cost that we have other than the orders or the expense for the orders. So to that extent, so we are deep-diving into it -- on a case-to-case basis, there are reasons, but I think it will be a little difficult to explain all of it right now. So you'll have to be just under the assurance that we are doing what best we can do.

Ma'am, our 53% of the order book is on bid basis, remaining 47% is on nomination basis. So we are not even getting orders on the basis of nomination as well?

Sorry, the nomination orders we are executing. And in future, there is no nomination bids that we are going to get.

And why so change in the scenario, ma'am? Because currently, we have around INR 10,000 crores of orders.

It's not a change in scenario now, this has been a change for the last 3, 4 years. Whatever order you've seen in our order book right now out of nomination, it is 4 year old.

So ma'am, to remain competitive in such segment, what is next which we could be doing to so that we also expand and take the model.

I think we will take you off the record because the questions that you're asking is more in terms of understanding how we are planning to do nitty-gritties in each project and that's something I will not be able to explain over this call, please.

Okay. But ma'am, that is what the investor has asked as of now because our share prices have declined 50%, we are not getting...

I've told you that we'll be happy to discuss with you off the line.

[Operator Instructions]. As there are no further questions, I would now like to hand over the conference to the management for closing comments.

Thank you so much. Thank you, Myron, for moderating the call. I would also like to thank our shareholders, business partners, analysts, investor friends who have continued to show faith. See, the company is fundamentally very strong and there are phases which comes in every industry or every company when there are ups and downs. It is a part of a downward journey, but we are trying to revive as much as we can. And we are still delivering good profits. So that is where we are. However, having said that, we are happy to connect on all the concerns on a one-to-one basis if required and for addressing any further queries that you all have. And with this, I conclude today's con call, and thank you all for the active participation. Thank you so much.

Thank you, everyone, for joining this call. You may now disconnect your lines. Thank you.